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November 11, 2012 6:49 pm
UK general insurers are spending an average of 1 per cent of the premiums they garner complying with regulations, according to a survey of some of the biggest companies in the sector.
The costs of complying with the Solvency II rules have helped push up the costs by an average of about 75 per cent over the past three years and some insurers have experienced rises of as much as 400 per cent, the study found.
Insurers have for months been making the case they should not be hit with the same regulatory crackdown as banks, given that the vast majority of them survived the financial crisis intact.
The big exception was AIG, which was bailed out by the US government, but the industry is keen to point out that the group’s particular problems stemmed from derivatives trading activity and not core insurance operations.
Nevertheless, regulators have made clear that they are extending a cautious attitude to all parts of the financial services sector.
The cost of compliance figures, garnered by Reynolds Porter Chamberlain, relates only to what the law firm termed “direct” costs of regulations, such as salaries for compliance workers. It excludes items such as external accountancy, compliance and legal advisers. It also does not include capital requirements.
“The message we’ve heard loud and clear from the UK insurance sector is that tighter regulation since the credit crunch has increased costs and led to greater business complexity,” said Steven Francis, partner and head of financial services regulation at RPC.
“It’s not like the UK taxpayer had to bail out an insurance business, so it’s no wonder that senior figures within the UK insurance industry are angry that their businesses are spending so much money now on compliance.”
The Financial Services Authority said: “There are significant costs for insurers of working towards the European Solvency II requirements.”
Solvency II, which is designed to impose common capital requirements and risk management standards across the EU, has been in the works for more than a decade but has been beset by repeated delays.
The study did not include the life industry, which has also complained about the costs of regulation. This month Legal & General, which wrote £5.7bn worth of premiums in 2011, said it had spent about £130m in the past three years on Solvency II.
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