I have had the opportunity this week to debate with a number of people over the role of the regulator in the insurance market, and whether they are a prohibitive or facilitative presence. What sparked the debate was hearing representatives from the Energy sector (in fact the head of R&D for one of the larger Energy firms), speak about how they collaborate with their regulators, and have been able to create an environment that positively promotes innovation.
One might argue that the Energy and Insurance sectors are vastly different. People from other parts of financial services might argue that Insurers have had it easy. I may even have been guilty of arguing those very points myself...
A well-educated and insightful individual from the Lloyd’s market challenged me when I discussed the role of the regulator as a supporter of innovation in the sector – I argued against, he argued for. I have since that discussion raised the matter with a number of other market practitioners of lengthy and respectable experience, and also heard from some of the startups who discussed their experiences with the PRA. It leads me to believe that we both may have been correct.
The real issue seems to be, not the regulator, but a legacy of uncoordinated practices. Often the larger entities in the insurance sector are the result of numerous mergers and/or acquisitions. Integration post acquisition has rarely been well managed, and in many instances (particularly when it comes to systems), a collection of conflicting approaches has resulted in a solution that is not fit for purpose.
New entrants in to the market have the benefit of starting with a blank sheet of paper, and immediately building something that works for them. It is therefore easy for the regulator to assess the quality of their practices and present an understanding and supportive profile.
Long standing firms however, generally carry a heavy legacy burden, quite often an encumbered IT package, and invariably deep-seated views on how things should be done. They therefore can find themselves at loggerheads with regulators, who struggle to get through to the foundations of their proposition.
The insurance sector has an interesting opportunity in front of it. As a whole, they can choose to collaborate with the regulator and drive through a supportive and balanced framework that will both offer protection for customers, and ease of activity for the risk carriers, as well as their intermediaries.
Unfortunately, it may mean many businesses need to clear away the old and start from scratch to offer the level of transparency consumers demand, and that regulators enforce. Can we see that happening...?