UK regulators kill ILS & complex risk products on one-size-fits-all consumer protection zeal, industry argues

British regulators are stifling the London Market with a one-size-fits-all approach that builds barriers between the industry and the most sophisticated clients seeking the more complex risk products like insurance-linked securities (ILS) or captive solutions, industry leaders argued in commission for the House of Lords Tuesday (January 25).

On the face of it, the UK has the envy of the world in regulatory regimes, Caroline Wagstaff (pictured) of the London Market Group and Christopher Croft of Liiba told the House of Lords. But, put it in the hands of the British regulators and even dream regulation is a murder weapon.

The shortcoming: “how regulation happens on a day to day basis” and difficulty in finding “understanding from regulators that there is proportionality, that not all ins companies are going to pose the same risks to the system,” Wagstaff said.

“What you see at the current moment is a bit of one size fits all approach,” she argued. “You tend to see that a reinsurance company is treated like an insurance company and large customers that are sophisticated buyers are treated as if they are a buyer of a motor policy.”

Reinsurers selling their product to risk professionals at insurance companies find “really no differentiation by the regulators,” Wagstaff said.

London’s failure to capture the ILS market is a clear example. Regulation is “first class” on paper, but stifling in the hands of UK regulators, lobby leaders argued.

“The reason it doesn’t work is that the regulator treats the ILS market like any other insurer, …. even though it is a completely different beast,” Wagstaff said. Singapore built its market on a cut and paste of UK regulation and did more issuance in the past year than the UK did in the five years since the enabling regulation went on the books, Wagstaff claimed.

Insurance intermediaries, in turn, have been dragged down by an FCA inquiry into fair value on policies, motivated by real indication of retail customer abuse, but launched without defined scope, Croft claimed. The upshot, a brokerage community struggling to justify the cost of high-level risk consultancy across various fields in the price of eventual specific insurance policies. It’s a “significant and costly” regulatory exercise, he said.

Measures for better proportionality are easy enough to find, the leaders of the two industry lobby groups claim. Size of client by turnover, industry definition of risk size of risk, regulatory definition of the nature of the buyer could all be intro-level breakdowns.

Lords offered the business representatives an easy ride through the commission hearing, tossing out questions ostensibly designed to draw out the arguments presented by the lobby leaders.

The House of Lords Industry and Regulators Committee launched its inquiry into London market regulation with an interview of the LMG and LIIBA leaders.

The Committee has said it hopes to explore the extent to which regulatory policy is well-designed “and proportionately applied” as well as options for post-Brexit tweaks, the committee said in its recent call for opinions.

Market players and industry insiders have until February 11 to put forward their views.

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