Concerns over UK "twin peaks" insurance superviser

Britain's planned shake up of financial supervision may bump up costs, make policy objectives hard to achieve and leave insurers "lost in a Bank of England vault", a conference heard on Wednesday.

The UK is moving from a "one stop" regulator to "twin peaks" from early 2013, meaning supervision of banks and insurers is split from day-to-day market conduct and enforcement.

Insurers will be supervised by both "peaks", raising fears about increased costs, regulatory confusion and Britain's effectiveness in lobbying the European Union where financial rules are made and supervision is being centralised.

"I hope we don't end up having two competing groups trying to regulate the industry," Clement Booth, chairman of Germany insurance giant Allianz's British unit, told an Association of British Insurers' conference.

Britain, home to the world's third largest insurance sector with 1.8 trillion pounds in assets, outlined this week how insurers would be regulated under the new system.

The industry responded for the first time on Wednesday.

"Going to a twin peaks model does raise inevitably the spectre of additional cost for the industry," said Rob Curtis, director of financial services at consultancy KPMG.

Angus Eaton, operational and regulatory risk director at UK insurer Aviva , said there were concerns over how the two new British regulators will work together.

Both also needed to work effectively with the new EU insurance watchdog EIOPA, Eaton said.

KPMG called for a global set of insurance rules, saying the patchwork of approaches was bumping up costs for the sector by $15 to $25 billion annually.

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The supervisory change will come by scrapping the Financial Services Authority and creating the Prudential Regulation Authority -- which will also supervise banks -- at the Bank of England, and a standalone Financial Conduct Authority.

Insurers see regulators as being focused on banks due to their role in the financial crisis but Julian Adams, the FSA's director of insurance, dismissed fears insurers will end up "lost in the sub vaults of the Bank of England".

FSA Chief Executive Hector Sants told the conference he is fully aware that insurers are different from banks.

The twin peaks model has proved itself to be no better than any other, said Carlos Montalvo, executive director of EIOPA.

He questioned how a core objective of policyholder protection -- which the PRA will have -- can be pursued if the supervision of insurers is divided between two bodies.

Montalvo said that at the European level he does not want insurance and banking issues to be aggregated otherwise "we simply get banking solutions".

"I am of the opinion that at the European level, not the national level, twin peaks will not give the possibility to express the diversity of the insurance industry sufficiently," he added.

A single all-powerful EU insurance agency was still some way off though the Frankfurt-based EIOPA, launched in January, was like a child, starting to crawl but moving forward, Montalvo said.

"Let us walk!" Montalvo added. (Editing by Jon Loades-Carter)