The Prudential Regulation Authority’s new insurance objective to provide an appropriate degree of protection for policyholders is likely to mean supervision of insurers will be more intense than banking supervision, according to PRA chief executive designate Hector Sants.
The objective was announced by Chancellor George Osborne last week. Laying out the PRA’s approach to regulating insurers at a conference in London this morning, Sants said the extra responsibility could lead to more intense supervision.
He said: “The PRA will engage in baseline supervision of all insurance companies. Relative to their size and complexity it is likely this oversight will be more intense than that of an equivalent bank, given the need to address the obligation to look after policy holders forward looking expectations.”
The discussion paper on the new approach, also released this morning, says: “The PRA’s role will be to ensure there is a reasonably high chance that an insurer is able to meet claims from, and material obligations to, policyholders as they fall due. And to make sure that where an insurer is unable to meet such claims and obligations, the adverse consequences for policyholders are minimized by ensuring the insurer fails in an orderly manner.”
The objective was introduced to address concerns the regulator may be too focused on banking regulation. Responding to a question from Association of British Insurers director of financial regulation and taxation Peter Vipond, Sants said the objective was a “first step” and not an end product.
He stressed however that terms like “reasonable expectation of policyholders” had been avoided in framing the objective and that an “objective framework” would be developed.
Sants said the objective is only intended to deliver protection to policyholders in terms of the damage that a firm’s failure could do rather than dealing with issues around the point of sale, which would be the responsibility of the Financial Conduct Authority.