The UK government and regulators have been accused of “doing deals behind closed doors” on insurance sector reforms that campaigners warn could expose millions of policyholders and pension savers to higher charges.
Mick McAteer, a former board member of the Financial Conduct Authority, made the claim after the Financial Times reported that ministers and regulators were nearing a deal on reforms that could free up billions of pounds to invest in infrastructure.
Some of the nation’s biggest insurers have said if there was a relaxation of Solvency II rules, which were adopted while Britain was in the EU and restrict their ability to invest in long term projects, they could plough the money into areas such as renewables and social housing.
UK prime minister Boris Johnson and chancellor Rishi Sunak want to reform Solvency II rules to unleash what they have said would be a flood of investment once the UK is freed from Brussels’ regulatory constraints.
But McAteer, who is co-director of the Financial Inclusion Centre, a not-for-profit think-tank, said reforms to Solvency II could weaken consumer protections and regulators should resist doing any “deal” until there has been a “proper public debate” on the implications.
“Reforming Solvency II is attractive to insurers, as it could generate higher fees and provide a windfall for shareholders at the expense of policyholders and pension savers that use insurance-based products,” he said.
“The government and regulators should not be doing deals behind closed doors without proper scrutiny and public interest representation. Financial regulators must be allowed to reach decisions objectively, not to support the political priorities of the government of the day.”
A former Bank of England official said the reforms would be a “test of the external members of the PRA [Prudential Regulation Authority]”, who are independent of the central bank.
“This is the kind of thing where unanimity from the PRA would be incredibly unlikely if it’s a genuine discussion,” he told the FT.
In recent years, BoE officials have publicly argued that some parts of Solvency II should be overhauled, but the official said concerns originally centred around the rules not being tough enough.
The Bank of England declined to comment on the status of Solvency II’s reform. It is due to update the market on its progress later this year after extensive public consultation. The government is legally still the decision maker on key parts of how Solvency II and other EU rules are implemented in the UK, though the Treasury has indicated that this power will pass to regulators.
The Association of British Insurers, the industry trade body, has insisted that the reforms, which the insurance industry has long lobbied for, would not lead to higher expenses or greater risks for policyholders. “Investing more in these types of assets can be done incrementally without impacting policyholder protection,” insurer Legal and General said on Friday.
The Pension Insurance Corporation (PIC), which has £47bn of assets under management and 270,000 pensioner members, said “appropriate” reform of Solvency II rules could unlock a “once in a lifetime opportunity” to further £20bn for investment in projects such as wind farms and social housing.
“The life chances and financial security of millions of people across the country depend on the timely and successful reform of this key piece of financial services regulation,” said Tracy Blackwell, chief executive of the PIC.
The Financial Services Consumer Panel, an independent advisory body to the FCA, said it was “not in a position to share Panel discussions with the FCA/PRA on this topic at this time”.
