Tackling the spiralling costs of motor insurance for young people, capping the liability for care in old age and the creation of a regulatory framework for flood insurance are all expected to provide the industry the means to create innovative products to its consumers.
Speaking at the Association of British Insurers biannual conference yesterday he said: “It is a question of partnership. I don’t believe that any one of these three things is a problem that the industry could be expected to solve alone for our electorate or your customers.
“At the same time I don’t believe these are issues the government can solve my itself. The government is not capable of trying to act as a mass insurer.”
Letwin said it was the architecture which needed to be developed by government. In these three cases there is a need for government to establish a framework, sometimes regulatory, sometimes legislative, sometime both which creates a space within which the insurance industry can then come forward and act in a such a way that it would not have been able to if that framework had not existed.”
However members of the audience said there was an inherent reluctance to bring new products to the market with two new regulators creating more hurdles for insurers to jump over and causing the cost of developing new products to rise, suggesting the balance of regulation and innovation has not yet been achieved.
But Letwin said: “I don’t think there is such a thing as the right balance because circumstances are constantly changing. We are all very conscious of the risk of over-regulating the wrong thing and under-regulating the greater risk which is what has happened in recent years in our banking industry.”
He added that it was not simply a question of getting that balance correct but making sure that areas of the industry which need regulation are regulated very tightly to protect the public interest and not stifling areas which encourage innovation.
Letwin said: “The most daunting task facing the regulators is how to deal with innovation; for example look at the rapid rise of peer-to-peer lending which is currently unregulated.
“But you have to be able to keep your house in order and continue to innovate otherwise competitiors will sweep and do that job for you. I think the regulatory framework being created will allow insurers to achieve that.”