LONDON (Reuters) - The Bank of England said it will devote greater effort to ensuring more consistent protection for those who would suffer most if their insurance policies do not pay out as promised.
The move follows a review by the central bank's Independent Evaluation Office (IEO), published on Monday, which looked into how the BoE's supervisory arm, the Prudential Regulation Authority (PRA), ensures that policyholders are properly protected.
PRA work on the issue had been "crowded out" by "live supervisory issues" and the need to implement European Union capital rules known as Solvency II by January 2016, the IEO said in its report.
The PRA's "articulation of its policyholder protection responsibilities appears to be unfinished business", although there was no evidence that PRA supervisors were falling short of their duties, the IEO said.
BoE Deputy Governor and PRA Chief Executive, Sam Woods, said the PRA does not seek to protect all policyholders equally and will direct more resources to those who would suffer greater financial hardship if their policies do not pay out as promised.
"Some of the oldest and most vulnerable in our society have invested their life savings into long-term annuity contracts," Woods said in a speech to the London Business School. "So when we talk about promoting insurers’ safety and soundness, and protecting their policyholders, this is what we have in mind."
Any reform to policy protection would be in place by the first quarter of next year. "I don't expect this to lead to a radical change," Woods said.
The Association of British Insurers said the PRA should consider the price and availability of insurance products, in addition to the solvency of provider firms when it comes to policy protection.
"There is a trade-off and we do not believe that the right balance has been struck," Hugh Savill, the insurers' association's director of regulation, said.
Britain's exit from the European Union has raised hopes in the sector that Solvency II will be overhauled, but Woods reiterated there would be tweaks, but no wholesale changes.
"We are expecting to begin post-Brexit with the same framework that we have now," Woods said. "We expect a framework of this kind for the foreseeable future."
The debate about Solvency II has become a "cacophony of acronyms" emanating from a "magic circle of insurance enthusiasts", he said.
"But strip this back and you’ll see there is an essential, irreducible human core to it all," Woods said, referring to the need to protect the most vulnerable.
JPMorgan Cazenove analysts said Wood's comments showed that the regulator was comfortable with capital levels at UK life insurers "and there aren't any near-term headwinds for the insurers from a PRA regulation perspective".
The IEO said the PRA should also ensure there is appropriate coordination with its sister regulator, the Financial Conduct Authority.
Reporting by Huw Jones; Editing by Alexander Smith and Susan Fenton