London market welcomes FCA streamlining proposals for UK insurers

By Rebecca Delaney

May 14 - (The Insurer) - London market participants have broadly welcomed the Financial Conduct Authority's plans to streamline regulation for UK insurance firms as an indication that the watchdog is taking its competitiveness mandate seriously.

The FCA said on Wednesday that it plans to strip away "outdated or duplicated" rules to lower costs and improve access for policyholders while maintaining appropriate levels of protection, under the wider aim to boost the growth and competitiveness of UK financial services.

The regulator also proposed the creation of a new definition for large commercial insurance customers who should not be captured by its conduct rules, which it said would ease the burden on firms insuring larger, more sophisticated buyers.

For instances where more than one party is involved in designing a product, the FCA also proposed the ability to appoint a single lead insurer.

Arabella Ramage, director of legal and regulatory affairs at the Lloyd's Market Association, said in a statement that the proposed new definition of commercial business will be a "material difference" for Lloyd's market players.

She said the Lloyd’s market may need to rethink lead and follow clauses under proposed rules that followers in a subscription market should be able to rely on the lead insurer for compliance with the rules.

"This should make it easier and less duplicative for insurers going forward. But the proposal that the lead should be the sole party responsible to the insured for redress may need the Lloyd’s market to think about new lead/follow clauses," she said.

Ramage added that by excluding brokers from being designated the lead, there is a "missed opportunity" to recognise the role of MGAs in developing products.

The FCA has also invited views on whether it should limit the scope of some rules to UK customers, which was highlighted as a particular benefit to the Lloyd's market.

"With over 85% of Lloyd’s business originating from outside of the UK, the possible changes in geographical scope could be a significant benefit for the Lloyd’s market. We will, therefore, urge the FCA to take this forward as soon as possible and use its accelerated consultation process," said Ramage.

Caroline Wagstaff, CEO of the London Market Group, welcomed the new definition of large commercial insurance customers in particular as an indication that the FCA is striving to implement a more proportionate regulatory system for the London market.

"If applied consistently across the rulebook, it will allow the regulator to focus on protecting the retail and SME consumers who really need it, while reducing unnecessary regulatory requirements for corporate clients," she said.

Wagstaff highlighted the plans to remove regulatory duplication as a "positive recognition" of the need to be more internationally competitive.

"We fought hard for the secondary competitiveness and growth objective because we believed it would kick start a change in regulator culture," said Wagstaff.

"This consultation is proof positive that it is working and highlights the benefits of moving away from a ‘one size fits all’ regime for insurance. We are encouraging all London market firms to respond to the FCA’s consultation and we hope that we can move swiftly to an ambitious policy statement which will drive investment and growth in the UK."

Ash Daniells, legal director at law firm Kennedys, said the proposed reforms would allow insurers more room to develop innovative products and respond quickly to market changes.

"The proposed changes aim to reduce regulatory complexity and give insurers greater flexibility, particularly when serving sophisticated or commercial clients," he said.

"Whilst it will mean fewer prescriptive rules for insurers, they will also face greater scrutiny if their interpretation of 'fair outcomes' is challenged by the FCA. It is positive to see a shift to a more flexible, principles-based approach, however it will also create uncertainty, particularly for smaller or mid-sized firms lacking sufficient compliance resources."