Insurance Regulation & Accounting
Coming your way…
IR&A’s timetable is regularly updated to cover as many new developments as possible while also keeping an eye on events as they unfold. The first table incorporates the FSA’s agenda for consultations, discussion documents, thematic work or events of interest to insurers for the year ahead and beyond. On the next page we list the events, papers and developments on the horizon from other bodies in the UK, Europe and internationally.
| Title | Date | Detail |
|---|---|---|
| Travel insurance review | Q1 2007 | The UK Treasury is reviewing travel insurance sold by travel agents – currently unregulated – following pressure from consumer groups and the insurance industry to address the imbalance. A formal consultation was launched in November 2006, open until February 2007, which listed the options as no change, strengthened self-regulation or full FSA regulation. The government is expected to announce its decision in Q1 2007. The House of Commons Treasury Committee has recommended that the government bring travel agents under the FSA regime. |
| Principles-based regulation | April 2007 | The regulator is due to present the market with further details on its principles-based supervision concept in April, following a series of meetings held with chief executives at the beginning of the year. |
| National Audit Office review of the FSA | H1 2007 | The Treasury commissioned the NAO (July 2006) to review the “economy, efficiency and effectiveness” with which the FSA carries out its statutory duties. It will be the first time that the NAO has been granted access to the regulator and the areas due to be covered include internal performance management, external joint working within the UK, influencing and representation internationally, financial crime and financial capability. The NAO said it hopes to publish its findings as early as possible into 2007 and the Treasury said it will lay the report before Parliament during the first half of 2007. |
| General insurance regulation – FSA review | June 2007 | The regulator announced in September 2005 that it was to review the effectiveness of the general insurance regulatory regime since it was first introduced at the beginning of 2005 in line with EU requirements for intermediary regulation. A final report was published in March that made some early suggestions for rebalancing the insurance regime, to include deregulation for some insurance lines such as household and motor and new rules for protection products to reflect the different levels of consumer detriment and understanding. The FSA said it will publish a consultation paper in June 2007 to discuss any rule changes to insurance conduct of business rules, with final revised rules made in December 2007. |
| Payment Protection Insurance (PPI) thematic work | June 2007 | The FSA is to revisit firms failing standards in the sale of PPI in its two-year long effort to improve practices. The FSA said the programme is one of the largest pieces of thematic work it has ever undertaken. The FSA is also considering changing its rules regarding PPI saying it is “not convinced that its current rules relating to PPI are delivering the protections that customers deserve and intends to see if there is a case for changes to some of the existing rules or the introduction of new rules”. The current exercise will concentrate on whether firms are informing customers that PPI is optional, that customers receive clear details about the product, its costs and exclusions, that the advice given meets the policyholder’s needs and that a refund is offered if the policy is cancelled. |
| Financial Services Compensation Scheme – wholesale pool proposals | Autumn 2007 | Following its funding review of the FSCS in March 2007 the FSA said it would launch a separate review for a wholesale pool to be made available in the event of a serious market failure exhausting the funds of the enlarged retail pool. The FSA said it does not envisage the wholesale pool, should it go ahead, to be implemented before 1 April 2009. It said levies on the wholesale market are likely to be “irregular” and although it will announce a limit on wholesale businesses during the forthcoming consultation it has aired a figure of between £1bn and £2bn per year. |
| Commission disclosure | Throughout 2007, with results of work due to be published in Q4 2007 | The FSA has been disappointed by the industry’s failure to come up with its own solution to the lack of transparency surrounding commissions earned by wholesale intermediaries. The regulator said it will analyse the extent to which lack of transparency leads to customer detriment or impairs market efficiency and whether regulatory intervention, via mandatory commission disclosure, would lead to benefits that outweigh the costs. |
| International Financial Reporting Standards | Q4 2007 | The FSA is to follow up on the changes to its prudential regimes in 2004/05, designed to accommodate IFRS and closely-related UK accounting standards. It will review the practical application of IFRS and consult on any proposed changes towards the end of the year. |
| Financial Reporting Council | Before end 2007 | The FRC is assessing progress in implementing the Combined Code on Corporate Governance. It opened comment in April to find whether companies believe the code has helped to improve board performance, its impact on smaller listed companies, and the effectiveness of the “comply or explain” mechanism. Views from listed firms, directors and investors are invited by 20 July 2007. The FRC will publish its findings before the end of 2007. |
| Financial Ombudsman Service – funding review | January 2008 A consultation paper due in early 2007 - already delayed from Autumn 2006 – has been postponed and will now form part of the FOS’s annual budget | Changes to the way the FOS is funded to make it fairer for firms have been shelved with the FSA and FOS deciding to defer any serious changes until the FOS’s case load stabilizes. The review, initiated in May last year, was expected to result in a consultation paper to discuss the more radical option, favoured by firms, to target case fees from the firms that use the service the most. The consultation had been subject to several delays, with the rules originally expected to be changed by the end of 2006, but will now be dealt with in a more modest form as part of the FOS annual budget. The FSA said the FOS is about to experience “significant volatility” in case numbers and that it “is not possible to model with any degree of certainty how significant changes at this stage would affect both the financial stability of the FOS and any alternative distribution of costs among firms”. |
| Financial Services Compensation Scheme – retail proposals | 1 April 2008 | New funding arrangements following a two-year review were published in March 2007 and proposed to enlarge the size of the fund to a potential £4.4bn. The FSA wants to disband the current system which sees defaults contained with their own sector in order to increase the available pool in the event of a serious collapse or a series of defaults. Any new funding arrangements will take effect from 1 April 2008. |
| Organization | Development | Date | Detail |
|---|---|---|---|
| Office of Fair Trading (OFT) – Payment Protection Insurance (PPI) | Consultation paper to refer the industry to the Competition Commission | Early 2007 | The OFT said in October 2006 that it intended to refer the UK PPI market to the Competition Commission and at the beginning of 2007 it made good on its word. The Competition Commission has opened a case on PPI to decide whether “any feature, or combination of features, of each relevant market prevents, restricts or distorts competition in connection with the supply or acquisition of any goods or services in the United Kingdom or a part of the United Kingdom”. Written evidence will be collected until 2 March. The OFT’s market study in April 2006 revealed consumers were “failed” by PPI with policies offering a poor deal financially and providing less protection than consumers believed. |
| IASB | Phase II of IFRS accounting for insurance | May 2007 (delayed from March) | Work on Phase II started in 2004 although progress has been significantly delayed. The initial output will be in the form of a discussion paper, which failed to meet the end of 2005 deadline, the early 2006 target and now the end of 2006 deadline. The IASB says the paper should be ready for mid-May 2007. An exposure draft is expected to take an additional 18 months and a standard an extra year on top. |
| HM Treasury | Chancellor’s High Level Group meeting | 10 May 2007, Downing Street | The Chancellor Gordon Brown will host the second meeting of the High Level Group, first formed for a meeting in October 2006 to discuss the UK’s competitiveness. Lord Levene from Lloyd’s, Grahame Millwater from Willis Re and Andrew Kendrick from Ace European Group are working on the modernisation of the wholesale insurance and reinsurance market in London via the Wholesale Market Review Group. |
| Ceiops | Solvency II Quantitative Impact Studies | H1 2007 | Ceiops is to conduct a third QIS to build on the findings of the first two exercises. Ceiops said QIS 3 will include more detailed calibrations that will give firms a better idea of their capital requirements under the proposals for Solvency II. |
| European Commission | Framework directive for Solvency II | July 2007 | The EC is confident of producing a draft framework directive for Solvency II in July 2007. Member states are already ploughing through drafts and highlighting several areas for disagreement, including approaches to the Minimum Capital Requirement and how to address the issue of insurance groups. |
| Securities & Exchange Commission (SEC) | Sarbanes-Oxley (section 404) | 15 July 2007 | The SEC bowed to international negotiations and granted a one-year extension to foreign firms with a US listing to comply with new governance and internal control rules to 15 July 2006. An additional year – to 15 July 2007 – was granted in October 2005 for smaller companies (including foreign private filers) that are not accelerated filers. |
| European Commission | Insurance Guarantee Schemes | Second half 2007 | The Commission delayed a decision (due in the first half of 2006) on whether to propose legislation for mandatory insurance safety net schemes throughout the EU until it receives the results of a feasibility study. Terms of reference have been set and an external consultant appointed in Autumn 2006. The study could take until the second half of 2007 to be completed. |
| Competition Commission at the EC | Sector investigation into business insurance and retail banking | September 2007 | The consultation period for the Commission’s 155-page interim report raising several competition issues in the industry closed on 10 April 2007. The Commission announced that it will conduct additional investigations in targeted areas to clear up some issues and also to help sharpen the focus of the inquiry before it published its final report in September 2007. The review was first announced in June 2006. |
| National Association of Insurance Commissioners (NAIC) | Reinsurance collateral | September 2007 | A vote 15-5 in favour of a new collateral charging system will now be passed to the E Committee of the NAIC to refine the proposals by September 2007. Under the proposals drafted by the Reinsurance Task Force of the NAIC, all reinsurers (whether domestic or foreign) will be assigned a rating based on their financial strength and will have to lodge between 20% and 100% of their liabilities in collateral accordingly. The proposal introduces a collateral system for US reinsurers for the first time and offers foreign reinsurers the opportunity to file less than the 100% collateral currently levied on all non- US reinsurers. The latest development follows a draft proposal issued by the Reinsurance Task Force at the end of October which was voted on during the NAIC’s Winter Meeting in December 2006. |
| European Commission | EU Reinsurance Directive | December 2007 | The Reinsurance Directive was published in the Official Journal on 19 December 2005, giving member states until 10 December 2007 to transpose it into national law. The Commission Services said it will hold a meeting with member states by the end of 2006 in order to ensure consistent transposition of the directive. |
| Better Regulation Executive of the UK government’s Cabinet Office | Davidson Review of Implementation of EU Legislation | By end 2007 and by July 2008 | Lord Neil Davidson QC’s review of the UK’s implementation of EU legislation has identified the Insurance Mediation Directive as over-implemented in the UK. It has recommended that the Treasury should consult on reducing the scope of activities caught by the FSA’s regulatory regime by the end of 2007. In addition, it recommends that the FSA should simplify rules on product disclosure, remove the requirement for insurers to check the authorisation status of intermediaries, reduce and simplify client money rules and reduce prescriptive rules in areas such as training and staff competence - all by July 2008. |
| European Commission | IFRS equivalence | 2008 | Last year, the EC decided to continue to allow US listings using US GAAP until 2009, in line with the SEC roadmap for allowing IFRS based registrations. The US and EU are still working on mutual recognition and removing the reconciliation requirements for IFRS and US GAAP until the standard setters develop the longer term convergence process. In 2008, Charlie McCreevy said the SEC and the EC will have to take “crucial decisions” for plans beyond 2009. |