Reaching agreement with government on flood insurance and getting Solvency II over the finishing line are among the top priorities for the Association of British Insurers in 2012, director general Otto Thoreson said yesterday.
Reaching agreement with government on flood insurance and getting Solvency II 'over the finishing line' are among the top priorities for the Association of British Insurers in 2012, director general Otto Thoreson said yesterday.
Speaking in London, Mr Thoreson also identified fraud, the high cost of motor insurance and risk pricing as issues which the ABI would seek to address in what he said was a 'critical year' for the insurance industry.
He said the recent UK veto of European Union treaty change to address the eurozone crisis would impact on the Solvency II changes and called on the UK insurance industry to work with others to make its case on the issue.
'It is incumbent on us to maintain strong alliances and to make a strong case for change to those rule changes which could hinder rather than help,' he said.
Describing a competitive, global UK insurance industry as an 'essential contributor' to the UK economy, he added: 'Our focus remains getting Solvency II over the finish line, and we are working hard with the FSA for internal models to be agreed on time, while making reasonable requirements on data.
'There are still improvements to be made however, for example, on the calibration of the capital charge for catastrophe risk in the standard formula.'
By discouraging investors from long-term investment, Solvency II also represents a 'big challenge' for the industry's aim of working with government to create a new asset class of infrastructure bonds. Mr Thoreson said this could see insurers invest in everything from railways to hospitals.
More clarity on the conduct side will hopefully come this year with the creation of the Financial Conduct Authority. This will be a 'moment of truth' for the UK financial services industry, Mr Thoreson said.
'2012 will be the year when the debate settles and we see what kind of conduct regulation government has in mind for the UK'.
Mr Thoreson identified flood insurance as one of the key challenges facing the general insurance market. Flooding is the 'biggest catastrophic risk' facing the UK, he said, while action to address the high costs of motor insurance and reduce fraud was also vital.
With the current agreement on coverage of flood insurance, the Statement of Principles, expiring in mid-2013, he said: 'We want to see a free market with a support model financial through general taxation, and with government as insurer of last resort - as happens across the world.'
The general insurance market also needs to be able to price according to risk, he said, without interference from government and Europe.
'Risk pricing encourages consumers to improve their risk - like through telematics schemes for drivers - or by encouraging the government to reduce their risk too, such as by building better flood defences,' he explained.
Mr Thoreson acknowledged politicians' view that insurers have a moral obligation to reduce premiums, but instead called for the industry and government to work together to tackle 'the cause of the problem'.
On pensions and life insurance, Mr Thoreson said the start of auto-enrolment in October 2012 is a 'real opportunity to get saving into the public consciousness.'
The change will put pressure on employers' and employees' costs, he said, but this could be addressed by minimising the risk in investment strategies, encouraging retirees to exercise their open market option and make charging structures more transparent.
With this, he said, 'we have a real shot at using this opportunity to address the UK's chronic under-saving'.