UK bows under weight of regulation

A growing number of senior industry figures have started expressing their concerns about the cost of regulation and the dangers this poses for the UK insurance industry.

Eric Galbraith has gone straight to the top and written to Tony Blair, calling for an immediate review of the disproportionate costs of regulation for small firms.

Peter Hubbard has also warned that the cost of regulation could alienate investment in the UK.

The Financial Service Authority is aware of this. At its recent conference on general insurance in London there was almost continuous reference to growth in capacity in Bermuda, which has steadily risen since 2000. Lloyd's stalwarts Hiscox and Amlin serving as some of the most recent and most visible examples of the problem.

At the same conference one city commentator observed that regulators are always saying that a good regime attracts business because it gives them confidence as checks and balances exist to ensure things are done properly - except, he added, there is no evidence to support that. It would seem that insurers are not flocking to Bermuda because of its robust regulator.

Hubbard mentioned that ministers are talking about deregulation and this is actually filtering into FSA action. The regulators Effectiveness Review, when it finally gets underway, will look at removing unnecessary cost elements in the regime. While this will not be entirely deregulatory, it will seek to remove expenses that do not deliver on a cost benefit analysis. In its recent announcement - FSA to delete annual reporting requirement on senior managers - it indicated its intentions regarding modest deregulation stating that: "this move contributes to the commitment made by the FSA to reduce the administrative burden they place on firms."

All well and good, and the FSA is certainly moving in the right direction but at the same time claims its hands are tied, as it says the European Union is the real driving force via the Insurance Mediation Directive, leaving it with limited flexibility in what it can and can not do away with.

However, the rest of Europe has looked on in amazement at how the UK has over-enthusiastically supplemented the IMD which points the finger firmly back at the Treasury. Brokers are rightly fed up with this buck passing and need someone to act now before regulation crushes the market.