As regulators consider how to make financial markets more resilient in future, David Page calls for more proactive, less punitive supervision.

Apart from death, taxes and the fact that the traffic queue you are not in will move faster, the current climate seems to have no certainties whatsoever. The wind blows ever harder, the competition crumbles and still the only cause of hardening rates, which to many seem to be an obvious necessity, is the alleged lack of competition as brokers, Aon and Benfield, merge to become the “Beano”. Which direction do we choose to achieve the level of market certainty we need to run a business in the insurance industry?

Regulatory co-operation leading to effective regulation is the current mantra – and rightly so.

That, however, is only half the story. In the UK, what appeared to be the overnight creation of the tripartite authority (FSA, Treasury and Bank of England) followed Northern Rock’s collapse. The result was a move towards a return to market management which in the past was the regulators’ main role. Too little, too late? Possibly. It is at least arguable that the ‘merger’ of the capital markets and the reinsurance industry has moved ahead of regulation of the market. Perhaps that always has been the case. Think of ‘Tonners’, ‘Time and Distance’, ‘Finite Re’, ‘Art’ and now ‘Insurance wraps around CDS’s’ as a developing progression of examples of the line between insurance and banking becoming increasingly confused, with the insurance industry (and ultimately reinsurers) usually picking up the pieces.

“The 'merger' of the capital markets and the reinsurance industry has moved ahead of regulation.

Over regulation of a dynamic market is never a good plan. We need highly experienced regulators who know their industry inside out and who see their role as proactive market management, with the power to guide participants away from the excesses.

Let’s hope the seemingly inevitable raft of new legislation that follows, is about market management and not an inappropriate spread of the criminal law to be used by potentially heavy-handed regulators, to penalise an entrepreneurial market. Prevention (by guidance) is still better than cure.

David Page is co-head of the financial institutions group at law firm Ashurst.