Mansion House Speech: Key takeaways for the Insurance Sector

The Chancellor’s first Mansion House speech on 14 November emphasised that for the Government to achieve their aim of secure and sustainable economic growth, the financial services sector must drive competitiveness and growth.

The new Chancellor, Rachel Reeves, warned that the UK’s status as a global financial centre should not be taken for granted, and that a change in regulatory approach is needed to allow UK financial services sector to innovate, grow and seize investment opportunities. The UK’s (re)insurance markets, in particular, were determined to be “pivotal in supporting growth” and identified by the Government as one of the five priority growth opportunities in financial services.

Reeves noted that regulatory changes made after the global financial crisis to eliminate risk-taking, effective and important at the time, had “gone too far”, meaning “the UK has been regulating for risk, […] not for growth”. According to Reeves, whilst maintaining critical consumer protections and high standards of regulation, it is time to ‘rebalance’ the UK’s approach to regulation to drive growth, competitiveness and investment.

The Chancellor also issued growth-focused remit letters to PRA and FCA, calling on regulators to “enable informed and responsible risk-taking by authorised firms and customers” to support the Government’s goal of driving economic growth and competition.

Regulatory Response 

The FCA published a raft of pages and documents following the Chancellor’s Mansion House speech, the following of which are particularly relevant to the insurance sector:

• FCA/FOS: Modernising the redress system: Call for Input web page and document (setting out a range of possible future ‘options for change’), and a new Memorandum of Understanding between FOS and the FCA.
• Wider Implications Framework: An updated Terms of Reference document added to the web page, the minutes of the April 2024 meeting of the Framework members, and a log of the live wider implications issues as at the end of April this year.
• ‘Chairs and CEO Regulatory Family’ meeting: minutes from a 4^th June meeting.
• HM Treasury (‘HMT’) Call for Evidence on the Financial Services Growth and Competitiveness Strategy

 FCA Handbook Review 

Noting that “some of [the UK’s] regulatory requirements are duplicative” and “could be streamlined”, Reeves mentioned that she looked forward to the outcome of the FCA’s recent ‘Call for Input Review of FCA requirements following the introduction of the Consumer Duty’, which seeks to assess whether existing regulation strikes an appropriate balance between protecting customers from harm and enabling competitiveness within the UK market.

 New Approach to Captive Insurance 

Reeve revealed the Government are consulting on introducing a new framework for UK-based captive insurance companies in a bid to “make the UK insurance market a more attractive hub for businesses seeking efficient risk solutions” and “cement the UK’s position as a leading financial services centre”.

Whilst the UK has a world leading insurance and reinsurance offering, and use of captive insurance by UK companies is widespread, captive insurance is predominantly written offshore.

Many believe changes to regulatory conditions could make the UK a more attractive destination for businesses; currently, resident captive insurers are subject to similar application, authorisation, governance and capital requirements, as well as ongoing compliance and reporting requirements, as other (re)insurers - despite having a different risk profile.

Lighter capital requirements for captive insurers, reduced application and administration fees, an expediated authorisation process, and reduced ongoing reporting requirements are among the representations made to Government.

The consultation will close on 7 February 2025.

 Modernising Redress 

The Chancellor wants to “reduce uncertainty by delivering the right approach to redress”. In response, the FCA and FOS have published a joint Call for Input seeking feedback from stakeholders on how to the current redress system could be modernised to “better serve consumers and provides greater stability for firms to invest and innovate”.

The Call for Input focuses on “mass redress events”, or cases where vast numbers of consumers raise or make complaints regarding the same issue and which may incur significant redress (e.g., PPI mis-selling complaints, and complaints regarding advice given to members of the British Steel Pension Scheme). Such events cause significant delays in complaint resolution processes, create resource and costs issues, and compound poor outcomes for consumers and firms.

Existing rules, last reviewed in 2014, were designed to work for individual complaints, with the FOS having been initially established to assess around 30,000 complaints per annum. Now, following several mass redress events, complaints exceed 200,000 per annum.  

There are concerns that complaints handling systems are out of date, that issues with significant or wider implications are not being identified before redress events escalate, and that an ineffective consumer redress framework could hinder growth, innovation and investment. Further complications have arisen as FOS often interprets FCA regulations and case decisions differently to the FCA.

The changes to rules and processes being considered:

Short/medium term changes:

• Guidance in DISP to aid firms in proactively identifying and addressing harm.
• Return to a two-stage complaints handling process for firms.
• Different rules for complaints brought by professional representatives
• Extending circumstances where the FOS may dismiss complaints, e.g. where the FCA has implemented a consumer redress scheme industry wide.
• Reducing the circumstances where a final decision by an Ombudsman can be requested.
• Changes to case fees for mass redress events.
• Whether the FOS should consider any other factors when deciding what is ‘fair and reasonable’ in all the circumstances of the case.
• Changing time limits for complaints to be referred to FOS.

Longer term changes:

• Improving cooperation between the FCA and FOS on identifying and addressing issues with wider implications.
• Granting the FOS and the FCA the power to pause complaints handling requirements and limitation periods whilst the FCA carries out diagnostic work to assess the extent of harm and determine the best approach to resolve the issue.

The Call for Input deadline is 30 January 2025, with the FCA set to publish the response and next steps in the first half of 2025.

In her letter to the FCA, Reeves also called on the regulator to ensure “firms have a positive experience of engaging with the FCA from the point of initial application or enquiry” and to streamline administrative burdens on firms. The latter will be difficult to address, given that firms in the insurance sector currently have at least 10 reports to file with the FCA each year, compared to two for most when the FCA was first formed in 2013, and that some, such as REP021 and the new proposed CCR009 report, are particularly complex.

Financial Services Growth & Competitiveness Strategy

The Government will publish the first ever Financial Services Growth and Competitiveness Strategy in Spring 2025, establish a guiding framework for delivering sustainable, inclusive growth for the financial services sector and securing the UK’s international competitiveness.

HMT has published a Call for Evidence, which will inform the Government’s approach, seeking views on how the financial sector can drive growth and enhance international competitiveness, and the role of regulation in driving such growth. It will gather evidence on:

• The scope and focus of the strategy;
• what firms see as their main growth opportunities and where they are targeting investment;
• factors that matter most to firms when considering the UK as a destination to invest and grow a financial services business; and
• factors that would have the biggest impact on growing and enhancing the competitiveness of the UK’s financial centre over the next decade.

HMT aims to identify priority growth opportunities that will support long-term sustainable growth within both the financial services sector and wider economy. The insurance and reinsurance markets have been identified provisionally as one of five such growth opportunities.

The Government has emphasised that a highly responsive approach to regulation and a supportive business environment is vital to allow the UK to effectively compete with other international jurisdictions for insurance business and secure its position as a leading hub for financial services. The Government specifically notes that positive steps should arise from:

• The PRA’s decision to increase Solvency II application thresholds.
• The FCA consultation on the regulation of commercial and bespoke insurance business
• The Government’s consultation on captive insurance and the PRA’s work to simplify its approach to Insurance Linked Securities. The Government will consider how it can further improve the UK’s Insurance Linked Securities offering, building on ongoing PRA reforms.

The deadline for the consultation is 12 December 2024.

 SM&CR

HMT, FCA and the PRA will shortly publish the outcome of their SMCR review, which will set out a commitment to consult on removing the current Certification regime. In her speech, the Chancellor said that, whilst the SMCR regime has “helped to improve standards and accountability”, some elements of it “have become overly costly and administratively burdensome”. Consequently, the Government wants to replace the existing Certification Regime (which applies to staff below senior management level) with an approach that is more proportionate, reducing costs and freeing up resources to focus on growth.

 Sustainable Finance and ESG Integration 

The Chancellor's aim to make the UK a leader in sustainable finance aligns with the increased emphasis on improving Environmental, Social, and Governance (ESG) standards within the sector. Whilst insurers are increasingly embedding ESG factors into their business models and innovating insurance products in response to emerging risks, increased government backing could galvanise these initiatives.