Biba blog: political special

Seconds out, the referee has rung the bell and the two main contenders for the 2010 general election have entered the ring to slug it out. In the red corner there’s Gordon Brown for Labour, seriously bloodied but unwilling to throw in the towel, while in the Blue corner for the Conservatives, we have David Cameron, his smooth good looks yet to be harried by the cares of leading a nation.

For me looking on as a voter it has been difficult to determine which party has landed the knockout punch in this latest flurry of blows occasioned by the annual party political conference season (if indeed it has been thrown yet). My decision is made more difficult as not only do I have personal views about the way the voting should go, but I also have to consider which party will be best for the City and the insurance industry in particular.

Both parties are promising reform of the City after the global economic crisis. Labour party conference in Brighton saw Alistair Darling, Chancellor of the Exchequer, warn the banks that there would be “no return to business as usual for them” and promise yet more legislation, this time to end the reckless culture that put short-term profits above long-term success. We need to ensure that the GI sector is not sucked into this.

Switching to the blue corner the Conservatives had aired some of their proposed reforms for the City in the White Paper ‘From Crisis to Confidence: Plan for Sound Banking’ ahead of their annual conference in Manchester last week. One of the headline proposals was for the abolishment of the Financial Services Authority, a suggestion that undoubtedly caused great joy among some, but what of its replacement? Responsibility for prudential regulation would go to the Bank of England (BoE), while a newly created Consumer Protection Agency would ensure that firms treat their customers fairly. Two regulators with two sets of fees – I’m not sure how that works for me.

At separate fringe meetings in Manchester both Mark Hoban, Shadow Financial Secretary to the Treasury, and Ken Clarke, Shadow Business Secretary, spoke about the need for the Bank of England to take on the responsibility for better supervision of the banks. Hoban said it was widely accepted that there was no appetite for less regulation. Clarke was all for bringing insurance into the new regulatory environment. It was, he said, a case of capital adequacy. While the insurance sector had not been as badly exposed as the banks to date, it was not possible to predict what could happen next time, according to Clarke.

“Biba's major criticism of the current regulatory regime is that the low-risk insurance intermediary sector was shoe-horned into an existing regulatory framework designed for the higher-risk parts of the financial services sector

Eric Galbraith

That essentially is the nub of the problem. Biba’s major criticism of the current regulatory regime is that the low-risk insurance intermediary sector was shoe-horned into an existing regulatory framework designed for the higher-risk parts of the financial services sector. We are concerned that simply passing the prudential regulation of larger intermediaries over to the BoE will mean that these firms face the possibility of a regulatory environment designed around banking institutions. We cannot have this happen again to insurance intermediaries under a new government.

Nor can we allow the fragmentation of prudential regulation whereby large intermediaries will be overseen by the BoE, while small firms are regulated by the CPA. This two tier approach will only serve to the detriment of the UK’s broking sector – causing confusion among customers and firms alike. Inevitably, these changes to the regulatory infrastructure will come at a cost and the paper makes reference in its executive summary to ‘increasing the industry levy.’ UK insurance intermediaries are already subject to the highest regulatory cost burden in Europe and Biba could not support a proposal which involves further cost increases for its members.

The way I see it is that we currently have two opportunities to make our concerns heard: one if there is a change of government, and two, if in the unlikely event that does not happen, as part of the review of the Insurance Mediation Directive. The White Paper proposals as they currently stand seem to treat insurance intermediaries as an afterthought, rather than designing an appropriate and proportionate regime for this important sector. Again this is something Biba will seek to address.

Biba has already limbered up with some shadow boxing and we will go the distance in the main political bout. We as an industry need to have our concerns heard and that is exactly what we are doing as we meet with as many policy makers, opinion formers, MPs and media representatives as possible in the run up to the general election to get our members’ views across about the dangers of excessive regulation. This will ensure that we are punching well above our weight when and if a new government gets to raise the winner’s belt.