Mark Carney, the Governor of the Bank of England, has recognised the major role the UK insurance industry plays in the British financial system, in an article in The Times on Thursday.
Responding to his comments, an ABI spokesman said "Mark Carney rightly recognises the important role of the industry in the economy and its strengths, such as innovative approach, strong capital buffers and its resilience to the previous economic crisis.
Insurers are subject to stringent ‘twin peaks’ regulation from PRA and FCA, so the industry knows and expects to be held to account, through regulation to ensure best outcomes for consumers that must also enable insurers to continue to innovate to meet the ever changing needs and demands of customers.”
Carney warned insurers that he will hold top insurance executives to account in the same way he has cracked down on errant bankers.
Andy Tromans, Corporate Insurance partner at Clyde & Co says:
"This is Carney's first public recognition of the importance of the insurance industry to the UK financial system and the recognition of this importance will be welcomed. It will come as no surprise to anyone in the UK financial services sector that high standards of integrity, honesty and skill are key regulatory requirements across all sectors, but just because there have been examples of failures of this in the banking sector, it would be unfair to imply that this is rife in the insurance sector in a way requires the Bank of England to markedly change its approach to its regulation.
He also needs to understand the differences that exist when applying the lessons of failures in the banking system to the insurance sector. Even where insurers seek out new, more profitable opportunities, it would be wrong to characterise them as taking the same kind of casino approach that has been attributed to banks. It is inherent in insurance to take both investment and underwriting. The management of these is central to the success of any insurer and will be central to their decision-making process. The capital requirements for insurers take a different approach to those for banks for this very reason and the Bank of England needs to remember that these differences are important.
As insurers face ever increasing capital requirements, the question also arises as to where the profitability that will generate increased levels capital will come from. Insurers are also subject to regulation by the Financial Conduct Authority, whose consumer-focussed approach has different priorities to those highlighted by Mark Carney. Now Mr Carney has shown his interest in the sector, one question many insurers will be keen to be asking him is how the Bank of England is going to interact with the FCA effectively in order to provide effective and understandable regulation for insurers."
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