The FSA's David Strachan has emphasised the role the insurance sector has to play as major institutional investors and company shareholders.
In a speech to the International Insurance Society, Strachan said: “As one of the heavyweights in institutional investment, insurance companies clearly have their own responsibilities in terms of exercising their franchise.
“However, it would be no small achievement if the insurance industry were to grasp the nettle and be at the frontier of any drive to step up shareholder activity through the widespread introduction of more efficient voting systems.”
He said the industry had the potential to harness the power of shareholders in enforcing market discipline.
“I say potential here because in spite of a smattering of instances of shareholder activism, intervention winning the day at AGMs is the exception rather than the rule. And although ultimately, shareholders can vote with their feet, this particular front of shareholder influence remains largely untapped.
“While it is clearly not the responsibility of shareholders of public companies to manage firms on a day to day basis, broad issues such as the performance of senior management and the appropriateness of their strategy for the company are quite rightly the concern of shareholders.
“In this sense, and from a wider perspective shareholders provide an essential source of market discipline.”
Strachan also spoke of the importance of management and consumers in raising standards within the insurance industry.
“The days of the compliance officer, and to be fair, in some cases the regulator, sitting back content in the knowledge that all necessary boxes have been duly ticked are a thing of the past.
“Instead, we believe the solution lies in a principle-based approach. And more specifically, through firms' senior management embracing our current high level principles for business.
“Treating customers fairly does not, as some consumers may mistakenly believe, equate to policyholder returns that outstrip market performance in perpetuity. Neither does it mean that all firms are required to offer the same level of service, nor a rolling back of individual responsibility on the part of the consumer.
“On a more serious note though, the fact that these misconceptions have been gaining currency sharply illustrates the fact that we still have some way to go in terms of communicating to firms what we mean by the fair treatment of customers.
“Allied to this must be a greater push on consumer education, focusing on redressing the balance of knowledge between industry and customer.
“Knowledge is power; power is influence; and in this case, influence will lead to a less imperfect market.
"The corollary of that is clearly less frequent regulatory intervention”
