Insurance sector faces tougher scrutiny, warns Mark Carney

Mark Carney, the Bank's governor, said the link between seniority and accountability had become "blurred or even severed" in some parts of the financial sector, and that it was important to re-establish this connection. "The people running insurance companies should be more clearly held accountable for their actions," he said.

Speaking at the Institute and Faculty of Actuaries General Insurance Conference on Thursday, he said the Bank wanted to make senior actuaries, chief executives, chairmen and chief financial and risk officers "directly accountable for how a firm is run, for their decisions, and for their actions." He said senior management would be required to “prove their fitness” to regulators before they took up their role.

Mr Carney also outlined a three point plan to deal with financial stability risks in the sector, which contributes £25bn a year to UK growth and employs 300,000 people. He said "tailored and consistent" capital standards across the industry were vital to ensure companies could weather unexpected financial shocks, while a higher global standard should be adopted by large insurers, which were big enough to bring down other parts of the financial system.

Mr Carney said the collapse of AIG highlighted "the need to understand all the activites in which insurers are engaged, including on occasion substantial business beyond the boundaries of traditional insurance."

He also stressed that insurance companies, like banks, should not be too big to fail. "It is vital that these systemic insurers, like systemic banks or financial market infrastructure, can be resolved in the even of failure without the need for taxpayer supportand without disruption of the wider financial system. That's why the development of resolution plans is a top priority," he said.

Earlier this year, Mr Carney set out plans to shake-up the insurance industry, and said that, like bankers, top insurance executives would be "accountable for their actions if things go wrong".

The rules form part of Solvency II, an EU directive designed to harmonise insurance regulation and ensure capital buffers are strong enough to reduce the risk of insolvency.

more