The insurance industry was bemused by the appointment of Mary Francis as director general of the Association of British Insurers (ABI) in June 1999. Critics were unsure how Francis's background as a member of the Queen's private staff and lifetime civil servant would bolster the presence of the trade body.

Indeed, the departure of predecessor Mark Boleat and long-time deputy director general Tony Baker, caused quite a stir among the industry's chief executives. They felt the ABI was losing people with a long-term background in insurance and an instinctive understanding of their needs. And Francis's appointment of nearly a dozen former Treasury civil servants over the past two years has done little to abate the view that the ABI is being taken over by the enemy.

Francis argues that the shift towards employing former Treasury civil servants is entirely logical. She holds that the Treasury, now more than ever before, is the department that holds most influence over the industry and, consequently, it makes perfect sense to employ people who understand the mandarins' mechanisms.

The true test will come in less than a month. The Financial Services Authority (FSA) comes into full statutory effect on 30 November (N2). If Francis has got it wrong, the new regime could be a nightmare. The FSA is the industry's regulator and has been talking up its no-nonsense approach to regulating insurers (see page 10). Its firm criticism of insurers prompted Francis to write a letter to the Financial Times in June, calling the FSA "the provisional wing of the Consumers' Association."

Francis claims the FSA is playing to the public gallery. "The FSA has a very pro-consumer remit and sometimes it seems to exercise that not by finding alliances with the industry, but rather by beating the industry around the head. We are keen that the regulator should take more account of what the industry itself is doing to improve standards for customers.

"One of the lessons from the collapse of Independent Insurance is that the regulator should be talking more informally to the industry about any problems heard about."

Francis's delivery is diplomatically cool. There is no hint of anger, in spite of the fiery words. This, perhaps, sums up Francis's style - a view reinforced by those in the industry. "Mary can be stern and seem cool, but she's always well briefed. It's the way she does business," says one senior industry figure.

Others are less comfortable with the style. "She's not fighting our corner. It's like she's turned the ABI into the provisional wing of the Treasury," fumes one industry boss.

Francis claims her methods are working. She has been lobbying hard for increased spending on flood defences.

"It's something we bang on about every time we see ministers. I think you'll find that, behind the scenes, Elliot Morley [the minster responsible for flood defence] is engaged in quite a battle with the Treasury to get more money."

Francis could also claim a victory in her battle with the FSA. She is a proponent of specific intervention rather than a blanket approach to regulating the industry.

"We need a risk-based approach. We need to find out whether people are writing the kind of business that is storing up long-term problems or exceptionally risky, like aviation or the Middle East at the moment. If so, these companies need deep reserves. If people are writing run of the mill risks where claims are predictable, then reserves can be levelled out."

Just this week, FSA managing director John Tiner outlined ideas for taking a company-by-company approach to regulation, with special teams of investigators assessing the risks companies are writing and the appropriate reserves required.

Francis is also happy with the way the Financial Services Compensation Scheme (FSCS) is shaping up. "We've been pretty happy with the Policyholders' Protection Board (PPB) and we hope the FSCS operates in the sensible kind of way the PPB has when it takes over on 30 November. There are signs it will.

"We were concerned that the board of the FSCS didn't have anyone with a direct background in the insurance industry. But the FSA is advertising for additions to its ombudsman and compensation schemes and we hope there will be representation from the insurance industry as a result."

Common industry voice
While Francis's campaign is making some progress, she feels a bigger voice is needed in the financial services sector. A merger with the British Banking Association has been mooted and a source close to Francis says ABI members will be asked their views on the subject early in the new year.

Without mentioning the word merger, Francis explains why one would be useful. "Coalescence is needed to mirror the FSA. We need to speak with a common voice," she says.

A quick look at Francis's agenda for the coming year shows that bankers and insurers are fighting the same causes. Near the top of the list is cyber risk. What happens when computers and systems become infected? How do you protect online assets?

"We are starting an initiative at the moment, seeing how we can work with government in looking at these kind of risks," she says. When pressed about details, Francis clams up: "It's early days."

Other shared issues include fraud and money laundering. Francis has appointed Deborah Weeks to look at these issues.

While a move to merge the ABI and BBA makes sense on paper, the industry will need winning over. Senior executives are scared insurers will loose their voice in a financial services super body.

If the merger is ever likely to happen, you get the feeling Francis is the person to see it through. She does not seem interested in winning popularity contests and wants to shake up the industry. As she says: "We've made a lot of changes in the past two years and it has not been easy."