UK Insurance Regulation: Geneva report suggests Insurance leads the way in rebuilding the economy
A report by the Geneva Association published this week has indicated that Insurers and Reinsurers are likely to play a mammoth part in rebuilding and restructuring the faltering global economy.
The report ‘Systemic Risk in Insurance’ has required the international think tank – which largely focuses on the insurance industry, to analyse the role of insurance in financial stability.
It would seem that the report is designed with the clear goal of raising awareness of the industry’s need to no longer be shoehorned in with other financial sectors, such as the much maligned banking sector.
It will certainly go some way to ensuring the industries voice is heard in key debates across Europe and globally, discussing how to move forward from what many fear could be the worst recession in living memory.
Highlighting the very different roles that the Insurance and Banking sectors occupy the report accurately concluded that the core activities of insurers and reinsurers posed no systemic risks due to the very nature of the industry.
The report also called upon supervisors and policy makers to now focus their attention on activities and not financial institutions whenever new regulation is introduced.
It is key factors such as; strong operating cash flows without the requirement of wholesale funding, the long term nature of insurance policies and the relative steady capacity business volumes and prices during the financial crisis which have led to the report showing our industry in such a positive light.
Using the definition of systemic risk as defined by the Financial Stability Board and applying it to the core activities of UK Insurance and Reinsurance, the report concluded that these are simply not relevant to the sector.
It was also concluded that insolvency is less of a danger to insurers as it naturally develops at a relatively slow pace meaning it can often be absorbed. Strength of the sector is the interrelationships of insurance activities means that the exposure to contagion risk is also limited.
In yet another marketing coup, Aviva hosted the presentation of the report’s recommendations, firmly associating themselves with this upbeat report.
CEO, Andrew Moss commented that “The insurance industry with its strong cash flows and well funded customer contracts is a source of stability in the financial system. These recommendations will enhance the regulatory framework, strengthen consumer protection and support the industry’s capacity to provide investment to the real economy.”
Meanwhile the rest of the industry has also greeted the report’s findings with the Chartered Institute of Insurance (CII) claiming the report builds on their calls for a ‘pragmatic approach’ to regulation. To be fair they have been beating this drum for quite a while now and it is a very valid point they make.
Clearly glad of some solid support in this crusade David Thomson, director of policy at the CII, went straight on the offense warning the government to be “mindful of introducing sweeping regulatory changes simply to sate the thirst of public retribution over the financial crisis.”
The CII has been pushing for the UK Government to take a far more cautious and considered approach to regulation which Insurance Blog thinks most of us would commend. However the question remains whether either of the ‘would be governments’ we have in waiting would be brave enough to not radically change the system?
Our feeling is that whoever comes in will want to be seen to be doing something, even if they don’t fully understand what it is they are doing themselves.
Yes the financial system failed – but how much of that was due to the insurance sector? And don’t forget Insurance is currently underwriting all the Government debt around the World and already leading the road to recovery by supporting the Governments policy of Quantitative Easing – or bailing out the banks as it is otherwise known!
Do we really need a radical overhaul when perhaps just a few tweaks might be enough? May 6th may play a large role in this decision!
Thomson is fully prepared to admit that there will be failures but is keen to stress that “regulatory regime is there to try to ensure that there aren’t too many [failures] to undermine confidence in the system or the markets. “
It is this type of realistic and responsible approach that needs to reach the next government whether it is red or blue. Hopefully the growing strength of conviction now backed up by irrefutable hard cold facts of the Geneva Report can prove enough for finally the voice of the insurance industry to be heard.
We can but hope.