The Regulatory Authority Problem
An additional factor which insurance company directors cannot afford to ignore is the activities of the government regulator for insurance in Britain , the Financial Services Authority (FSA). This took over the regulation of insurance on 1st December 2001 , announcing its rules for a risk-based strategy for assessing the solvency of insurers. In May 2002, the FSA published a discussion paper "The New Regulatory Reporting Environment" setting out further proposals, a key element of which is that insurers will have to provide more information on their operational risks and their reinsurance arrangements.

How this will work is not yet clear, but in theory at least, one of the effects could be that an insurer that takes on too much business in areas at risk of flood, and does not have adequate reinsurance, could find the FSA deciding to audit it. If the audit concludes that the insurer is not managing its exposures correctly the implications could be very serious.

Concentrations of exposure can arise for a number of reasons: perhaps the insurer had an active branch in an area where other insurers did not have branch offices, or perhaps the insurer had a block scheme with a local building society, or a head office located in a provincial centre. For most insurers, however, the main concentration of exposures will be in London .

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