Since the financial crisis in 2008, the insurance industry has seemed transfixed, even paralysed at times by regulation-anxiety. The dash to introduce Solvency II; an expensive sprint to a finish-line, ultimately stretched by the EU rule makers, led to some rancorous exchanges between insurance leaders and those setting the policy as the full implications of compliance emerged. The chatter now in the market is about the cost of meeting the higher standards of consumer protection demanded by the Financial Conduct Authority (FCA). Although this new shock to the system is a challenge, arriving at a point when trading conditions are turning for the worse, good companies may soon embrace this project with far greater enthusiasm than they could muster for Solvency II.
With the break-up of the Financial Services Authority in March 2013, the FCA picked up the mantle predictably enough; taking steps to ensure that suppliers were treating their retail customers fairly at the point of sale focusing on poor value ‘add-on’ products. However, to the surprise of many this year they shifted their gaze rather sharply to the wholesale sector, investigating the outcomes of customers buying policies from Managing General Agents (MGAs) via delegated authorities in the London Market.
The robust approach of the FCA has clearly galvanised those affected into action. Lloyd’s have just released for consultation their proposed new minimum standards and guidance relating to conduct risk. Most underwriters with an interest in MGA cover-holder business are working flat out to introduce processes, demonstrable to the regulators, which prevent financial or service detriment adversely affecting their customers due to a failing in their distribution chain.
Yet, not in any way to diminish the scale of the huge task ahead for many companies, it would be a pity if the industry fixates solely on the cost, resource usage and management stretch of meeting the FCA’s requirements. Handled appropriately, improvements to the way that delegated authorities are managed will be widely beneficial and arguably are long overdue. The market should be reducing its reliance on paper-based records; utilising modern technology effectively; updating its audit framework and acting upon management information that is more timely, accurate and instructive about an MGA’s interaction with the policyholder.
At the core of Lloyd’s Vision 2025 is a call to action; for us all to ensure that the London Market remains relevant as a global business partner, responding inventively to emerging risks in particular. If the enforcement of FCA regulations also prompts a cultural shift within the wholesale sector leading to greater engagement with and understanding of the end-customer and their needs then the conduct improvements might be viewed as an important stepping stone towards making that vision a reality. Indeed in years to come we may well be thanking not criticising the regulator for directing us down a path to a more sustainable and responsive industry model that is built upon greater intimacy with our customer audience. Thanking the regulator: now there is a thought.