Carney Warns Insurance Companies

Carney Warns Insurance Companies.

The credit crunch did not really affect insurers, it hit banks with falling property prices, mortgage defaults, toxic debt and ultimately mergers and bailouts.

The fallout from this has been:

• The Mortgage Market Review (MMR):  Forcing lenders and mortgage brokers to be much more accountable when arranging mortgages and ensure that all mortgages are “suitable and affordable”
• New capital adequacy requirements for all finance companies, directed from Brussels, meaning that all firms must hold much more capital and have severe stress testing to prevent collapse in difficult market periods
• A new regulator to police large banks, building societies and insurers called the Prudential Regulation Authority (PRA) – supervised by the Bank of England.

Whilst insurers have remained largely immune from the credit crunch, Mark Carney, Governor of the Bank of England and indirectly therefore, overall chief of the PRA, has issued a warning that insurers are accountable for their own actions and have a duty to:

Be professional and ethical with the industry doctrine long established to run the firms with due skill, care and diligence

Ensure that products are suitable and fair for the consumer

Not make decisions that are likely to be high impact or cause consumer detriment

Comment

Pressure increases on insurers (in conjunction with bankers) over:

• PPI mis-selling
• Annuities being out of favour given new retirement flexible drawdown rules
• Other misspelling issues
• Financial ombudsman complaints mounting
• Capital adequacy pressure
• Cleaner, more transparent investment and pension schemes
• No commissions when financial advice is given i.e. a fee must be charged (under the Retail Distribution Review RDR)
• Commissions still allowable where no advice is given (a potential mis-selling disaster waiting to happen)
• Removal of sales incentives for volume sales for large introducers
• Increasing popularity of platforms where insurance and investments house are not attracting the investments that they used to as people manage their money on ISA and Pension Platforms
• Pressure from Government to reduce charges or indeed cap charges on pensions
• We could go on …..

We think it was probably about time that Mr Carney reminds large insurance groups of their obligations.