A regulatory lesson from the streets of Nashville

Before this all gets too depressing, let us remind ourselves that our industry can provide many of the answers to these questions. It is another chance for insurance to prove it can deliver so much more than a wholesale transaction – that we drive progress and achieve social good. I have written here before about the fact that no-one believes that net zero is achievable without the rapid adoption of technologies yet to be invented. We will need to insure that process from innovation through development into immediate commercial use. That will require all the ingenuity and creativity that we display as a market. But it will also take the right support from those that create and marshal the framework within which we operate.

Our regulators, the FCA and PRA, are going to have to develop a far more flexible and, dare I say it, sensible approach to supervising our sector than they have demonstrated recently. They need to recognise we will have to insure tech lacking 10 years of historic performance data. We will need to collaborate as a market to develop the right products to achieve this and will therefore need not to be subjected to overzealous competition restraints. We will need to be swift and agile as organisations so our regulators will need to be, too – not take two months to appoint a case officer and endless months after that to actually process regulatory changes.

I believe this cultural change in Stratford and Threadneedle Street can be achieved if the FCA and PRA are brought under the right influence. That is why the introduction of the Financial Services and Markets Bill to Parliament in the same week that we roasted on both sides of the Atlantic could be so crucial. Pleasingly, the Bill does include the proposal that both regulators be given a secondary objective to promote the international competitive position of the industry. This is something that we at LIIBA have been lobbying for since I arrived here in 2016. But it is only a secondary objective. It will need something to ensure it is adhered to, therefore, if it is to really make a difference.

In our submission to the latest round of HM Treasury consultation on the future regulatory framework, this is something we argued for strongly. For the objective to have impact it will need proper oversight from the right Parliamentary committee. It is too easy for the upper echelons of the FCA to pitch up every six months in front of the Treasury Select Committee, endure a kicking and go away and make no changes to their approach. I am unconvinced that the Committee’s parallel proposal to set up a sub-committee to take on this oversight role will prove sufficient. Will the members be suitably resourced to enable them to get into the detail of regulatory consultations across the whole gamut of financial services?  It seems hard to see how.

We also suggested that the FCA be required to benchmark its regime against relevant other territories – Bermuda, Zurich and Singapore, say, for insurance. Because, surely, you can only ensure you are being competitive if you compare yourself to the competition?

So, it is mildly concerning that nothing of this sort seems to be in the Bill. Indeed, it is, at best, pretty vague on regulatory accountability. But without it, the vital change in approach that we need if we are to be central to society drawing back from the edge of the climate precipice will not happen.

Net zero may have taken a back seat in public policy in the face of the cost-of-living crisis and the toing and froing between Rishi Sunak and Liz Truss, but the heat of this summer shows that we can’t afford to let it stay there. One of Nashville’s favourite adopted sons once said, there’s been a load of compromisin’ on the road to this horizon, but that has to stop. We need government to create a regulatory framework that will actually incentivise the FCA and PRA to be suitably flexible and proportionate. We need regulators to see that, without that approach, we will not be able to do our job. And then we can get on with doing what we do best – innovating new approaches to risk management that allow society to realise its most important ambitions. As another famed Tennessean might have put it, that is takin’ care of bidness.

Source: www.insurancebusinessmag.com


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