Zealotry in Canary Wharf

With a hearty wave of its consumerist banner, the FCA has announced its intention to ‘out’ insurance companies under investigation for alleged misdeeds, as opposed to waiting until the conclusion of its investigation. One senior industry figure bemoaned this latest assault on his sector: “It increasingly feels like profit is a dirty word down at Canary Wharf,” he said, adding: “If we make a profit, there’s an automatic FCA assumption that we are doing so at the customer’s expense.

The same executive pointed out that his company is currently dealing with no less than six thematic reviews, costing several million pounds in time and money. He argued, not unfairly, that the opportunity cost of managing these reviews plays out via massive increases in governance and compliance support, decreasing investment in new products and services, and promulgating a corporate culture where timidity and inaction carries more weight than imagination and innovation.

Although regulators, whether democratically elected MPs or state appointees, respond with some justification that Financial Services deserves all it gets after the excesses of the Global Financial Crisis, and assorted scandals (PPI anyone?). Also, they note increased regulation is strongly supported by customers, the long term consequences could be very severe, and not just for insurance companies.

One commentator explains that the long-awaited FCA review of add-ons has been delayed because the Government is worried that, if the FCA squashes this market, customers will not be able to buy add-on cover for a host of activities, having to fall back on the State, as opposed to settling a claim with the insurer when it all goes wrong. With the NHS being squeezed till the pips squeak, increased customer demand for health services is the last thing the Treasury wants. 

And at a macro level, austerity means under-insurance. People are finding it hard enough to pay their heating bills, let alone their insurance premiums. The more people are without cover, the greater the need for the State to step in. If the regulator makes it ever more difficult for insurers to earn a living, the alternative is some form of nationalisation.

Furthermore, if customers know that they can receive compensation when things go wrong with their financial services provision, why bother to shop around for the best provider? There’ll be no reward for FS companies that genuinely care about their reputations.

Surely the stage is set for the return of Sir David Prosser (the L&G chief who took on the FSA and won his case in 2005), but the sad truth is no single individual (or business) will risk taking on the FCA today. If you’re an approved person, why risk screwing up your career?  Instead, insurers are hiring consultants who advise taking enormous care in what executives tell their inquisitors.

One CEO told me he was told not to use the word “success” in an interview with his FCA interrogator.

If nobody will take the FCA on ‘tout seul’ our industry must look to its trade associations. I wonder whether the ABI restructure – which sees the highly regarded Huw Evans (ex number 10) promoted to run the GI lobby – is an indication that member companies are belatedly realising that the FCA is out of control and the balance needs redressing?  Certainly, the ABI’s first port of call should be the Treasury, armed with statistics and other compelling arguments to illustrate both the scale of regulatory cost on their businesses, and the impact on the State, from underinsurance.

And regulatory zealotry doesn’t just affect the big insurers; commercial brokers, MGAs, independents all have skin in the game. Maybe this is a moment for the ABI and BIBA to put aside any differences and deliver a collective ‘enough is enough’ to both Government and regulator.