In contrast, there is a range of other insurance contracts for which the consequences of firm failure are less severe, and hence with limited resource to spread around the PRA’s supervisory approach can be somewhat less intense. For example, there are various classes of property insurance, such as mobile phone, for which an argument could be made that the PRA should restrict itself to a lower level of supervision. Our resourcing 8  All speeches are available online at www.bankofengland.co.uk/speeches  8  model already works to some extent in this way, but the IEO has challenged us to think more deeply about this question. Another interesting area is insurance bought by commercial or corporate customers. In these cases, the information asymmetry between buyer and seller is lower, or sometimes reversed, and contracts are typically renewable annually, meaning that there are lower concerns about customers being locked into long-term policies. In circumstances where buyers often choose their cover provider based on third-party measures of financial strength (such as opinions from rating agencies or insurance brokers), there is a case to be made that the need for the regulator is reduced. Indeed, many in the London Market have made this very point (somewhat less subtly!). But before anyone excitedly hears this as confirmation that the PRA will no longer regulate certain types of insurer, remember that we have a statutory objective to contribute to protecting policyholders of all stripes. So the debate is about ‘how’, not ‘whether’.
Although an understandable response to the events of the past few years, an increased prevalence of self-insurance is not good for the efficient functioning of our economy. The scarring effects of the financial crisis and the uncertainty it brought with it, together with the fiscal consolidation and the weakness of the euro area, are likely to continue to weigh on the recovery over the next few years. Yes: our economy appears to have turned a corner. And yes: there are good reasons for optimism that the recovery will persist. But we can’t take it for granted: there’s still a long way to go. And that sense of how far there is to go underpins the policy guidance provided by the Committee earlier this year and takes us to our third and final question: what next for monetary policy? What next for monetary policy? The primary objective of monetary policy remains to hit the Government’s 2% target for CPI inflation. Despite missing the target for much of the past five years, I’ve no doubt that the credible nominal anchor it provided served our economy well during the crisis. Indeed, without that credibility it wouldn’t have been possible to loosen monetary policy as aggressively as we did in order to support output and jobs. As we have seen, the good news is that inflation has fallen sharply over the past few months and the 2% target is now in sight for the first time in over 4 years. But this isn’t a time for complacency.