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Is the market ready to embrace change?

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The London insurance market will report success in its effort to hit self-imposed targets for contract certainty by the year-end.

The job is clearly not yet complete. Many smaller brokers are still struggling to buy into the contract certainty concept.

Some non-United Kingdom insurance buyers have also tried to take advantage of the deadline by delaying their submissions to force the carriers to cave in at the last minute.

It also remains to be seen whether or not the majority of the market is willing and able to really embed the principles of contract certainty into their businesses.

Dane Douetil, the chief executive of Brit Insurance Holdings P.L.C. and chairman of the Market Reform Group—the cross-sector body that the Financial Services Authority has entrusted to make a success of the project—does not believe that the market can and will be allowed to revert to type.

Both he and David Gamble of the U.K.'s Association of Insurance and Risk Managers, told Business Insurance Europe that the hard work of making sure that the momentum continues and contract certainty really becomes business as usual for all participants really starts now.

This is why it is important that the Contract Certainty Steering Committee of the MRG is not wound up as soon as the clock strikes midnight on January 1 and that the FSA deals forcefully with any companies that are not taking it seriously.

It is also very important that the MRG is now firmly turning its attention to the legacy claim issue. Brokers and insurers are at odds over who should shoulder the burden of dealing with historical claims in the London market, an issue that has been a millstone around the market's neck for too long.

Most readers of BIE outside of the U.K. who do not buy specialist coverage in London could be forgiven for asking what all this complex local London stuff has to do with them. In fact, it could have quite a lot to do with all our readers, because of the implications this project has for reform in Europe as a whole.

The FSA is playing a big role in the development of Europe's new capital adequacy regime—Solvency II.

Closely tied to this are the efforts to see the creation of a pan-European and even global home state regulatory system for the insurance industry. Solvency II is also linked to the improvement in standards of corporate governance as epitomized by the renewed focus on transparency and broker commissions, and the EC competition inquiry.

A lot of big decisions will be taken next year about the future direction of insurance regulation in Europe.

If the FSA can prove that the principles-based approach can be used to effect in such a frustratingly complex market as London, then it will surely be even more difficult for the "flat-earthers" to argue that the way ahead in Europe is the rules-based approach.

Rules-based regulation is bad for insurance buyers because it inevitably forces the regulated market towards the pace and standards of the lowest, rather than the highest, and this means added cost and reduced flexibility.

This is why Europe's insurance buying community must use their national associations and FERMA to ensure that the "flat-earthers" are defeated in 2007.