Editor's comment: The bad apple?

Regulation can create a level playing field, it can give consumers confidence and standards, and also accountability.

But what if regulation was to stifle innovation, free thinking and progress?

Last week the Senior Insurance Managers Regime came into effect requiring insurance firms to clearly detail their management structure and allocation of individual responsibilities through governance maps.

This aims to ensure senior insurance employees are held to account for misconduct that falls under their area of responsibility and to attempt to stop the ‘rolling bad apple’ – individuals that have committed misconduct or regulatory breaches moving between firms who remain unaware of their previous history.

So far so good. But to seek out what is hopefully only a bad few the regulator has changed the governance of the many – with companies now forced to have clearer frameworks of individual responsibilities and a more robust evidence trail for most c-suite roles.

Many believe this clarity is positive but there is uncertainty to what extent top ranking employees will be impacted. Some have called for “extra compensation and protection that’s covered by their employers” as a result of the added pressure and responsibilities. But is adding ‘danger money’ really going to help the situation?

Senior insurance managers have had to be fit and proper and abide by conduct standards for some time so is this regulation really necessary? There is a worry that high quality candidates could be put off going for the top jobs as the pressure and the responsibility is more defined. People will be more accountable and the regulator has issued a clear signal that any suggestion of misconduct will put them firmly in its sights?

Leading lawyers have suggested people could fall foul of the subjective view of former employers and issues if there is another agenda against them. So will this leave a stagnant recruiting pool in the future? Or could it leave insurers as pseudo-banks with little insurance experience sitting at board level, as suggested by former Suncorp and Aviva executive Patrick Snowball?

In 2018, the regime will be rolled out to insurance brokers and this will be an even greater burden for this sector, especially smaller independent brokers. There is no dispute that this is increasing costs and no real argument is offered as to how this improves policyholder protection.

Will this regulation itself become the rolling bad apple?

Stephanie Denton

Editor