Ellen Bennett, deputy editor
As this week’s issue went to press, the leaders of the world’s 20 most advanced economies were gathering in London for a summit that will determine the global response to the financial crisis. The anger with bankers that has been demonstrated on the streets of the City this week will no doubt be reflected inside the ExCeL centre, where the meeting is taking place; and the groundwork for a new era in the regulation of financial services will be laid.
Last month’s Turner report, which called for banks in the UK to hold greater capital and be regulated by a Europe-wide supervisory body, showed the way the wind is blowing. But it is essential that the world leaders recognise the fundamental differences between banks and insurers. As the Geneva Association has pointed out, on behalf of 80 industry chief executives, traditional insurers do not generate the kind of systemic risk that banks do; nor have they contributed to the crisis, although they have been affected by it.
Governments and regulators must resist the temptation to lump “financial services” together when overhauling regulation. Take mark-to-market accounting. Tawa has taken a $25m hit in its 2008 balance sheet because of mark to market; it is not the only one. As the Geneva Association says, insurers hold on to their assets for the long term and should not be discriminated against by short-termist accounting rules.
The Geneva Association also calls on the G20 finance ministers to encourage greater co-ordination between national supervisors. Its letter states: “One of the main obstacles to regulatory convergence is the fragmented international supervisory landscape.” How, then, do we explain the perverse decision by some of the same ministers to remove group supervision from Solvency II? Yes, the compromise ensured that the legislation can be implemented by 2012 – but the decision to remove one of its key tenets was an example of protectionism at its worst. Let us hope the G20 does better.
Broker barons, take a bow. Although consolidation will stagger on during the recession and the model of insurers owning brokers has not quite run its course – as demonstrated by the news that Ecclesiastical has taken a 40% stake in Lycetts – there is a place for the independent regional broker too. More than ever, insurers value these industry stalwarts for their technical skill, their longevity and their uniquely close relationships with the end client. Long may they continue.