With a general election just a few months away, Insurance Times secured an exclusive interview with Shadow Chancellor
Oliver Letwin to find out what the Conservatives would do for our industry
Andy Cook: Just last week, a new set of
regulations were introduced for insurance brokers. This is at least the third set of regulations in as many years for our industry. Many feel there is over-regulation and that the way the FSA develops regulation means that UK companies end up coping with gold-plated regulations compared to their rivals in mainland Europe. What is your view?
Oliver Letwin: The whole structure of the Financial Services and Markets Act (FSMA) is too intrusive and too great a regulatory burden.
Next month, we will unveil our thoughts on how to tackle the issue. Shadow economic affairs minister Richard Spring [who will be the keynote speaker for the Insurance Times Making Money from SMEs conference on 10 March] has been doing a major review of the FSMA.
We don't have a problem with the FSA and its people. [FSA chairman] Callum McCarthy and [chief executive] John Tiner are doing a good job. The problem is structural.
It is the duty of the state to ensure that there is a high degree of confidence in the stability of insurers and financial institutions' stability. While risks can be contained in this way they can never be eliminated.
However, the FSMA attitude is that if anyone finds there is anything that ever goes wrong, then someone should have thought about it before and made sure it couldn't have happened. We want a principle of 'reasonable risk'. People have a responsibility to understand the risks that they are taking.
Cook: The SME market is vital to the health of Britain's brokers. How will the Conservatives protect and grow this market?
Letwin: There will be two major thrusts. One is to get government off the back of small business. We will be announcing a huge cull of regulatory bodies.
We propose restraint where the government has a tendency to issue gold-plated regulations based on EU directives. There have been 15 new regulations each working day since 1997. The effect on small business has been a huge additional burden.
The second issue is to reduce the tax burden on small business and customers. The UK used to have a competitive tax regime. Other countries are overtaking us because of Labour's 66 stealth-tax rises. The UK has slipped from fourth to eleventh in the world competitiveness league and it is due to tax and regulation.
Cook: What about the threat to UK businesses of offshore capital markets?
Letwin: On the issue of insurers leaving Britain to set up in Gibraltar and such places, we think Britain should be proud to take a stance on prudential regulation and solvency. I would prefer to have the UK with a reputation for highly solvent and stable financial markets. And I accept that there will be some tendency for some to go to less harsh regimes.
Cook: Is there a compensation culture?
Letwin: This has reached the point where there is real meaning in the phrase 'compensation culture' because people's attitudes to risk have changed. If you ask businesses and charities if there is a problem about compensation culture, the answer comes back 'yes'. If you then talk to government or lawyers, they say there isn't a compensation culture.
We did some research and discovered it cost businesses £7,000 each time they tried to dismiss an employee at an employment tribunal. Frequently the employee had no case. There were many examples of employers that were entirely justified, but they had to meet the tribunal cost. There is no corresponding cost for the employed.
It is just so easy to go to the internet and get a form and conduct a tribunal with no aggravation, no cost and no difficulty. For a small corner shop, defending a tribunal is quite an imposition.
We have discovered that a huge proportion of cases are settled out of court. There are huge costs incurred by businesses to prevent them being sued for something that's happened that they haven't done, but might have done.
I'll give you an example. A riding school for the disabled in my constituency has had to buy a ramp so that riders can mount without risk of injury to its employees. But the expense may put the riding school out of business.
Small businesses and voluntary organisations are terrified of the slightest risk and are stopping activities, or even going out of business. And while we recognise that you need to protect people from abuse and exploitation, the pendulum has swung too far.
We will have a whole booklet of proposals. For instance, if there is no case to answer the employer will be exposed to cost.
Did you know that headteachers, before they can send children on a school trip, have to consult more than 200 pages of guidance?
Cook: Are you concerned by the number of jobs being exported to Indian call centres?
Letwin: It would be wrong for any government to stop this by interfering. The decisions are made on commercial grounds. If we run our economy on high degrees of regulation and taxation, then we increase the likelihood of offshoring rather than retaining jobs in the UK.
Cook: How have you been personally treated by your insurance companies?
Letwin: I have had a few claims and all of them have been satisfactorily settled. I wish I could tell you about some awful experience, but no.
Cook: Do you think a Conservative government would provide a way for insurers to lay off some of the most crippling disease claims?
Letwin: This is not 'all or nothing' terrain. There are boundaries to be struck. There are cases where government needs to act as a backstop. But at the same time we would be extremely tentative. The government cannot undercut the industry by stepping in. We haven't come to any decision on this. We are still open minded. IT