Insurers could replace benefits

Legal and General's chief executive Tim Breedon says insures should take on more of the government’s social services spend, he writes in the Telegraph.

“Insurers are not banks,” he writes. “None apparently came even close to breaching regulatory capital requirements. Most importantly, no promises to policyholders were reneged upon.

“Investment performance suffered with falling markets, but customers' claims and pensions continued to be paid as normal. The sector and its regulators had learned the lessons of Equitable Life in the early 2000s and were able to weather the storm.”

Reduce state’s share

Breedon says insurers could take on a bigger share. “Through state pensions, unemployment benefits and the NHS, the Government assumes responsibility for roughly 65% of the "addressable risk market", and the private sector underwrites the remaining 35%.

“In cash terms, in 2007 the insurance industry paid out £121bn in pension, accident and health and income protection benefits versus the Government's £219bn payments to cover similar risks.

“With the public finances close to breaking and a growing recognition that many "middle-class benefits" are unsustainable, there is pressure to focus the state's insurance role on the neediest – those who cannot afford to self-insure. By implication, this 65-35% split needs to be adjusted.

Solvency II could hurt

But Breedon warned that regulation could hurt insurers. “Capital is a raw material we use in the manufacture of our products. If more is needed, prices go up, and value for the customer is eroded.

“From being providers of capital, this would mean we would become at best hoarders, and at worst consumers, of this scarce resource. This is now a real risk under the EU's Solvency II Directive.”