26 September 2014 Insurance

EY welcomes Carney leadership scrutiny

Some insurance industry practitioners have welcomed the announcement by Mark Carney, the governor of the Bank of England, that he intends to ensure senior members of insurers are held accountable for their actions.

In a speech, he said that in some parts of the financial sector, the link between seniority and accountability had become blurred or even severed. The Bank, he said, was working with regulators on a new regime which would hold those in senior positions to account. The regime would also be "tailored" to the insurance industry.

This sentiment has been welcomed by some. Catherine Barton, head of EMEIA Retail Property & Casualty Actuarial at EY, welcomed the move but stressed that the line between risk-taking and mis-management would need to be carefully drawn.

“By the very nature of their business model, insurers work by forecasting future risk, so they do understand the significance and often wide-reaching impact of the decisions they make,” Barton said.

“However, it is clear that the leadership of insurance firms, alongside those of banks, must be accountable and take responsibility for their decisions. Any regime of personal accountability designed to curb reckless behaviours will need to carefully distinguish the line at which risk taking and risk-forecasting moves into reckless mis-management.
“We await further details of a senior persons’ regime with interest, as it could necessitate industry-wide changes to governance processes and structures, as well as the rigour needed for hiring or recruiting any staff who fall under the licensing regime to ensure compliance with any new requirements.

“It will also be interesting to understand whether criminal sanctions will be introduced, like in the banking industry, as this would be a game-changer, with potential unintended consequences for senior management within insurance. Insurance is a business of calculated risks, and so poor outcomes can never be entirely eliminated - pretending that they can be is a dangerous proposition that would actually be detrimental to the industry and its customers."

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