The insurance sector faces many challenges, according to the Financial Conduct Authority’s acting chief executive, including increasing competition from overseas, abundant capital, low interest rates and soft pricing.
Speaking at the ABI Biennial Conference this afternoon, Tracey McDermott added there has also been significant regulatory and legislative change in recent years.
However, she argued that while the reform agenda has been extensive, it has also been essential.
“It has demanded, and continues to demand, significant amounts of time and resources from the sector. But, I would like to think we are now at a point where we can start to think about what the future looks like.”
Responding to a speech given by the ABI’s director general Huw Evans in June, Ms McDermott noted that he identified regulators as one of his challenges.
“Given the pace and extent of regulatory change over recent years, this is perhaps not surprising, indeed, depending on your perspective, it might also not be a concern,” she noted.
“It is important that regulation is not seen as an adversarial process where the regulator and the regulated are in constant conflict.”
The FCA and ABI have different roles, which require a degree of healthy tension, but ultimately want the same things, according to Ms McDermott.
“In practical terms, notwithstanding all these shared objectives we will not always achieve easy consensus. Our views on how to achieve these aims – and the level of pain that is acceptable to get there – may differ.
“But, in order to have an approach which is sustainable in the long term, we have to ask ourselves the question of how we meet these shared goals in the most effective way?”
She set out three critical components to the success of the insurance industry in the longer term: to have competitive, innovative markets that meet the needs of consumers; to ensure consumers must have trust and confidence in those providing insurance services; and having transparent and well-regulated capital markets which can support long term growth and provide funding to the real economy.
Earlier in the day, the ABI’s chairman Paul Evans took on the second point and stated that insurers must do more to understand the route causes of consumer mistrust.
Ms McDermott noted that the financial crisis was not primarily caused by insurers, nor were they responsible for attempts to manipulate Libor or FX.
“But before the insurance sector becomes too complacent it is worth remembering a couple of things,” she said, pointing out that the conduct of insurers has “not always been something to write home about” and “the sale of unnecessary and low value insurance products, often in a pressurised way, has featured in a number of our enforcement, supervision and competition activities in recent years”.
She added that insurance, perhaps more than any other industry, is critically dependent on consumer trust and confidence.
Finally, Ms McDermott came back to a theme of a speech a couple of weeks ago, stating that the ‘regulate, de-regulate, repeat’ cycle is one which the FCA would do well to avoid.
“What it is about is being willing to evaluate the effectiveness of regulatory interventions, large or small, and to look at those afresh in the light of changing circumstances,” she commented giving an example of recent work on smarter consumer communications highlighting areas that are not effective and are potentially being removed.
“We have already reviewed the operation of the retirement risk warnings in relation to smaller pension pots – and are consulting on changes to make those more effective and less burdensome for industry and consumers alike,” Ms McDermott added.
peter.walker@ft.com
