Anthony Hilton says our insurance leaders are travelling to the US to air their grievances
It is a golden rule of politicians that they use speeches to map out what they think is important and the direction in which policy ought to go. However if you want an insight into what really matters to them, then the speeches to read are those they deliver abroad not the grand standing efforts at home.
Once they get to the far side of the globe they tend to be treated with far more respect from local dignitaries and the media - if only out of politeness - and they feel that they can relax.
It is then that they feel confident enough to tackle the really difficult issues and to say what they really think, rather than simply pander to tomorrow's headlines and voters' entrenched interests.
Though not on the same scale there is a similar trend in business. Regulators, central bankers and representatives of markets and trade bodies will, generally speaking, give a much more robust account of themselves on a foreign field than the rather insipid performances we too often come to expect at home, particularly when they have something contentious to impart.
They slip it out on the far side of the globe so that it will only gradually trickle back to the UK. It will then impinge on British consciousnesses but will have been suitably softened on the journey.
That way it becomes that much more deniable or easy to retreat from if it causes too much of a stir.
There were a couple of examples of the art in the past month. In one Stephen Haddrill, director general of the Association of British Insurers (ABI), went to New York and delivered a head-on attack of the way the US regulates the insurance industry.
He accepted that efforts to harmonise European insurance legislation still had some way to go, but his audience understood that his real concern was that regulation in the US is every bit as fragmented, every bit as inconsistent and, if anything, even more anti-competitive and protectionist than custom and practice on this side of the Atlantic.
US regulation in insurance operates state by state, so a UK company seeking to do business there at a local level has literally to secure
50 different authorisations - and cope with 50 different policy wordings and regulatory requirements for what ought to be an identical policy.
One of the reasons Catlin has agreed to buy Wellington - and ignore the horrible losses the latter incurred from hurricanes last year, and who knows what else besides - is that Wellington is ahead of it in getting US authorisation, so could save it several wasted years grinding its way through the local bureaucracy in such leading international financial centres as Des Moines, Iowa, Carson City, Nevada, and Baton Rouge, Louisiana. Others like Hiscox are grinding their way through the list.
Deep in the lions' den Haddrill argued powerfully that insurance regulators had to raise their game, and that the way they worked had to reflect the nature of the modern insurance industry and the needs of a globalised world.
He said that the insurance industry badly needed to co-ordinate its regulatory efforts globally, to look at businesses on a group basis rather than at the level of a local subsidiary, to develop in the international arena concepts like a lead regulator whose judgment is accepted by other jurisdictions, and to work towards the convergence of regulatory standards.
The other notable contribution came from Julian James, Lloyd's director of worldwide markets, speaking even further away in Seattle. His concern was whether it would be different this time. Insurance is profitable - more profitable than it has been for years, but would it be able to hold on to that, or would the industry once again respond to competition by cutting rates, chasing market share and sending the industry back into loss.
He finds it hard to believe in happy endings. First, he says, the rate of premium growth is poor, just 2.9% in the first half of this year.
Second, he says, almost across the board rates in most non-catastrophe lines of business are creeping downwards.
Third, the industry now has 60% more capital than it did when it bottomed out after 9/11. Any one of those should ring a warning bell. All three together is very bad news.
The insurance industry has had a remarkable five years and it would be churlish to deny that its management is considerably better today than it was in the past.
But that should not blind us to the fact that it has yet to face its biggest test - to hold out against being sucked into the downward pull of the insurance cycle. James says the industry is at a crossroads.
The decisions made in the next few months will determine whether it is to build on its recent record of financial responsibility, or whether it will chase rates downwards and set off another insurance recession.
I suspect shareholders would do well to hope for the former but expect the latter. People working in the industry should ask themselves privately, if it were their own money, which way would they bet. IT
Anthony Hilton is financial editor of the London Evening Standard
