Strengthening the administration regime for insurers

The Government has sought views on improving the protection and payment of benefits to policyholders in the event of an insurer facing financial difficulties.

In light of reviewing other insolvency and administrative regimes across the financial services industry – and reflecting on the lessons learnt during the financial crisis – the Government considers that some areas of the administration regime for insurers could be strengthened.

The UK insurance industry is a key part of the UK financial services sector and is the second largest insurance industry worldwide. It accounts for 11 per cent of premiums globally and in 2008 controlled over 13 per cent of the UK equities market. As of March 2010, 972 companies were authorised by the Financial Services Authority (FSA) to carry out insurance business in the UK. Of these:

735 carry out general business only (which includes, for example, motor, household and commercial insurance);
93 carry out long-term business only (such as life insurance and pensions); and
44 carry out both general and long-term business

The incidences of insurers being put into administration or liquidation in the UK have been low, with no further incidences occurring during the recent period of financial instability. As a result, the procedures and processes surrounding insurers entering into administration have not been developed significantly either in practice or in law in recent times.

In its consultation – which closed in June 2010 – the Government looked in particular to address gaps within the administration regime for insurers in comparison to the liquidation regime. The Government’s proposals include:

Applying the existing rules for valuing contracts of insurance in liquidation to administration; and
Revising the objectives of an administrator of an insurance company by:
- changing the law to require administrators to provide assistance to the Financial Services Compensation Scheme (FSCS), to enable it to administer the compensation scheme and secure continuity of contracts of insurance; and
- applying existing powers relating to continuity of contracts of long-term insurance on the liquidation of an insurer to administration.

Strengthening the administration regime for insurers

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