IUA warns over proposed regulatory overhaul

A lack of qualified staff threatens to undermine government plans to reform financial regulation in the UK, the International Underwriting Association has warned.

The IUA says demand for high quality insurance regulators is already under pressure due to the implementation of the European Union’s new solvency regime Solvency II.

IUA members have reported delays in approvals of internal company models required to make calculations for new solvency requirements.

This situation is likely to be exacerbated by the creation of two new regulatory bodies in the UK, the Prudential Regulatory Authority (PRA) and the Consumer Protection and Markets Authority (CPMA), it claimed.

Nick Lowe, the IUA’s director of Government Affairs, said: “At the present time there is a dearth of qualified and experienced staff competent to supervise the insurance industry. This is partly because Solvency II has created greater demand for such professionals than can be met.

“Also, the declining prestige of the Financial Services Authority has meant that many individuals with the right skills have taken their employment elsewhere. The new regulators will have difficulty in recruiting people of the right calibre. An imbalance in supply and demand will mean that staff costs will be high.”

IUA member companies are also concerned about the practical implications of having to deal with two or more regulators. The administrative cost of compliance is likely to be increased by the need to report to and receive visits from more than one organisation. Levies to cover the costs of more than one body are also likely to be higher.

“Unless great care is taken to design an effective set of incentives, constraints checks and balances, there will inevitably be duplication, gaps and conflicts over roles and responsibilities,” added Lowe. “This would lead to confusion and unequal treatment for regulated firms."

He continued: “The IUA is particularly concerned that if the remit of the new CPMA is focussed on customer care, then it may not act proportionately when dealing with the large risks and reinsurance business of the London Market. It is essential to distinguish between the need to protect retail customers and the need to regulate business-to-business transactions that are not subject to the same asymmetry of knowledge and power.”

In its official response to the HM Treasury’s consultation on regulatory reform the IUA welcomed the review, commenting that gaps in the existing system clearly contributed to the country’s financial crisis.

It said that while these inefficiencies relate mainly to the banking sector, the insurance sector will be equally subject to the new regime. It urged that it is therefore vital that the proposed new institutions and their decision-making processes are designed with the needs of the insurance industry in mind.