Britain’s Financial Services Authority has decided to impose tighter capital adequacy rules on insurance companies to reduce the risk of a major company falling over. The move follows the collapse of Independent Insurance last year.

The “enhanced risk-based capital regime” will come into effect in 2004. FSA director Clive Briault said the new rules will determine appropriate capital levels on an individual basis.

Firms will be required to undertake a self-assessment using guidelines from the regulators, as well as a supervised assessment process. Mr Briault also emphasised a message that Australia’s regulators have made: “The possibility of [insurer] failure can never be removed altogether.”