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The Government seeks views on proposals to improve the protection and payment of benefits for holders of insurance contracts with an insurer facing financial difficulties.
In light of reviewing other insolvency and administrative regimes across the financial services industry, and reflecting on the lessons learnt during the financial crisis, the Government considers that some areas of the administration regime for insurers could be strengthened.
The UK insurance industry is a key part of the UK financial services sector and is the second largest insurance industry worldwide. It accounts for 11 per cent of premiums globally and, in 2008, it controlled over 13 per cent of the UK equities market.
As of March 2010, 972 companies are authorised by the Financial Services Authority (FSA) to carry out insurance business in the UK. Of these:
- 735 carry out general business only (which includes, for example, motor, household and commercial insurance)
- 93 carry out long-term business only (such as life insurance and pensions)
- 44 carry out both general and long-term business
The incidences of insurers being put into administration or liquidation in the UK have been low, with no further incidences occurring during the recent period of financial instability. As a result the procedures and processes surrounding insurers entering into administration have not been developed significantly either in practice or in law in recent times.
The Government now seeks views on proposals to improve the protection and payment of benefits for holders of insurance contracts with an insurer facing financial difficulties, in particular to address gaps within administration regime for insurers in comparison to the liquidation regime. The Government proposals include:
- applying the existing rules for valuing contracts of insurance in liquidation to administration
- revising the objectives of an administrator of an insurance company
- changing the law to require administrators to provide assistance to the FSCS to enable it to administer the compensation scheme and secure continuity of contracts of insurance
- applying existing powers relating to continuity of contracts of long-term insurance on the liquidation of an insurer to administration