Tonight:
5°c
Given the importance to the UK of certain industries — advanced engineering, pharmaceuticals, oil, education, health, banking and insurance being among them — we should be alarmed at how infrequently we as a nation take a step back from the day-to-day hurly-burly to examine in detail what are the prospects for that particular industry, what the trends are, the opportunities these bring, and what the Government and the regulators and the private sector need to pursue in order for the industry to maximise those opportunities.
It is not a matter of picking winners but it is a matter of common sense. When we have something we are good at, we should try to preserve and enhance it. Unfortunately we too often think that keeping Government out of business turns into not mobilising the power of Government to make the business climate better. Too often such a mood gets in the way of clear thinking on what is the proper role of the state and what parts of its activities might better be done by the private sector.
The underlying importance of the paper published this morning by the Insurance Industry Working Group is that there has not been such a study for years. Today's document is the result of an initiative prompted by the Treasury in which a group of insurance industry experts under the chairmanship of Aviva's Andrew Moss and including such luminaries as Tim Breedon (chief executive of Legal & General), Richard Ward (chief executive of Lloyd's of London) and Nick Prettejohn (who recently announced his intention to move on from Prudential), make recommendations to Government which they believe should deliver a prosperous future for their sector. As expressed by Moss in his introduction, the industry's objective — clearly stated but hard to achieve — is to ensure that the UK fulfils its potential as the leading global insurance centre, with an unsurpassed reputation for excellence, a constructive relationship with its customers and an effective partnership with Government.
It is depressing but indicative of the limited understanding of how business works that the report considers it necessary to make clear right from the start one of the most basic messages in economics — that everything is interrelated. Insurance has the skills to provide products which would relieve the burden and spending obligation from Government. Supplying these extra products, such as unemployment cover, retirement income, climate change protection and the provision of long-term care, will require additional capital. That capital will only be forthcoming from investors in the required amounts if they can see a reasonable prospect of good and consistent returns. The necessary stability needed to deliver those returns requires greater certainty and consistency about tax — particularly important in this sector given that claims may take years to emerge — about legislation and regulation and even with cross subsidies in the compensation scheme which means insurance may end up paying for Bradford & Bingley. Huge disruption and cost is caused by knee-jerk changes which are such a feature of the current environment.
The daft thing is that it is in the Government's interest to provide the stability because there is a huge overlap in what Government does and what the insurance industry could do — the irony being that if the industry does not pick up such needs then the state has to.
Currently Government provides perhaps two-thirds of these needs — in, for example, pensions, health, retirement income — and the insurance industry one third. Many believe it could be the other way round, with two-thirds of provision being covered by the private sector.
The proportions matter less, however, than the fact that there is an area for real debate, particularly in times when Government is short of money, and it would be in everyone's interest if it could be non-political.
The language used in reports like this tends to be circumspect and the message is understood by reading between the lines but the steel is there underneath. It talks for example about needing to be allowed to price risk accurately — which one might think is common sense — but which runs smack into equality legislation which might specify that men and women of the same age should get the same amount of retirement income from an annuity. The fact that women can be expected to live longer means the risks are different so the price for males and females should be different.
There is much else but also one message from Alistair Darling which the stock market seems to have overlooked. The insurance industry has generally avoided the problems which provoked the banking crisis, he says. That actually is something it can be proud of and for which the rest of us should be profoundly relieved.
