Mark Leftly
By dint of alphabetical order, as well as necessity given the country was in the depths of the financial crisis the time, banking was the first issue addressed in the 2010 Coalition agreement. “Reform of the banking system” was crucial, while semi-privatising Royal Mail and even “honesty in food labelling” made the consumer protection and business sections of the 36-page document that allowed David Cameron and Nick Clegg to form the first coalition since the Second World War.
Insurance did not even warrant a mention; only in referring to plans to reform financial regulation was there even the slightest hint that the industry had been discussed in any way when drawing up the agreement.
“Insurance was not seen as a major problem, a priority on the list,” says Brian Binley, a Conservative backbencher who sat on the All-Party Parliamentary Group (APPG) on Insurance and Financial Services in the last Parliament. “Banking was, pensions were, as was welfare reform.”
Ashwin Mistry, president of the Chartered Insurance Institute, agrees: “We, as an industry, employ 300,000 people but politicians don’t know these things. Why should they? Generally we were left to our own devices - unless there were big issues.”
Yet there were plenty of these and, arguably, the industry has gone through its greatest period of change since the early 1980s when the Lloyd’s Act overhauled the governance of the London market. A Conservative MP from that era who went on to enter the Cabinet under John Major, Lord Hunt, who now chairs Biba, even points out that insurance is far more integral to the financial system than during the booms-and-busts and marketisation upheaval of the 1980s: “The difference is that London is now the centre for insurance and reinsurance. We’re the global player.”
Insurance was not the cause of the financial crisis, but the resulting reforms, such as establishing the Financial Conduct Authority, have had major ramifications for insurance.
Chris Leslie, who will become Chief secretary to the Treasury should Labour win the general election next month also points out how insurance entered the Coalition years threatened with seemingly draconian capital requirements from Europe in the form of Solvency II.
Finally, select committees, which in some quarters had been viewed as little more than meeting shops to keep backbench MPs busy as they dreamed of ministerial careers, gained clout as the chairmanships were no longer in the gift of party whips. They could investigate what they wanted – and one of these chairs, Louise Ellman, suddenly took interest in the cost of motor insurance.
The Coalition rarely referred to insurance by name, but the industry did not go unnoticed or untouched over the past five years. Here is Insurance Times’ guide to the leading political players who have shaped the industry since 2010, their successes and most questionable decisions.
The big issues
Singing from the hymn sheet: Insurance Growth Action Plan
Lord Hunt says that this 2013 plan means the “industry speaks with one voice”. A cliché, but Whitehall sources confirm that this document at least meant that ministers and officials finally saw the industry as a whole entity, rather than just an umbrella term for a number of loose strands, from telematics to investment. Working on this, the Government realised that it needed to “sharpen the UK’s competitive edge” to get insurers to re-domicile in their UK roots and get more people into the industry through apprenticeships. Corporation tax has been reduced to 20%, while deputy prime minister Nick Clegg launched a Government-backed insurance apprentices scheme last month.
Verdict: Success
Conflicts of interest: Whiplash claims
Arguably the central piece of insurance-related legislation, which had previously been the focus of the Transport select committee (see below), was found within the Ministry of Justice’s broader legal aid bill in 2012.This prohibited the payment of referral fees to the likes of lawyers, doctors, and claims management companies, mitigating the possibility of false of inflated claims – and delighting insurers.
Verdict: Success
Whitehall: Flood insurance
The loathed Statement of Principles agreement, which saw the insurance industry effectively subsidise the premiums of homeowners living on floodplains, finally came to an end in 2013. National Flood Forum chief executive Paul Cobbing praises the Government for eventually confirming the £180m-a-year Flood Re as its replacement. However, there is “irritation”, as one negotiator from the industry side puts it, at the slow nature of officialdom – ministers won’t formally sign-off the scheme until after the general election. That means negotiations and delays left insurers and policyholders uncertain over the cost of high-risk cover for an entire parliament.
Verdict: Mixed-bag – too many delays, but should get there in the end
The European threat: Solvency II
Described by Andrew Tyrie, the Treasury select committee chairman, as “an object lesson in how not to make law”, Solvency II was kicked about Europe for years and then forced to change shape as a result of the 2007 credit crunch that precipitated the worldwide downturn. Forcing insurers to hold large amounts of cash on its balance sheet to withstand any subsequent shocks, the Treasury is said to have quietly succeeded in challenging the EU to water down the proposals. Implementation has been delayed until next year, with many insurers angry that they spent millions getting systems in place, and then maintaining them, years in advance.
Verdict: Failure, too strict and cost to much to establish
The structural reform: FCA
Unhappy with the light touch regulation of the City, the government established powerful new regulators. The FCA ensures that consumers are getting a fair deal, but the result has been a stream of thematic reviews, from delving into mobile phone insurance to price comparison websites, that has been condemned by the industry as overly-burdensome and unnecessary.
Verdict: Too early to judge
The most influential politicians
Owen Paterson, Environment secretary 2012-2014, Conservative
This might seem an odd choice given that Paterson succeeded Caroline Spelman at a point when a flood insurance deal seemed close, only for the veteran right-winger to be distracted by badger culling to fight bovine tuberculosis. But Cobbing insists that Paterson gave the issue a “whole new push” and, indeed, he launched the 2013 consultation that set up Flood Re.
Oliver Letwin, Cabinet Office minister since 2010, Conservative
The Tory policy chief has maintained a fairly low profile in coalition. However, David Cameron was spooked by the sudden realisation that the lack of a flood insurance deal could ruin regional housing markets in the winter of 2012-13 - and, as one insider puts it, that a flood levy would “end up on the Government’s books” - he Letwin, a trusted lieutenant, to support Paterson and enter negotiations with then-ABI director general Otto Thoresen.
Louise Ellman, Transport select committee chair since 2008, Labour
The 69-year-old has been one of Parliament’s most timid figures, and, as a result, she is frequently underestimated. Ellman has cleverly used her position as chair of the influential Transport select committee to move beyond the obvious, like keeping tabs of Network Rail, and branched out to look at whiplash and referral fees - now banned in all personal injury cases. Some insurers believe that Ellman dislikes the industry, so will her committee’s reports were inevitably critical.
Jonathan Evans, insurance’s champion in Parliament, Conservative
A former director of insurance at legal giant Eversheds, the 64-year-old has been arguably the sector’s greatest in Parliament. Evans, who represented Cardiff North before stepping down when Parliament dissolved last month, chaired the All-Party Parliamentary Groups for Insurance and Financial Services, Wholesale Financial Markets, and Services and the Financial Mutual sector and takes credit for legislation that relaxes regulatory capital requirements for mutual insurers.
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