Regulation is stifling innovation

Simon Kemp, partner, and Ed Cowen, senior associate at Clyde & Co, explain to Intelligent Insurer why regulators need to figure out their true purpose.

As yet more regulation continues to be imposed on the industry, regulators need to ensure they fully understand the sector and must regain sight of their objectives.

“From our perspective, we’ve watched regulation growing over the last 10 years and the effect it is having on the market. Regulators have a real purpose but they need to work this out and impart it to the rest of the industry. It’s never going to be black and white,” says Simon Kemp, partner at Clyde & Co.

The law firm feels that the apparent lack of clarity from regulators is down to a number of factors including the budgets they work to. A tight budget can make it difficult for regulators to employ people with a good in-depth knowledge of the industry.

Ed Cowen, senior associate at Clyde & Co, adds that it used to be possible to sit down with regulators and discuss their plans. This has changed, he says.

“Insurers used to be able to sit down with a regulator, but now it’s more of a ‘them and us’ mentality,” says Cowen. “Regulators want clarity, but right now they are providing a lack of clarity to the industry.”

Cowen believes that the UK in particular needs to work hard to get the balance right. “At the moment, it seems as though the regulators are preaching to the market. Having tight rules and regulations is a good structure to have but we need to ensure we have the balance right,” he says.

If the balance is not right, innovation can be stifled as brokers and underwriters become afraid of being penalised, he says.

“Regulation is driving people away from the reinsurance industry. Innovation, which you see in products such as directors’ and officers’ liability and terrorism risk coverage, is great but if there is no real clarity, innovation will be stifled.”

Clyde & Co hosts a regular forum that allows Lloyd’s compliance officers and brokers to share their thoughts on the industry. The firm’s experts feel well qualified to help clients negotiate the current regulatory environment.