Thanks, Otto, for that most generous introduction. It has been a great pleasure working with you over the last two years.
Good evening – and welcome. I’m delighted to see so many old friends here.
I’d like to thank the Shadow Chancellor for coming to address us tonight, and sharing with us his views on some of the most important issues facing the economy and our industry today.
I have to say that I was a bit worried when we first heard that my farewell dinner was taking place tonight… worried because I know that Ed likes his football as much as I like mine.
Thankfully, the performances of our respective teams – England and the Ivory Coast – have ensured that we are not conflicted tonight…
I had hoped that, as today coincides with the Wimbledon quarter-finals, I would be able to say something positive about Andy Murray’s inexorable progress to retaining his title instead… but there you go – you can’t insure against every risk.
Clearly sport is a tricky topic at the moment – and that’s without even mentioning the England cricket team – so let’s talk instead about something the UK is uncontroversially good at.
Let’s talk about insurance.
Now that my two years as Chairman of the ABI are over, I can admit how daunting the role looked when I took it on. It looked daunting for two simple reasons:
First, Tim Breedon, my predecessor, had done such a good job as chairman that I found myself stepping into a role that had grown significantly in influence.
Thanks, Tim, for that.
The second reason was the knowledge of just how much our industry matters and what a key role it plays in the British economy and in British society at large.
Simply put, we take the worry out of risk.
We enable people to go about their lives with confidence, and we help businesses function. Our industry offers long-term protection, savings and investment to individuals, to families and to businesses.
The British insurance sector is one of the largest in the world.
We manage assets of £1.8 trillion – that’s equivalent to 25 per cent of the UK’s total net worth – and we contribute more than £10 billion in taxes to the government, which makes us, as a sector, one of the largest contributors to the Treasury.
We employ 320,000 people, three-quarters of them outside London, bringing jobs and prosperity to many regions.
And we look far beyond these shores, and all around the world. We are not only a national asset but also a global leader.
It speaks volumes about the attitude of this industry that I – a foreigner – could be invited to become not only head of Prudential, but also Chairman of the ABI.
You didn’t even ask me to moderate my terrible accent!
You have made me very welcome here, and I thank you for it.
The British insurance industry is a national asset, and with its global reach and its human capital, it is a source of strength for the UK.
We have bright men and women, thinking creatively and spreading great skill and intellectual capital around the world.
Our openness to the world has made Britain a great trading nation. Our industry now responds every day to a truly international demand for insurance.
In the last two years, we have seen many challenges, both here at home in the UK and abroad.
At home, we had rain. Too much of it, even by British standards.
By creating Flood Re, we took a significant step to ensure that flood insurance remains widely affordable and available.
As ever, we had to respond to issues around motor insurance. We work hard to control its rising cost and we will continue to do so. Over the past 18 months, motor insurance premiums have fallen by 14 per cent.
In particular, we are working to reduce road traffic accidents among young drivers, which lead to so many tragic situations.
With reform, we could avoid a terrible waste of life and reduce the cost of insurance for young drivers by 15-20 per cent. It is easy to understand why we are seeking cross-party support on initiatives aimed at improving the way young people learn to drive, which could save many lives.
In addition to the protection we provide to drivers or their homes, our industry plays a key role in channelling funds from savers into investment, bringing together the savings of millions of people and directing them towards businesses and projects that generate growth and jobs.
This role – providing long-term funding to the economy – is particularly important at the moment, as Britain emerges from recession and needs to achieve a sustainable recovery, supported by investment-led growth, most importantly in areas such as infrastructure. Yes, that includes the roads.
Again, in the past two years we have faced some significant developments in this area of savings and funding the economy. The changes to the annuities regime in this year’s Budget are one example.
In the environment we are in, with historically low interest rates, changes were necessary, and we as an industry are determined to continue to develop products that meet the needs of our customers.
The rise in the ISA ceiling announced in the Budget was also a major change. ISAs are one of the most popular products invented in the last 15 years. They have attracted £440 billion of assets, with more than £50 billion of flows every year.
We made the case for the ISA ceiling to be raised, and the government listened to us. This important product can now play an even greater role in addressing the savings gap in the UK economy.
Looking internationally, we faced the long-running issue of Solvency 2. If it had been implemented in its original form, it would have been simply catastrophic for British savers and pensioners.
The financial crisis made it visible to all how damaging Solvency 2 could be, not only for our sector but for the economy as a whole. In July 2012, when I took up this role, we were worried. Two years later, I am happy to say the outcome has been positive.
We have seen with Solvency II an inspiring example of collaboration between industry, government and regulators, to reach an understanding that is positive for British pensioners and savers, and for the British economy in general.
The merger of the IMA and the investment arm of the ABI has been an important achievement of the past two years.
Investors play a crucial role in a market economy and particularly in Britain: it was very important that they be organised to speak with one voice and that is one of the benefits this merger will deliver.
This new merged body will provide improved scrutiny of companies, ensuring that they deliver the best possible returns to investors.
This is something I absolutely wanted to achieve during my tenure as Chairman, and I am pleased that Helena Morrissey has begun leading the newly merged organisation, The Investment Association.
She is an excellent choice, and I wish her all the best in that role.
In the past two years we have also seen the beginning of the ‘twin peaks’ regulation structure, and have begun working with both the PRA and the FCA.
This is a long-term relationship that will need nurturing well into the future, but I can safely say that we have made a good, productive start.
Looking ahead, it is important that both sides continue to work hard to find the right balance between protecting consumers, financial stability and economic success.
A regulatory regime that does not allow businesses to innovate and grow cannot be in the long-term best interests of the economy, and therefore of customers.
Regulators rightly must be tough and challenging but they should also want to foster a climate in which the financial services sector, which is so important for our economy, can thrive.
In the end, only successful and profitable companies with a strong balance sheet can provide products and services to customers in a sustainable manner.
So where do we go from here?
Firstly, I’d like to congratulate Paul Evans on his election as Chairman. A great choice. I hope, Paul, that you find the role as stimulating and satisfying as I have.
You don’t need any advice from me on the way ahead but I am going to give you some anyway.
I will mention four challenges.
First, we need to ensure our industry is more trusted.
It is all very well talking about the good we do – and I do a lot of that, including tonight.
Trust is of course a problem for much of business, beyond our industry, but a survey last month by YouGov for the CBI found that insurance is one of the least trusted sectors in the economy.
We need to continue to work to improve this, focusing on our customers and the value we bring them and ensuring that individual firms do not behave in a way that hurts the reputation of the whole industry.
Second, we in the UK have an ageing population. Demographics is destiny, and our ageing population will become – or should I say has already become – a major concern for society at large.
We as an industry have a key role to play in designing and providing the products that will help society address this, in everything from long-term care to pensions.
Third, low long-term interest rates are a particular challenge. They are a disincentive to save and the drop we have observed in the savings rate is one of several unintended consequences of QE.
There is also a search for yield that may lead investors to incur too much risk and may ultimately lead to a new crisis.
Increasing the savings rate again will make it more likely that we will have an investment-led recovery. Raising the ISA ceiling is a step in the right direction, but we have to do much more.
I cannot overstate the case for an investment-led recovery, and the importance of infrastructure investment in particular. In the past two years we have played our part in ensuring that infrastructure has moved well up the public agenda, but there is still clearly much more to be done here. Increasing infrastructure investment is vital if the UK is to remain competitive.
Our fourth and last challenge – but certainly not the least of them – is that we need to ensure that the UK takes advantage of the vast growth opportunities available in emerging economies.
We need to have our fair share of the fastest-growing segment of the world economy, or we are going to find ourselves marginalised.
I have had a fascinating two years as Chairman. I hope you feel we have achieved good things. Certainly there is plenty still to do, but I have no doubt that we have the ability as an industry to do it.
Thank you to Otto, to my colleagues on the board and to everyone at the ABI for your support, your hard work and dedication.
Thank you for the pleasure of your company.
Thank you for putting up with me.
You are a great team and I know that, with your efforts under Otto’s firm leadership, and the efforts of the industry as a whole, we can tackle any of the issues that confront us.
Thank you to KPMG who have sponsored this evening.
Thank you too to everyone here.
Your friendship and support have made me glad – and honoured – to be a member of this great industry.
As we welcome our new chairman, let us look forward to the ABI becoming an ever more effective body – and to our industry achieving its full potential.
Thank you.