Last week's overwhelming 'no' vote in the referendum on the UK's voting system has only served to deepen divisions and highlight political polar positions within government, but how does the insurance industry rate the coalition's first 12 months in charge? Post asked experts from the broking, insurer and legal fraternities to give their quick-fire assessment.
CEO, Horwich Farrelly and former president of the Forum of Insurance Lawyers
Head of UK govt & industry affairs, Zurich Insurance
Head of corporate afffairs, Biba
Head of compliance & training, Biba
Graeme Trudgill and Steve White: No it has not. We have the highest direct and indirect regulatory cost burden of any European country and the government needs to stop just talking about deregulation and the regulatory leviathan it inherited and take some action.
Sophie Spink: It's made a good start. The government has listened to industry concerns on important issues that should help our reputation and standing. The recent Budget saw a welcome reduction in corporation tax, and it has shown commitment to implementing Lord Young's health and safety report as well as in constraining 'no win, no fee' legal practices — both welcome moves.
Anthony Hughes: It is too soon to tell if what the government has done is enough but it has certainly focused on trying to get the country back on its feet. No golden bullet exists and there is a delicate balancing act to be struck between interest rates, inflation, taxes and employment. The cuts have had an impact and will continue to do so. I just hope the balance adopted is the right one.
Ashwin Mistry: The present government inherited a number of key challenges, partly brought about by the previous administration and partly by global considerations — both of which have impacted on the immediate effectiveness of certain decisions. Our competitiveness at being the financial centre of the world is undoubtedly being challenged, not least by other countries providing perhaps safer and more tax-friendly regimes and I believe more countries will develop as we move into the next decade.
What one thing would make a significant difference?
GT&SW: Address the disproportionate regulatory cost burden for UK firms-from both a direct and indirect perspective.
What has been your greatest disappointment since the coalition government came to power?
AH: The VAT increase - and I hope it comes down again as things settle. I suspect it is a necessary evil.
GT&SW: The politicising of financial services regulation - regulation should not be a political football.
AM: First and foremost, a coalition is not an ideal solution for this country, the way in which we administer policy or the way we have done so historically. While coalitions in other European countries work and function positively, their culture allows it to do so. We are different - and trying to copy or imitate others is not being bought into by a number of interested groups. So, for me, we have an immediate identity crisis: where do we really sit in global terms? Do other countries value our position? Are we seriously a global powerhouse?
Do you believe the government has failed to deliver on its promises?
SS: It was always clear that whichever government came to power, it would be faced with an urgent need to reduce the budget deficit. These challenges require a careful approach focused not just on the immediate issues facing public services, but also on the impact of some of the long-term problems as well. Without this dual focus, there will be considerable risks and costs ahead.
GT&SW: It is too early to say. Yes, the government has put through the ‘continuous insurance enforcement' legislation but it failed to fund the CIE awareness campaign.
AM: The promises made by all the parties has been somewhat diluted - we only have to look at tuition fees, tax breaks for the wealth creators, business relief, competitive sterling, inward investment and our ever-growing welfare state. UK plc has some serious challenges and it seems we are trying to please too many people at the same time, which contradicts the direction this country needs.
Would you describe having a coalition government, from the perspective of UK businesses, as the best of both worlds or strategically disjointed and rudderless?
SS: From Zurich's own experience we are seeing a good level of engagement with the government across the departments we speak to.
AH: I think it is an interesting balance - one that allows both parties to rein in what some may see as extreme policies, while at the same time being able to adopt each other's when they suit under the guise of compromise.
GT&SW: The Conservative-led coalition seems to be applying mainly Conservative policies so we would not agree with either of those statements.
Is the move to split up the Financial Services Authority a positive or negative decision for the UK insurance industry and why?
SS: On a day-to-day basis, there is unlikely to be a huge difference for firms: the Treasury has put forward proposals to minimise the amount of duplication between regulators and, if implemented successfully, having two regulators shouldn't be a significant issue.
GT&SW: The insurance sector was not the cause of the banking crisis, nor did we contribute to it. The decision to change the regulatory architecture as a consequence is not one we immediately supported but it does give us the opportunity to lobby for a more appropriate, proportionate and cost-effective approach to the regulation and supervision of our sector going forward.
AM: As the ‘new' FSA is likely to be populated by staff from the existing regulator, we will see little change apart from it becoming more jobsworth perhaps, without individuals really getting to grips with what client-facing brokers see as the real issues.
If you could have the ear of one government minister, who would you choose and what would you say to them?
GT&SW: George Osborne. The direct and indirect regulatory cost burden for UK insurance brokers is three times higher than the second most expensive member state in the EU. This cannot be right and it is not acceptable.
SS: The Lord Chancellor, Ken Clarke. We would applaud him for proposed reform of the ‘no win, no fee' claims culture, which has become the blight of the modern insurance industry. It has fuelled the rise in the cost of insurance - particularly car insurance - for all our customers for the past decade.
AH: Ken Clarke. I would advise him to make sure he actually listens to lawyers and the wider industry and really thinks through some of the reforms proposed for the civil justice system - and not just take the line that best suits the government in the short term.
AM: If I could have the ear of any one minister, I would certainly impress upon them that insurance is more than ‘car insurance'; this industry is global and, in the UK, we play a major role in so many ways. Too many times, I have heard insurance relegated to basic, price-driven domestic products by the government, which - while important - misses crucial issues. I also believe we don't get enough bang for our buck - for example, insurance premium tax now stands at 6% and is a great revenue stream for HM Treasury. I believe we should push our negotiating position as free collectors of taxes and negotiate some benefits, such as positive contribution to flood defences, which were reduced in real terms at the last budget.
If the government moved to only allow lobbying via the briefness of 140-character ‘tweets' to encapsulate key messages and demands, what would you say on the following key issues:
GT&SW: More appropriate, proportionate and less costly approach for brokers, please!
SS: HMG is committed to cutting red tape. It has a gr8 opp to set businesses free but must not be at the cost of good health and safety standards.
SS: ‘Jackson' reforms are welcome but we hope to see steps by the Legal Services Board or HMG to bring in more proposals around banning referral fees as soon as possible.
AH: I am not sure anyone cares anymore.
AM: Unfortunately, those who want referral fees curtailed are also major beneficiaries, so conflicts of interest all over the place.
SS: Fraud costs everyone - it must be a priority for all of us. Fraud police team a great idea that needs to happen.
AH: Get tough and resource the police properly.
AH: Avoid unintended consequences; if you do it will be a first!
SS: HMG should continue to argue for legislation that preserves the original aim of Solvency II - risk-based prudential regulation.
GT&SW: Reinstate defence spending to that of the Labour government if you want the insurance industry to provide cover across the UK.
SS: Need to see urgent action on defences and surface drainage plans to ensure insurers can keep flood cover in place.
Will the extent of public spending cuts adversely impact on the quality of risks presented to insurers, either directly or non-directly, and will this manifest itself in larger numbers and value of claims?
AM: Public spending cuts, coupled with harsh economic truths, will hurt British industry, especially the SME sector. With constant legislative changes the burden on SMEs is disproportionate to their earnings. The abolition of compulsory retirement age, increases in minimum wages, introduction of NEST and paternity rule changes all add cost to companies that are ill-equipped to seek recourse.
Has the new ‘type' of government - that's to say, coalition-enabled insurers to re-engage with policymakers in a new, more effective way?
SS: There has not been a huge change - the kind of decisions that ministers make about insurance issues has more to do with the way the individual policymaker approaches the technical aspects of the issue than it has to do with party politics.
If you were to mark the government's performance in the past 12 months by way of a star rating, how many out of five would you give in response to the following two questions: Actions taken to improve the lot of the UK insurance industry?
GT&SW: ** - one star for CIE, one for signposting, and none for flood/ regulation or the Financial Services Compensation Scheme.
Actions taken to improve the competitive of UK business in the long-term?
GT&SW: First we need a regulatory system that puts the UK on a competitive level with Europe.
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