Carney warns insurers who downplay risk

MARK Carney has warned that the Bank of England will crack down on insurance companies which attempt to dodge new rules designed to make them safer.

In a hard-hitting speech yesterday, the governor said the Bank will ‘not hesitate’ to block insurers which downplay their risks and try to mislead the regulator in order to reduce the amount of capital they have to hold.

He also warned that – as with bosses at banks – ‘people running insurance companies should be more clearly held accountable for their actions’.

He said: ‘It is now clear that in some parts of the financial sector, the link between seniority and accountability had become blurred or even severed.’

The Bank of England is developing a tougher regime for the insurance industry, having already clamped down on the UK’s scandalhit lenders.

The governor is concerned that i nsurance companies are not strong enough to survive another financial meltdown.

Delivering a speech to the Institute and Faculty of Actuaries in Wales, Carney described the new ‘Solvency II’ rules from Brussels, designed to make insurance companies safer, as ‘the biggest change to insurance regulation in a gen- eration’. These regulations, set to be introduced in 2016, will force insurance companies to hold more capital to absorb future losses.

Carney said: ‘The dangers of using poorly designed models were made all too clear in the banking sector. So the Bank won’t hesitate to withhold approval of inadequate or opaque models.’

Solvency II rules have proved hugely unpopular among insurance companies which have complained about lengthy delays and spiralling costs.

Regulators estimate that the rules could cost insurers about £400m to implement and a further £200m in annual running costs.