The outcome of any review conducted by the insurance regulator is likely to be driven by its objectives, and some may view this as holding back innovation, according to one industry expert. 

From a regulatory perspective, the current objectives that the Prudential Regulation Authority has for financial stability and policyholder protection “would mean that anything that's new would be scrutinised, and scrutinised to a decent extent”, said the expert during a panel discussion at Grant Thornton Insurance Conference on 6 July. 

Speaking under the Chatham House rule, he said: “That could be perceived by some as actually stifling innovation if you have to answer so many questions when you bring in something new.”

As an example, the expert pointed to funded reinsurance. In a thematic review released last month, the PRA revealed “material shortcomings” of the way re/insurers manage the risks arising from funded reinsurance and asked firms to review their risk management practice. 

“Compared to longevity reinsurance, funded reinsurance is relatively new. Transactions started to kick off around 2019-20. You can see what's going on with funded reinsurance now in terms of the amount of scrutiny on it,” said the insurance professional. 

“Don't get me wrong, I'm not saying the regulators are doing anything wrong… But that level of scrutiny [and] how they have come at it – do they perceive it as inherently bad because it's new?”

The PRA has two primary objectives and one secondary objective. One of its primary objectives is applicable across PRA-authorised firms, which is to promote the safety and soundness. 

Specifically for insurers, the other primary objective is to secure policyholder protection. 

As for its secondary objective, the regulator looks to facilitate competition within PRA-regulated firms. 

Under the proposals of the Financial Services and Markets Bill, which received royal assent on 29 June, the PRA will have a new secondary objective, which is to facilitate international competitiveness and growth over the medium to long term. 

The insurance professional argued that regulators have a serious role to play in innovation and believes the competitiveness and growth objective “would probably change their thinking there”.

He concluded: “Don't get me wrong, policyholders are key. I always say without the policyholder, the insurance business model doesn't work. And clearly, financial stability is really important. But those things can't be achieved at the expense of the need to innovate and the need to continually push the bar because what you don't want is regulation head butting against what we want to be as a country and as an economy, as a jurisdiction to do business in.”