The reason for locating insurance and banking in the PRA is that we have learned during the crisis that our job as prudential supervisors is to ensure that the public and users of financial services, including the corporate sector, can be assured of continuous access to the critical services on which they depend. Let me also make clear at the outset that insurance supervision matters as much to us as bank supervision. The crisis has given us more challenges with banks, but our statutory objectives make clear that our attention must be on both industries. Many financial services may be regarded as critical by their users, but some are distinctive because it is hard for consumers to replace their provider with a substitute without unacceptable cost and loss. Insurers provide critical services to the public in terms of risk transfer and very long-lived savings contracts. This last point draws out that insurance is not a single homogenous industry – general and life insurance are very different activities – and we recognise that in our supervision. It would not be acceptable to the public for their access to risk transfer through, say home or car insurance, or professional indemnity insurance, to name but a few, to be withdrawn in a disruptive and unannounced way. In the same way, savings contracts that are long-lived and provided by life insurers, and are often an individual’s primary pension provision, are critical financial services that are difficult to replace without unacceptable cost.
It is true that in the run-up to the start of the crisis, and for some time thereafter, the FSA mingled insurance and bank supervision in terms of its operating units, but I think that did not work effectively, and the FSA and now the PRA moved to a clear distinction, with insurance supervision headed by Julian Adams. Insurance supervision is a skill of its own, and while our supervisors do move roles between insurance and banking in both directions, we want to ensure that we have groups of truly expert insurance and banking supervisors. Recently, we have taken a further step on insurance supervision by formalising two directorates, for General and Life Insurance, reporting to Julian, and headed by Chris Moulder and Andrew Bulley respectively. Chris and Andrew bring a wealth of experience of insurance supervision and for Chris auditing. Alongside Julian, Chris and Andrew is a policy directorate headed by Paul Sharma who is, I think I can say, a true veteran of insurance supervision. And, I am delighted that Nick Prettejohn has joined the PRA Board. Nick brings extensive insurance expertise to our work as a board. Most important of all, we have a new Governor and Chairman of the PRA Board, Mark Carney.