The head of the UK’s banking and insurance regulator today rebuffed accusations that it had been “captured” by the insurance industry as it considers major reforms to the sector.
Speaking to MPs in a Treasury committee hearing, Sam Woods, chief executive of the Prudential Regulation Authority (PRA), said he “categorically denied” the claim that the PRA was “a captured regulator”.
“The best evidence for that… is that the last time I was here, the chair asked if I was going to resign” after the government rejected the PRA’s preferred reforms for the insurance sector, Woods said. The government previously said that it considered the PRA’s proposals to be too risk averse.
The suggestion that the PRA has been captured comes as the watchdog considers major reforms to the Solvency II regime – the set of EU regulations that govern capital requirements in the sector.
Insurance firms suggest that reforms to Solvency II – such as reducing capital requirements and streamlining reporting rules – could unlock £100bn in investment.
But MPs suggested that the changes would ultimately benefit the companies rather than consumers.
Pointing to the PRA’s own consultation document, MP John Barron suggested that the benefit to consumers from the changes will be “largely immaterial”.
Woods said the reforms hoped to “reduce bureaucracy” for the sector, and that benefits to policyholders would depend on the level of competition in the market.
“We actually think that there is… quite a strong level of competition in the insurance sector. If that’s the case… [the reforms] should flow through as better pricing for policyholders,” he said.
The comments come as the insurance sector faces scrutiny over how it has treated customers after data showing insurance premiums were rising at record levels. Car insurance premiums have rocketed nearly 50 per cent in the year to August, according to Consumer Intelligence.
Earlier this year, the Financial Conduct Authority warned that insurers must put “wrongs right” after finding that there had been an uptick in complaints against insurers.
Woods also denied that the PRA was opposed to proposals for a new pension ‘superfunds’.
A number of think tanks and policymakers have suggested that the UK should pool its smaller public and private sector pension plans into ‘superfunds’ to boost investment.
Harriet Baldwin, chair of the committee, suggested that the PRA had been “pouring cold water” on the idea.
Woods denied this. “It makes perfect sense to think about ways in which smaller pension funds could be brought together in order to improve costs and their investment performance,” he said.
However, he highlighted a “narrow” concern that if insurance firms wanted to run a superfund themselves then there might be issues.
Pension superfunds are held to a lower standard of regulation than insurance companies. If a superfund run by an insurance firm faced difficulty, the insurance firm would face “enormous pressure” to bail it out, Woods warned.
He concluded that superfunds were acceptable “so long as they don’t undermine the security of insurance firms”.