FCA urges insurers not to see regulation as a challenge

Speaking at the ABI Biennial Conference yesterday, McDermott highlighted increasing competition from overseas; abundant capital; low interest rates; and soft pricing.

She also admitted that there has been "significant regulatory and legislative change" in recent years, but urged insurers not to see regulation as an "adversarial process where the regulator and the regulated are in constant conflict".

McDermott highlighted that the ABI’s director general Huw Evans and CEOs across the UK have identified regulators as a challenge and regulatory changes as a key business risk.

She said that the industy's recent reform agenda had been essential, but extensive, adding that it "has demanded, and continues to demand, significant amounts of time and resources from the sector".

McDermott outlined three critical components to the success of the insurance industry in the longer term.

She explained:

"The first is that we must have competitive, innovative markets that meet the needs of consumers – both retail and wholesale. The second is that consumers must have trust and confidence in those providing insurance services.

"And the third is that we must have transparent, deep and well-regulated capital markets which can support long term growth and provide funding to the real economy. Thus giving the opportunity of a long term return to investors."

But she raised concerns that innovation has also led to new and different risks stating that "barely a day goes by without a reference to cyber or data security issues – and the insurance industry has to meet the challenges that presents – both as insurer and as potential target".

Other challenges highlighted include demographic and social change, including an ageing population and a growing indebtedness among the young. McDermott said that there is an increasing expectation that people will take more responsibility for their own financial futures and a demand for the industry to develop new ways to help them do that.

She said that it was important to have a regulatory environment which gives firms the confidence to innovate and develop products and services that meet these changing needs.

She also said there must be a willingness to look at rules that are not working and to be prepared to make changes where necessary, hinting that the FCA would be willing to remove certain regulatory requirements in order for firms to innovate.

She continued:

"By way of example, our recent work on Smarter Consumer Communications has highlighted areas where we think that mandated disclosures are not effective; and we are consulting on removing those.

"We have already reviewed the operation of the retirement risk warnings in relation to smaller pension pots – and are consulting on changes to make those more effective and less burdensome for industry and consumers alike.

"I want to stress at the outset that this is not about deregulation for the sake of deregulation. Simply removing regulatory requirements without considering the costs to society of doing so is not a long term or sustainable approach to regulation."

The FCA are already assessing the feasibility of a 'regulatory sandbox' - a space that would allow innovators to experiment with new ideas and real customers at an early stage, without the burden of excessive regulation, but with the informed consent of consumers and proper risk management.

Speaking at the P2PFA Summit at LendIt Europe, Harriet Baldwin said that the industry needs to ensure that regulation doesn’t act as a barrier to innovation.

She added that FCA is also working with the the Prudential Regulation Authority to identify how technology can help deliver regulatory requirements.