The Financial Services Authority (FSA) has put on hold its work to develop rules to bring about contract certainty in the insurance market.
Speaking at the FSA's Insurance Sector Conference today, John Tiner FSA CEO, acknowledged the progress made by the insurance market in meeting the FSA's challenge to achieve contract certainty. The challenge to end the 'deal now, detail later' approach was issued to the market in December 2004.
The FSA gave the market two years to ensure that insurance contract terms are agreed at the time the policies commence. Contract certainty will lead to greater certainty for buyers about what they have bought and for insurers about the risks they are covering, whilst also reducing risks for brokers.
Link>>> Financial Services JobsThroughout this period, the FSA has been clear that if the market fails to develop its own solution, it will have to intervene with new rules and requirements. In line with its better regulation agenda, the FSA's preference has always been for the market to find its own solution without the need for regulatory intervention.
Since December 2004 the FSA has been monitoring progress by working with groups representing the market to achieve the goal of contract certainty.
Today's announcement follows the receipt of data from the market showing that it had exceeded its own targets for achieving improvements in contract certainty at the end of 2005.
John Tiner said:
"To demonstrate our good faith in the market's ability to reach its goal, we will not be pressing ahead with our work on the contingency plan of regulatory intervention. We are putting it on the back-burner, although we are not taking it off the stove altogether.
"I would strongly caution against complacency in these next few crucial months; the market must continue to stretch itself to guarantee that the challenge is met by the end of the year….On our part, we will continue to assess progress beginning in the next quarter, not least to see how the market has performed against the challenging 1 January renewal period. We will continue to work with the market in our rôle as over-seer and facilitator, and will not hesitate in consulting on new rules should progress falter."
Two other significant announcements were made at the conference by Hector Sants, the FSA's Wholesale Managing Director.
The two announcements form part of the FSA's wider agenda of better regulation - creating a regime that offers greater flexibility to firms and is responsive to changing market needs. They will make the London market an easier place in which to do business and will help to position London as the regulatory platform of choice for the wholesale market, whilst maintaining its high standards.
The announcements were:
the FSA will speed up the process of authorising new insurers in response to market needs at times of pressure, for example following major catastrophes, when new capital becomes available, and ahead of critical market renewal periods. The FSA already has an efficient authorisation process in place, taking an average of 17 weeks to conclude its review of an application. The FSA will accelerate this process for insurers in periods of market pressure, although it will continue to apply the existing standards. Where the FSA has prior knowledge of a group it will authorise a firm within one month of receiving the application. Where the FSA does not have prior knowledge then it will make a decision on an application for authorisation within 10 weeks of receiving an application; and
as part of the FSA's consultation on the Reinsurance Directive later this year, the FSA will consult on the introduction of Insurance Special Purpose Vehicles (ISPVs). Through the consultation, the FSA aims to open up the SPV market here in the UK.
Notes to editors
John Tiner's speech to the conference can be found here, and
Hector Sants' speech can be found on the FSA website.
The original challenge to the industry was made in a
speech given by John Tiner in New York in December 2004.
Public records of the
December 2004,
July 2005 and
December 2005 meetings between the FSA and senior industry representatives can be found on the FSA website. A further meeting with the industry on 21 March will also be recorded.
ISPVs are special purpose reinsurance vehicles which are fully funded by issuing debt. If the ISPV has to pay out under its reinsurance obligations, the repayment rights of the debt holders are reduced accordingly. Under the Reinsurance Directive, EU member states that want to create an ISPV market can introduce appropriate authorisation and regulatory requirements.
ISPVs are defined in the Reinsurance Directive as: 'any undertaking, whether incorporated or not, other than an existing insurance or reinsurance undertaking, which assumes risks from insurance or reinsurance undertakings and which fully funds its exposure to such risks through the proceeds of a debt issuance or some other financing mechanism where the repayment rights of the providers of such debt or other financing mechanism are subordinated to the reinsurance obligations of such a vehicle'.
The FSA regulates the financial services industry and has four objectives under the FSA/PN/022/200620 March 2006
The Financial Services Authority (FSA) has put on hold its work to develop rules to bring about contract certainty in the insurance market. Speaking at the FSA's Insurance Sector Conference today, John Tiner FSA CEO, acknowledged the progress made by the insurance market in meeting the FSA's challenge to achieve contract certainty. The challenge to end the 'deal now, detail later' approach was issued to the market in December 2004.
The FSA gave the market two years to ensure that insurance contract terms are agreed at the time the policies commence. Contract certainty will lead to greater certainty for buyers about what they have bought and for insurers about the risks they are covering, whilst also reducing risks for brokers.
Throughout this period, the FSA has been clear that if the market fails to develop its own solution, it will have to intervene with new rules and requirements. In line with its better regulation agenda, the FSA's preference has always been for the market to find its own solution without the need for regulatory intervention.
Since December 2004 the FSA has been monitoring progress by working with groups representing the market to achieve the goal of contract certainty. Today's announcement follows the receipt of data from the market showing that it had exceeded its own targets for achieving improvements in contract certainty at the end of 2005.
John Tiner said:
"To demonstrate our good faith in the market's ability to reach its goal, we will not be pressing ahead with our work on the contingency plan of regulatory intervention. We are putting it on the back-burner, although we are not taking it off the stove altogether.
"I would strongly caution against complacency in these next few crucial months; the market must continue to stretch itself to guarantee that the challenge is met by the end of the year….On our part, we will continue to assess progress beginning in the next quarter, not least to see how the market has performed against the challenging 1 January renewal period. We will continue to work with the market in our rôle as over-seer and facilitator, and will not hesitate in consulting on new rules should progress falter."
Two other significant announcements were made at the conference by Hector Sants, the FSA's Wholesale Managing Director. The two announcements form part of the FSA's wider agenda of better regulation - creating a regime that offers greater flexibility to firms and is responsive to changing market needs. They will make the London market an easier place in which to do business and will help to position London as the regulatory platform of choice for the wholesale market, whilst maintaining its high standards. The announcements were:
the FSA will speed up the process of authorising new insurers in response to market needs at times of pressure, for example following major catastrophes, when new capital becomes available, and ahead of critical market renewal periods. The FSA already has an efficient authorisation process in place, taking an average of 17 weeks to conclude its review of an application. The FSA will accelerate this process for insurers in periods of market pressure, although it will continue to apply the existing standards. Where the FSA has prior knowledge of a group it will authorise a firm within one month of receiving the application. Where the FSA does not have prior knowledge then it will make a decision on an application for authorisation within 10 weeks of receiving an application; and
as part of the FSA's consultation on the Reinsurance Directive later this year, the FSA will consult on the introduction of Insurance Special Purpose Vehicles (ISPVs). Through the consultation, the FSA aims to open up the SPV market here in the UK.
Notes to editors
John Tiner's speech to the conference can be found here, and
Hector Sants' speech can be found on the FSA website.
The original challenge to the industry was made in a
speech given by John Tiner in New York in December 2004.
Public records of the
December 2004,
July 2005 and
December 2005 meetings between the FSA and senior industry representatives can be found on the FSA website. A further meeting with the industry on 21 March will also be recorded.
ISPVs are special purpose reinsurance vehicles which are fully funded by issuing debt. If the ISPV has to pay out under its reinsurance obligations, the repayment rights of the debt holders are reduced accordingly. Under the Reinsurance Directive, EU member states that want to create an ISPV market can introduce appropriate authorisation and regulatory requirements.ISPVs are defined in the Reinsurance Directive as: 'any undertaking, whether incorporated or not, other than an existing insurance or reinsurance undertaking, which assumes risks from insurance or reinsurance undertakings and which fully funds its exposure to such risks through the proceeds of a debt issuance or some other financing mechanism where the repayment rights of the providers of such debt or other financing mechanism are subordinated to the reinsurance obligations of such a vehicle'.
The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness. maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.
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