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23 November 2014
Britain’s new insurance regulator has identified two statutory objectives for supervising insurers: to promote their safety and soundness and to work to secure appropriate protection for policyholders.
The Prudential Regulation Authority (PRA) will begin work on January 1 and focus on insurers’ resilience against failure.
Insurers will have to meet “threshold conditions” of minimum requirements to carry on business.
The draft conditions say an insurer’s head office “and in particular its mind and management” must be in the UK if it is incorporated there, and there is a “fit and proper” test.
The PRA can impose financial penalties and publish censures. Under the “twin peaks” regulatory system pioneered by Australia and now adopted by the UK Government, another regulator, the Financial Conduct Authority, will deal with consumer fairness issues.
The PRA will be part of the Bank of England. In a paper on the PRA’s approach to insurance supervision, the bank says it will ensure policyholders “have an appropriate degree of continuity of cover for the risks they are insured against”.
This continuity requires the 1000 insurers operating in Britain to meet claims that may emerge after many years. But the paper, one of two on the new UK regulatory approach, says “it will not be the PRA’s role to ensure no insurer fails”.
The paper says the PRA will intervene at any early stage if necessary. “Insurers should be open and straightforward in their dealings with the PRA, taking the initiative to raise issues of possible prudential concern also at an early stage.”
The PRA will engage with boards and senior managements but “insurers should not, however, approach their relationship with the PRA as a negotiation”.
Priorities for protecting policyholders will vary according to the significance of the risk insured and the potential suffering for policyholders, it says.
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