IIF sees product rules as key area for new financial regulator

The Irish Insurance Federation (IIF) has warned that, although the solvency of a financial institution is the single most important protection for consumers, detailed rules on the marketing of financial products will be required when the proposed Single Regulatory Authority (SRA) for the financial services industry is operational.

IIF president Mr Vincent Sheridan said the federation agrees with the concept of the SRA as proposed by the review group headed by Mr Michael McDowell, but feels a lot of work needs to be done on the fine detail of the proposed SRA before it can be established.

"It's not a question of who will be the regulator but how it does its job," Mr Sheridan stated at the launch of the IIF's 1998 Factfile.

On whether the Central Bank, some greenfield authority or a hybrid of the two should be the new regulator, Mr Sheridan said that the IIF is broadly neutral, but on balance agrees with the McDowell proposal for a new greenfield organisation.

"We need to focus on other issues; who is not important at this time," he said. "There has been far too much attention to who and not enough attention to how the regulator will operate."

Mr Sheridan said that among the key issues which need to be addressed is the balance between prudential supervision and consumer protection. He added that the McDowell report, while explicit on the need for consumer protection, did not give such explicit status to the function of prudential supervision. "We would like to see a twin-pillar approach," said Mr Sheridan.

The IIF has also questioned the proposal for a statutory ombudsman and warned that such a proposal could see the ombudsman become part of the judicial process rather than being a quick, cheap arbitrator of disputes.

Mr Sheridan also stated that the IIF believes that the establishment of the SRA should not lead to a significant increase in regulatory costs as "all compliance costs are ultimately borne by consumers". The IIF said that the £13 to £14 million annual operating costs needed by the SRA - apart from start-up costs - had not been broken down in the McDowell report.

Insurance premiums rose last year by over 22 per cent to just under £5 billion (€6.35 billion), according to the Irish Insurance Federation's 1998 Factfile. It shows that life assurance premiums went up by 22 per cent and non-life premiums by just over 9 per cent. The more modest increase in non-life premiums demonstrates "continued competitive pressure on rates", the Factfile states.

The Factfile shows, however, that non-life insurers had total underwriting losses of £198 million last year, up from £184 million in 1997. The IIF warned that lower investment returns on technical reserves continue to exceed underwriting losses.