Malcolm Hosken sees the industry as fairly stable, but wonders if regulators are injured buffalos.
In times such as these where financial institutions and, in particular, Banks are falling like flies or are bring propped up by our taxes, it is refreshing to note that the insurance sector, for the most part, continues to hold its own. Certainly there are depressed earnings and the failure of Aviva to abandon entirely its dividend declaration has met with some criticism; but the ripple effects are secondary to the core business, except the one notable exception in the AIG in the United States. In this instance, it seems to be the general consensus that the ills arose from its departure from the core business. AIG Europe is, by all accounts, a sound institution being predominantly what it set out to be – an insurer.
Now I am no financial analyst, but, over the years, it seems to me that whilst insurance stocks, with a few possible exclusions, are hardly likely to make you rich overnight, there is a core of security that rests on a stable sector. Re-insurers are perhaps exposed more than direct writers but still their reserves felt the side-wash of the crunch rather than the full-frontal attack.
So what does all this mean? Recently I was in South Africa reviewing the state of certain Coverholders on behalf of Lloyd’s Underwriters, and it would not be disclosing confidences to state that, overall, it all looked very healthy. The insurance industry – for all its rather boring appearances to outsiders – seems to be bearing up well. This must be a tribute to the vast majority of players in the market who do an excellent job in providing a service to the buying public.
This brings me to one of my favourite topics, that of regulation. Here in the UK, with the criticism being levelled at the Financial Services Authority for their apparent lack of preparedness for dealing with the banking crisis, there is talk of restructuring, tightening up, increased monitoring and so forth. Couple this with the recent thinly veiled threat regarding commission and general income disclosure by intermediaries and there is the potential for a backlash against those who are most easily targeted and less likely to be able to defend them-selves.
Regulators come from that vast army of Civil Servants which has been growing in the aftermath of World War II and whose numbers have swelled never more so than in the last 12 years of Labour government. Frequently, they have no hands-on experience of the day-to-day operations of the businesses they seek to regulate. This, together with the burgeoning local and European legislation and attendant regulations, paints, in my view, a very bleak picture for those exposed to the capriciousness of bureaucracies. In short, the regulators interfere, not always because it is necessary, but often simply because they can.
The last thing that we need at this point of time is an injured buffalo rampaging indiscriminately through the financial services sector looking for anything and anyone that can be readily gored. We need focus in areas where it is going ultimately to benefit all. Let us hope therefore that we in the insurance industry is left to get on with doing what we seem to do quite well, and whilst conventional wisdom says that comparisons are odious, they are sometimes instructive.
Goodbye from London