Solvency 2 and Insurance (Amendment, etc.) (EU Exit) Regulations 2019 — House of Lords, 2019-02-11
Topic: Domestic Commerce
Charles Hay (Crossbench, Unknown): My Lords, I declare my interests as set out in the register, especially those in respect of the insurance and reinsurance industries. I will speak briefly to two of the three statutory instruments: the Solvency II and insurance regulations and the insurance distribution regulations Turning to the Solvency II and insurance regulations, and thinking about the near term, I congratulate the drafters of the statutory instrument; I know the ABI has been sitting with Treasury and PRA officials. First, it gives great comfort to the board of an insurer or reinsurer in the near term—I was thinking about how I would analyse it. It gives certainty on capital required, rollover for capital models and the ability to use reinsurance as temporary capital, and the asset values in an insurer’s balance sheet are unaffected. Secondly, I think the mutual equivalence regime is clever. It would have been possible to put equivalence for EU countries in the statutory instrument, but instead it is left to the Treasury to decide what to do. I think that is important because otherwise it would be possible for us to grant equivalence and then find that our Lloyd’s market had no equivalence granted back to it in the EU, which would be quite wrong. Mutuality of interest is preserved by that. Finally, I think the selection and measures designed to reduce that horror for all insurers, multiple regulation of the same action, is as good as can be done in the circumstances, so I congratulate the drafters on that However, thinking about the longer term, I put a question to the Minister. Solvency II—which came into force on 1 January 2016, for those who did not know, and is a regulation dating from 2009—is very much a one-size-fits-all solution to the problem of having the right amount of capital in your insurance market. Accordingly, it was not designed for the British situation. If you look at equivalent regimes in other jurisdictions—I am particularly familiar with the Bermuda jurisdiction, which is equivalent to the EU, but there are others such as Japan, Australia, Canada and the US, which is of course 50 jurisdictions in insurance terms—it seems that some changes could be made Your Lordships might well ask for some examples and I can think of two. There is a lot of gold plate around; that can go away. But one dynamic that has always surprised me is that over the last 15 years or so a large number of insurers and reinsurers have been set up, notably in Bermuda, while I do not think any have been set up here in the UK, the home of insurance. A review could properly investigate that dynamic. There are many reasons for it but I hope a review could address them because, to be competitive, I hope that new insurers and reinsurers will be born here, and soon. I would like to hear the Minister’s views on whether a review is warranted and can be expected I turn to the insurance distribution regulations. The directive on insurance distribution came in during 2016 and was the update to the 2002 insurance mediation directive. Insurance brokers were then hit by a regulation in 2017, which expanded on the directive, and in 2018 were hit by GDPR. A substantial series of changes have thus been made to how they need to operate, and a period of stability for them would be quite important. I come from the insurance underwriting world but I know the absolute necessity of having a healthy insurance intermediary world to feed our insurance underwriters One statistic that is a little worrying is that when the FSA, as it then was, took over the regulation of brokers there were 8,000 insurance brokers in Britain. Britain now has a bigger economy and we are down to under 5,000 of them, which does not feel right to me. I know that it is extremely difficult to found new insurance businesses. Does the Minister feel that, in the longer term, a review would be warranted here? It could seek out gold plate—insurance brokers are sure, and I am convinced, that the cost of regulation in this country is far greater than in other EU countries—but also look at why we have a shrinking number of brokers and why it is so difficult to start up a new broking business. A good review there would certainly give us a fitter and healthier insurance industry.