A fresh start for UK regulation this month as dual supervisors, the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) open for business yet gripes about the cost and complexity of compliance remain. Official figures revealed that insurers will face a 20% increase in the amount they have to pay, following a 32% up-lift last year. The mountain of red-tape has even led Andrew Haldene, a senior Bank of England official, to reportedly suggest that the authorities might consider ripping up the rules and start again.
Nevertheless, ridding the system of criminal activity and ensuring that insurance companies are run professionally, remain solvent and properly look after their customers are principles well understood and fully supported in the industry. In UK insurers take it for granted that if they abide by the rules they are free to operate mostly unhindered, competing openly on a level playing field. Elsewhere in the world, however, the priorities of policymakers are not quite the same. Despite significant liberalisation in the last decade, regulators in the emerging economies still protect, favour or nurture, depending on your viewpoint, their locally owned and operated businesses.
The role and agenda of SUSEP, the Brazilian regulator, was a hot topic at the “Encontro de Resseguro” Conference in Rio last week. After decades of central control, the market in Brazil was freed-up in 2008 but responding to domestic pressures, SUSEP applied the brakes quite soon after. It reintroduced a rule restricting offshore reinsurance cessions to 60% in a thinly veiled effort to shore up the government-owned reinsurer IRB and limited inter-group reinsurance to 20% to prevent foreign direct insurers using head-office capacity to win business. These measures appear far from temporary. At the Rio conference, SUSEP were asked by some delegates to prohibit retail intermediaries offering reinsurance services; a move intended to rein-in international brokers. Ominous signs for those hoping for a freer market there anytime soon.
Public policy designed to build a strong domestic insurance industry; retaining capital, revenue and profit onshore is an understandable objective for developing nations to pursue but like most things in life there is a price to pay. Restricting access to global innovation and stifling competition is bound to adversely affect the affordability and choice of products for businesses and consumers. Furthermore, as Thailand discovered in 2011 and Argentina may well experience after its recent flooding, rules drafted to retain premiums locally that choke off international capacity may appear less of a good idea following a market loss when the need for capital inflows is most acute.