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The Actuary The magazine of the Institute & Faculty of Actuaries

The future regulation of insurance

The Financial Services Authority (FSA) held a half-day briefing on 4 December 2002. Nearly 200 people attended from a variety of organisations: insurance companies, banks, building societies, solicitors, accountants, and other consultants. There were surprisingly few consulting actuaries present.

The emphasis throughout the briefing from the FSA speakers was on risk-management frameworks, and the importance of regulated firms having good systems and controls. The risk-management framework should be comprehensive, integrated throughout the firm, and well documented. Senior management is ultimately responsible regardless of outsourcing or other arrangements. Good controls, together with a compliance culture, should lead to less crystallisation of risk and hence less regulatory intervention. None of this was new, but there is clearly some concern that the risk-based approach has not been fully taken on board throughout the industry.

Both Richard Harvey of Aviva and Mary Francis of the ABI, representing those who are regulated, expressed some concerns about the burdens being placed on many insurance companies by the new way of doing things. Would better systems and controls really lead to a lighter touch from the supervisor? Is the emphasis on high-impact firms ignoring the risk to the FSA’s objectives posed by the simultaneous failure or shortcomings of several smaller firms? It is important that regulatory creep is minimised: the FSA shouldn’t go too far towards protecting people from risk rather than educating them to understand it and take responsibility for themselves.

The slides and transcripts of the presentations are at www.fsa.gov.uk/industry/ftr_regl_ins-dec02.html.