Insurance regulator considering stronger safeguards for certain types of policies and policyholders

The regulator, which is part of the Bank of England, could make changes to its overall supervisory approach to "give particular focus" to certain types of policies or policyholders, according to its annual report. It plans to carry out a consultation on "insurance policyholder protection" in the autumn.

"To date the PRA has focused on ensuring that its categorisation of insurers (and hence the intensity of supervision) properly reflects the potential impact of the failure of the firm on policyholders," the regulator said in its annual report.

"The PRA is considering how it could adapt the overall supervisory approach to give particular focus to certain types of policies or policyholders. This could be because certain types of insurance or policyholders require a higher degree of protection. It will also take into account the impact of the cover being withdrawn and the ability of and cost to the policyholder to transfer to another provider," it said.

Areas of potential concern highlighted by the PRA in its report included compulsory insurance, such as car insurance for drivers or building insurance for mortgage-holders, "any disruption to which would have an impact on the real economy", it said. It would also look at the impact of potential provider failure on holders of long-term life insurance products which are difficult to transfer, it said.

Under the Financial Services and Markets Act (FSMA), the PRA has a general statutory objective to promote the "safety and soundness" of the firms it regulates, as well as an insurance-specific objective to contribute to securing an "appropriate degree of protection" for policyholders and potential policyholders.

To meet these objectives, the PRA requires all insurers to meet the FSMA 'threshold conditions', to meet fit and proper requirements and to show that they have the appropriate financial and non-financial resources to meet their liabilities. They are also subject to minimum solvency requirements. Taken together, these requirements provide "a substantial measure of policyholder protection at all times in respect of all UK-authorised firms".

Insurance policyholders are also covered by the Financial Services Compensation Scheme (FSCS), which provides a certain level of compensation to customers of insolvent financial firms. The PRA said that it would "consider the extent to which the level of protection provided by FSCS coverage should affect the supervisory approach" as part of its review.