I’d like to give you a few examples. For a long time, the functional areas of banking and insurance were silos. So were the regulations and indeed the regulators! After all, they mirrored the different business realities I have just described. Here in the UK, the creation of the FSA to oversee both of the areas - and other parts of the financial system as well - is a huge step forward. It helps in developing a regulatory framework which meets business realities on the one hand and public policy requirements on the other. Whatever the complexities it may generate, I believe we are already seeing great benefit. And similar developments are taking place in other countries as well. Now although the integrated structure of regulatory authorities is making significant progress in some countries, the nature of the regulations themselves are converging only slowly. There is as yet no real equivalent to the Basel Accord in the insurance area: no common prudential template for insurance supervisors exists yet internationally. That said, I fully recognise and applaud the work of the International Association of Insurance Supervisors in setting out best practice and promoting co-operation between supervisors. That’s a very helpful base for further work in future. We have to wish them well. But, the current position is that approaches to insurance regulation can vary widely from country to country. On top of that, there is sometimes fragmentation of markets and regulatory responsibilities, notably in the US. Unfortunately that complicates progress towards international agreement.
The starting point here will be to try to understand the nature of these vulnerabilities better, and their potential impact on the financial system. BIS Review 29/2003  1  Vulnerabilities: comparing banking and insurance My first observation relates to the different “customs and practice” of the two industries. In the banking world, obligations have historically tended to be for amounts which are clearly specified - either in money terms or according to some agreed formula - in advance. The event triggering delivery of the obligation is unambiguous. Often it’s simply expiry of a set time period; and the timetable for payment once the obligation becomes due is fixed (and typically short). In the non-life part of the insurance world, on the other hand the amount to be paid is often a matter of interpretation of the contract. There might be greater scope for debate about whether the triggering event has actually occurred or whether any associated conditions have been met - even whether payment is due. And any payment due may not be made, at least in full until negotiations on these points have been completed. The fact that well-established channels may exist to resolve any disputes - including if necessary the courts - doesn’t get around the fact that uncertainty regarding the timing and quantum of payment is injected into the process. Bankers find it hard to reconcile these realities of the insurance world with the way they manage risk and undertake their business.