Following last week’s general election, we offer the soapbox to senior industry figures to say how they’d like the new government to regulate general insurance
No.1 THE RIGHT TOUCH
Steve White, head of compliance and training, Biba
Nothing focuses minds on change more than general elections. Ever since the Conservative party published its plans for altering the regulatory architecture last autumn, the intermediary sector (among many others) has been contemplating change.
So, focusing on the future, what changes would I like to see?
It’s a fact that insurance intermediaries in the UK are faced with the highest regulatory cost burden in the EU. These costs are driven primarily by the weight of the FSA’s rule book and the manner in which it supervises firms. Casting our minds back 10 years to the time of the General Insurance Standards Council and the Insurance Brokers’ Registration Council, both bodies simply had an insurance remit, with rule books and fee structures to match. I would suggest the challenge is to bring a much more insurance-focused approach to rule-setting and supervision, which would allow regulatory costs to better reflect the low level of risk that we collectively pose.
One of the many frustrations that our members share about the current regulatory regime is that the FSA spends too much effort on ‘this week’s theme’ and not enough on what is really important. While there might be an element of hindsight, the point is generally well made. Members would like to see the regulator engaging more closely with the sector on the key issues.
3) Financial Services Compensation Scheme
There must be a fairer way of funding compensation! Biba continues to lobby for better and more appropriate regulation for insurance intermediaries – the ‘right touch’, as we call it.
No.2 WHY WE NEED AN INSURANCE TSAR
Grant Ellis, chairman, Broker Network Group
We have a regulator that is a ‘jack of all trades’: banks one minute, insurance the next, independent financial advisers after that – the list goes on. Only a small percentage of the people who work for the FSA has a background in any of these fields, drawn as they are into the new career opportunity of professional regulator.
It is well known that the best sports referees are former players who, having retired, become officials. They know what players are up to, they know all the tricks of the trade, they know who’s genuine and who’s faking. They know because they have been there. It is the classic ‘poacher turned gamekeeper’.
Football is the significant exception. It has ‘professional referees’. If you want to become a top official, you need to start young; too young to have been a player before turning your hand to officiating. They are the career referees. True, some are excellent, but many are not – and far too many have the wool pulled over their eyes all too easily by canny players. Miles of column inches and hours of punditry are dedicated to their lack of playing experience. Surely the pundits should be encouraged to take up the whistle?
The FSA not only adopts football’s approach of professional referees, but they are also expected to switch sports too – to broaden their experience! So we now have a football referee officiating at a cricket match. But don’t worry, he’ll pick it up really quickly because he’s a professional and that’s his job!
They will never ‘pick it up’ well or quickly enough. There is no substitute for experience. How many in the insurance industry knew that something was awry at Independent in early 2001? How many of us are surprised at what has happened to Quinn? Very few, because we’re all steeped in this industry that we eat, sleep and breathe every day. No ‘professional regulator’ will ever touch this level of involvement.
I would like this new government to appoint a specific regulator of the insurance industry; someone who is not only steeped in the industry but who is surrounded by people who are. No cross-over into financial advice, or banking or any other financial derivative – no, simply insurance, which is surely complicated enough on its own.
An ‘insurance tsar’ – apolitical and therefore more able to be proportionate and far more likely to address the issues that are actually issues, rather than those simply perceived as such from a tower block in Canary Wharf.
No.3 OUR INDUSTRY CAN REGULATE ITSELF
David Thomson, director of policy and public affairs, Chartered Insurance Institute
There is no doubt that there is a strong move towards tougher regulation worldwide, not just in the UK. Brokers might be rightly concerned that insurance is caught by the collateral damage of regulatory imposition, but such sector distinctions mean little to the public.
It is nevertheless vital for politicians to get this regulation debate right, and not fall victim to that age-old desire of governments to ‘do something’ in response to crisis and public opinion. A freely flowing insurance industry is the oil that lubricates our economy. More regulation is not always the answer. But at a time when public trust and confidence are low, any solutions must be grounded in addressing these concerns head-on.
The CII is already promoting better standards in the sector through initiatives such as the Aldermanbury Declaration, developed in partnership with the industry, including Biba. Initiatives such as this, which demonstrate insurance is a profession that deserves trust, prove the advantages of self-regulation and, we hope, will pave the way to similar work with the new government in creating mutually beneficial outcomes.
Allied to enhanced professionalism is an improved training and development infrastructure. The CII is one of this country’s largest adult awarding bodies, and we provide training for our sector with little or no resort to the public purse. We believe much could be done to streamline the learning and development system, especially for SMEs. Meanwhile, this new government should provide more incentives for work experience, placements, internships and apprenticeships to help make professions like ours fairly accessible to the best talent.
We share the politicians’ ultimate goal: securing and justifying greater public trust. However, we believe that more regulation need not be the only solution.
No.4 IF IT AIN’T BROKE …
Ashwin Mistry OBE, chairman, Brokerbility
The present FSA works for us – we are not banks – so why mend something that is not broken? If the FSA has failed, it has failed in banking supervision, not insurance broking.
Also, we believe that, as a profession, we need to get our act together quite quickly and be able to speak as one voice. Any lobbying we do needs to be co-ordinated, structured and meaningful.
As a general point, any moves on regulation need to continue to develop the existing regulatory regime in a ‘consultative manner’ with Biba as the single voice for representing the broking community.
And ministers need to get realise that general insurance is about far more than car and household insurance. Regarding specific issues:
• Insurance premium tax: This could be quite an easy target and, with the present economic climate, any increase in business costs will be an issue. So, in short, leave it alone. If it is increased, however, then perhaps it should only be allowed as an offset against any planned hit via the FSCS levy.
• Insurance fraud: Additional punitive legislation should be enacted to severely penalise those caught and convicted. It would set an example and is well overdue.
• European Commission: The new government needs to get a handle on the Commission’s directives and over-zealous bureaucracy, and address any ‘gold-plating’ of EU?directives.
• Employment: Finally, the independent broking sector can provide great opportunities for graduates and school-leavers. The new government should encourage businesses of all sizes to take on and train staff for the sector and UK plc in general.
No.5 TRUST IS NOT SUFFICIENT
Andrew Linnell, Hansen Young Consulting
Should a new regulatory regime be based on rules or principles? The likelihood is that a rules-based environment would be designed for higher-risk operations and leave many businesses with an over-engineered compliance regime.
Perhaps we should aim to keep a principles-based environment. This would allow each firm to create the most appropriate compliance framework for it and the markets that it operates in.
All my research respondents welcome the FSA’s client money and solvency requirements. Today’s consumers rightfully expect that their hard-earned cash is secure when they hand it over to a professional adviser.
Anyone would be shocked to hear that, in the distant, pre-regulation era, it wasn’t unheard of for an intermediary to become confused about who the money in the bank belonged to and that this ‘confusion’ led to undesirable and unfortunate results for the customer. These requirements should be translated into plain English, however, so that it does not require an accountancy qualification to understand them.
The FSA’s ‘Treating Customers Fairly’ principles are plain good business practice that must stay in place. They provide a basic framework for the broker to build a great service on and so demonstrate our professionalism as an industry. Indeed, many brokers have done just that and used the framework to build improved communication and understanding with customers.
I can’t imagine that many will argue with the proposal that much of the above is sound business practice, but some may take issue with the need to ‘evidence’ activities.
In an ideal world, it could all be left to trust. Sadly, experience suggests that organisations under pressure lose sight of some aspects described above. Once this happens, it can be difficult to pick them up again, so a philosophy of ‘trust and verify’ helps us all to focus on maintaining good business practice. IT