Tuesday, April 05, 2011

Too complicated to care?

What used to be a very useful and necessary industry has slid so far down the public's estimation that it is regarded as just another rip-off. This is the insurance industry, which has four of its representative bodies bitching to Brussels that proposed new rules are harmful.

Basically, we are talking about the so-called Solvency II capital-requirements regime, which the industry complains, contains parts that are "excessively conservative and prescriptive". The problem is that insurers are being forced into "overcapitalisation" due to fears of another financial crisis. Yet insurers say they are less risky compared with banks, but are being treated by regulators in the same manner.

Holding higher levels of capital, of course, means that insurance products are more expensive, and it also means less choice, as there will be fewer players in the market, as buckle under the regulatory burden, or decide there are better pickings elsewhere. The upshot of this is that we, as individuals take the hit, either in more expensive premiums, or through not being able to afford the products in the first place.

Where the particular damage will be caused, however, is in pensions products, where how long-dated liabilities such as annuities will be particularly badly hit – or so we are led to believe.

But the trouble is that the rules are so arcane, covering complex products in a complicated market, that you are not going to get a torrent of scandalised comment in the Sun, the Daily Mirror or even the Failygraph. And if the insurance companies are bitching, who is going to believe them anyway when they say the industry will be damaged – and who cares?

So it is that probably another vitally important issue is about to fall by the wayside. It is not that people don't care, but that the issue is too complicated to understand, and there is no one there in the popular media who will take the time out to explain why people should care.

Therein, though, lies a more deep seated problem. Likely, the only way of resolving this issue – which comes under QMV rules – will be to tell the EU to take a running jump. And since that is not going to happen, it doesn't really matter what we think, or whether we care. It is going to happen anyway.

No wonder people walk away from politics, but when they then have to pay the bills, the frustration builds up as people realise that, once again they have been had, and it is too late to do anything about it. But, as we keep asking, how long can this last, before there is a serious and uncontrolled backlash – or will such matters simply remain too complicated for people to care about?