Reforms threaten insurance sector

POLITICIANS and regulators must tread cautiously or "squeeze the life" out of the UK's insurance industry, the head of the Association of British Insurers has warned.

ABI chairman Archie Kane said policymakers intent on reforming the financial services sector should focus on wielding their existing powers. Where these were not adequate, new regulations should be targeted specifically at areas of unacceptable risk.

"There is a danger that the response to the financial crisis could unintentionally squeeze the life out of the UK insurance industry," Kane told a reception for the sector at the Scottish Parliament.

While conceding that some change was inevitable, he highlighted the need for a "reasoned and balanced" approach.

He also attempted to put a clear demarcation between insurance and other parts of the financial services sector.

He said: "Insurance firms were not at the centre of the financial crisis, but we understand the current environment and the desire to reform the financial services industry. I cannot say this often enough: insurance is not banking.

"We run long-term businesses. We are not leveraged, we are not exposed to the same liquidity issues that banks face, and regulation needs to be designed, implemented and enforced with that in mind."

With next week's Budget in mind, Kane fired a warning shot at the Chancellor about the peril of tax rises that could affect the UK industry's ability to remain globally competitive.

"In the current economic environment, we are not nave enough to begin asking for unaffordable changes to the tax system," he said. "But we do need to highlight the corrosive effect recent tax changes have had."