The Financial Services Authority (FSA) has put forward a series of proposals for a new self-assessment scheme for insurers, based on the concepts of the Basel Capital Accord.

Under the “three pillars” of the Basel Accord, part of the new Financial Services and Markets Act, insurers must make their own assessment as to the capital and other financial resources they need in order to adequately meet the risks of their business.

Companies must then identify adverse scenarios under which losses may occur – in underwriting, expense, credit, market or other losses – and will then be expected to have access to financial resources to cope in such scenarios.

Speaking at the Insurance Institute of London annual lunch, FSA chairman Howard Davies said: “We need to modernise insurance prudential standards, as we are doing with banking. We also need to achieve greater consistency between sectors, so that like risks meet a like response.”

Davis said the FSA would be consulting later this year on proposals for a new Integrated Prudential Sourcebook, which will set harmonised requirements for insurers, deposit takers and investment firms. It is not expected to come into force until 2003.