In the run-up to the Insurance Summit on February 27th in London, industry experts scheduled to speak at the event share their views on the important challenges and opportunities facing the industry. Amanda Blanc, Chief Executive of AXA Insurance, Commercial Lines and Personal Intermediary, explains her views on regulation.
If anything serves to define 2013 for the UK insurance industry it is the impact and potential further intrusion of our regulators. The fact that we use the plural says it all. Following more than a decade of soft touch, arms’ length regulation, the insurance sector has finally felt the full wrath of regulation.
As unpleasant as it has been to watch, it was probably necessary. Insurance has maintained a convenient conceit about the ethics that underpin the industry believing that it was the ‘nasty bankers’ who had been indulging in dodgy and near-criminal acts.
As the previous year has shown us, insurance is by no means immune to poor ethical practices and the dark paths of finance that greed leads some executives down.
So it should come as no surprise that our regulators are running as fast as they can to conduct thematic reviews, impose fines and identify customer detriment wherever and however they can. There is so much activity that it can be difficult to keep up, but there are a few issues dominating my thoughts for 2014.
I expect the UK Prudential Regulation Authority (PRA) will be bringing added pressure to bear on capital reserves, particularly on those held by businesses deemed too big to fail. It is of course vital that financial institutions secure their customers and the wider economy from financial disaster but I’m not convinced that the levels of capital being imposed are appropriate to the level of risk insurers pose to the economy.
I also expect to see the intrusive approach of the regulators to increase with more thematic reviews and more skilled persons reports being carried out. What should be of particular concern to us all is that if corporate fines are not seen as being effective, we may see an increase in personal fines for approved persons.
Our old friend Solvency II is now firmly back on the agenda and the additional reporting requirements will undoubtedly increase costs, but it is unclear who exactly will benefit from this information being made available.
Finally, there is the focus of the UK’s Financial Conduct Authority (FCA) on making markets work effectively for customers, an aim that I’m sure everyone supports. So far the focus has been on products and this will remain but the FCA’s view on commission disclosure, what further action will be taken on employee incentives and what action, if any, will be taken on controlling premium increases is all still unclear.
In everything that the regulators do - whether it works or not - the aim is to ensure that customers are protected, receive products and services that are appropriate to them, that they understand and need.
This isn’t rocket science – it’s what all good businesses should be aiming to achieve. The problem we have with our regulators at the moment is one of trust. They hold little in us and there are two clear ways we can rectify that.
The first is to allow them to impose rules that they believe will work but may actually stifle businesses and make it more difficult for them to deliver the products and services the regulators want to see. At least they will be satisfied that they know what is going on.
The second is that we pre-empt the regulators. Currently we are bound to deliver a profit to the shareholder – that is our fiduciary duty. What has gone wrong, to my mind, is that in financial services this has become the sole aim with scant regard to how that profit is delivered. In the mad dash to satisfy the shareholder, our customers and our employees have become almost a secondary consideration.
However, it is possible to satisfy that fiduciary duty by having an equal focus upon the customer and the employee. Again, it’s not rocket science but it seems that somewhere along the line, financial services lost that focus.
In addition to developing and training our people and ensuring they are adequately recompensed, they should be incentivised for delivering customer satisfaction. That should be the most important measure of success and there are some encouraging signs that this approach is being adopted in the wider financial services sector.
If we treat our employees well, in turn they should treat the customer well, which in turn will deliver loyal customers who will come back for services and products that they want. If we can achieve that and prove it, our regulators should have great comfort that we have our houses in order and hopefully turn their attention to other sectors.
We owe it to our employees, customers and shareholders to run our businesses in a more ethical way and there is not one of us who can say, hand on heart, that they don’t have some work to do in achieving this. Our whole financial sector has been geared towards profit at all costs and it will take some time to unwind that but for me it’s the only way we can restore our reputation with the public, build sustainable, profitable businesses and hold our heads high in the community.
It’s in our hands and we will have nobody to blame but ourselves if 10 years from now we are emerging from another financial crisis.
