In addition, if longer-term viability is not an option, insurers should be mindful that in certain circumstances a managed exit from the market may be most appropriate. As communicated in our Dear CEO letter on 2021 priorities2, we are currently developing our approach to recovery and resolution planning. We will expect firms to demonstrate – in a proportionate manner for their size – that they have a suitable structure and business model, and adequate contingency plans to be able to exit the market smoothly. In some cases, entering into run-off could be in the best interest of existing policyholders. More than fifty insurers regulated by the PRA are currently in some form of run-off and we endeavour to take a proportionate approach, thereby minimising the burden of entering this regime for smaller firms. Diversity and inclusion Mutual insurers have a considerable strength to celebrate in social purpose, and that should provide them with a relative competitive advantage. Within firms, we – at the PRA and the Financial Conduct Authority (FCA) – believe that increased diversity and inclusion will advance our statutory objectives by resulting in improved governance, decision-making and risk management within firms, a more innovative industry, and products and services better suited to the diverse needs of consumers. We would like to see firms collectively consider how they can build a diverse workforce too. 3 in The PRA, together with the FCA and the Bank published a joint Discussion Paper (DP 21/2) July on diversity and inclusion in financial services.
The roots of insurance lie in those with mutual interests coming together to share risks, and mutuals continue to play a valuable part within the insurance sector. The pandemic has highlighted the risks of protection gaps and mutuals can play an important role in providing specialist cover and operating in markets under-served by other firms, such as sickness benefits or professional liability cover for those in unique occupations, from bus drivers to vets. Protection from risk, and a stable supply of such protection, is an essential service for individuals’ and companies’ security. It is also vital for the wider economy, and particularly important in supporting recovery from the impact of the pandemic. Both recovery from the pandemic and the transition to net zero will drive substantial restructuring of the economy, though, for example, change in working and travel patterns. This restructuring will lead to a decline in some existing sectors, and growth in others, the emergence of wholly new sectors. New or growing enterprises need certain insurance products to operate, and others to take away risk that they cannot efficiently bear themselves. Any protection gap slows investment and thereby impairs recovery and transition. Therefore the ability to eliminate any protection gaps is a clear opportunity for the insurance sector. Both the risks and opportunities from the post-pandemic recovery and the transition to net zero must be an important factor in determining your longer-term strategies.