You can imagine the chaos this caused, even on the scale of the 1970s. And a couple of decades later, many companies and individuals suffered when things went wrong in the Lloyd’s Market. Events like these, resulting in part from poor regulation, of course do great harm to the UK’s reputation as a good place to do insurance business. A more extreme event still was the failure of HIH Insurance in 2001 in Australia. About 200 permanently disabled people claiming on salary continuance policies with HIH stopped receiving their regular payments, which they often relied on for day-to-day living expenses. Thousands of holders of professional indemnity, public liability, home warranty and travel insurance policies found themselves uninsured for claims made by or against them. And almost $ 2 billion of construction activity was put on hold whilst replacement builders’ warranty insurance cover was sought. This illustrates the fact that we particularly need to be mindful of innocent third parties who don’t actually buy insurance policies, such as the victims of motor accidents and employees who suffer workplace injuries or illnesses. Such covers are compulsory and the motorists and companies who buy them are even more likely to select the lowest price. Without regulation, that would present an obvious opportunity for unscrupulous insurers. 4  All speeches are available online at www.bankofengland.co.uk/speeches  4  You will notice that I have not mentioned the most spectacular insurance failure of all – that of AIG in 2008, which played a significant role in the financial crisis.
On the general insurance side, average motor and household premiums and changes in premiums were not in our assessment affected by the introduction of Solvency II. In both motor and household, rates hardened in 2015 due to greater loss experience, and UK motor insurers were particularly 4  affected by the reduction in the ‘Ogden rate’ . Risk-free market interest rates and corporate bond spreads continue to be the dominant driver of annuity prices – this relationship does not appear to have changed since Solvency II came into effect. The limited impact of Solvency II on pricing should not surprise us, given 5  that the running costs of the new regime represent 0.07% of insurance premiums in the UK, which you could think of (for instance) as 35p on an average motor policy premium last year of £  As we get more experience of operating Solvency II, however, it is right that we make our implementation of the directive work better. That means, for example, reducing unnecessary costs and complications which have no prudential benefit. We are therefore consulting on an extensive package of reforms for the part of the Solvency II framework over which we have discretion. We are making a series of proposals to give firms greater confidence in using the MA. We propose to reduce the amount of time firms (and we) have to spend on discussing and agreeing minor changes to internal models. And we will cut reporting requirements, particularly for smaller firms.