Willis Seeks Clarity From New U.K. Gov't

The new coalition government leading the United Kingdom needs to act decisively to spur an economic recovery and must clarify any new approaches to regulation to facilitate a healthy and growing British insurance industry–one of the linchpins of the local economy, according to the head of Willis, Joe Plumeri.

The negative impact of the downturn on insurance is reflected in the quarterly results of both large and small brokerages, Mr. Plumeri, chair and chief executive officer of Willis Group Holdings, told an audience of insurance executives in London.

"Right now, our industry in the U.K. is hit by the double whammy of a persistent soft market and lagging economic activity," noted Mr. Plumeri in a speech to the British Insurance Brokers' Association 2010 Conference and Exhibition. "We've seen a dramatic slowing of the consolidation among smaller firms and downward pressure on the value of broking businesses."

Other key questions facing the new U.K. government, he said, include "who will regulate brokers and the insurance industry? What will be their style and at what cost?"

He said that the answers right now are "vague at best. During the campaign, the Conservatives pledged to move regulation to the Bank of England. They hinted at a new body to regulate insurance. How will the formation of a coalition with the Liberal Democrats affect campaign promises? The details of how and when change will come are not clear."

Mr. Plumeri went on to laud the consumer protection goals of Solvency II in the European Union–the updated set of regulatory requirements for insurance firms scheduled to go into effect late 2012. He cited the goals as follows:

o Reduce the risk that an insurer would be unable to meet claims.

o Reduce the losses of policyholders if a firm is unable to meet all claims fully.

o Provide supervisors early warning to intervene promptly if capital falls too low.

o Promote confidence in the financial stability of the insurance sector.

However, he questioned the impact of the proposed EU regulatory scheme on captive insurers set up by commercial insurance buyers and their brokers, warning that the regulatory requirements for EU insurance firms may not take into account "the fact that captives are fundamentally different from mainstream insurance companies and may not require Solvency II's intended level of regulation."

"The concern is that, rather than improving the system, Solvency II could make risk management more difficult for some companies," Mr. Plumeri noted.

He also pointed to the uncertainty surrounding the new Insurance Mediation Directive from Brussels, with changes impacting European brokers that could range from full transparency in compensation to the abolishment of commissions altogether in favor of client-paid fees, as is currently the practice in Scandinavia.

"What our industry would most welcome is clarity and certainty," Mr. Plumeri said.

The full text of his speech is available at http://bit.ly/cCcdiW.