We do not pursue a zero failure regime and we don’t have aspirations to further strengthen this protection as part of the Solvency II review. To the extent that there might be some wider benefits to reduced levels of protection, we would need to weigh these carefully against the costs to policyholders and the wider economy – especially when considered over the long terms for which many insurance promises persist. In coming to this view, we are particularly mindful of just how important the UK insurance market is, and how large the sector is relative to our economy3. The London Market is competitive, in 2/6  BIS central bankers' speeches  part, precisely because policyholders are confident their claims will be met. And as discussed, the life sector is responsible for paying retirement income to millions. This retirement income underpins a significant amount of spending, and much of it is provided in a way – via annuities – in which the investment and longevity risks are borne by insurers – so the security of that source of income and spending depends on the soundness of the life insurance sector. There is a growing degree of consensus around the world, exemplified by the work of the International Association of Insurance Supervisors (IAIS), over the financial standards to which insurance should be held.
But the pooling of savings within Life insurance companies and the willingness of policyholders to commit their savings for the long term also allows those savings to be channelled into new types of investment – ones that would be difficult or impossible for individuals to access directly, but which will play an essential part in the recovery and in meeting the challenges of the 21st century. And our data show that insurers are investing in ever more diverse and novel asset types, which often represent very long-term commitments. A willingness to innovate is to be welcomed. There is nevertheless a flipside to this novelty – the lack of a long history to guide the selection and risk-management of these assets, or to show how they may perform under various possible stress scenarios. So there are new sources of uncertainty to contend with, alongside those that insurers have been managing as their bread and butter for hundreds of years. Insurers, and we as their prudential regulator, have a responsibility to understand and respond to new uncertainties, some of which may play out over a very long horizon, to ensure that policyholders’ trust is repaid. Ensuring adequate policyholder protection is clearly a good in its own right – policyholders are consumers of a financial product, which may be very significant to them and their families, and they deserve to be protected. But it goes further. Securing policyholder protection upholds policyholders’ confidence and trust in the face of uncertainty.