For those running brokers and insurance companies in the UK non-life market, 2012 promises to be a challenging year with reputation topping my list of worries for the industry.
Issues ranging from closure of a £500m tax loophole to how major property exposures can be managed once a decades-old pact to insure buildings at risk of flooding comes to an end; these and more will all vie for directors’ attention alongside the day to day running of businesses typically located at the grudge purchase end of the high street.
With concerns both legislative and market-driven requiring considerable thought, here’s my top five insurance industry headscratchers.
#5 Consumer Insurances Bill/Law Commission review of Insurance Contract Law
‘Snail’s pace’ would be the only way to describe progress of this particular piece of legislation – I recall speaking with various now ex-Law Commissioners back in 2006-2007 about the plan to reform the 106-year old set of rules governing how insurance products are bought and sold. Now, having seen amendments debated in the House of Lords on December 20th 2011, the bill is now crystalising nicely. At its heart is the question of honest disclosure with the burden likely to be shifted onto insurers/brokers to ask more questions, rather than expect perfect answers. This could cause a major headache for companies already overburdened by regulation and key facts statements which make consumers’ heads spin at the best of times.
Interestingly, Commercial Secretary to the Treasury Lord Sassoon said in debate last month, “I am sure that the Committee did not intend to give consumers a “get out of jail free card” in circumstances where they knowingly and deliberately deceived their insurer,” a fact the Association of British Insurers and the Investment and Life Assurers Group will both appreciate.
You can follow progress of that particular bill here
#4 Finance Bill
Despite significant efforts by industry, the Association of British Insurers and Lloyd’s, HMRC confirmed its intention to repeal legislation that allowed a tax deduction for claims equalisation reserves in general insurers and Lloyd’s members.
As Colin Graham, UK insurance tax leader at PwC, said: “This could put UK-based insurers at a competitive disadvantage to insurers based in some other countries at a time when the Government is seeking to attract industry back to the UK. Relief already claimed will reverse, costing the industry £500m over six years from 2014 onwards.”
Could we be in for some interesting moves of domicile by insurers away from the UK? Time to get the passport out…
#3 Health & Safety Review
The government said it will slash the burden on employers and their liability insurers in the wake of recommendations from its independent review of health and safety legislation. Professor Ragnar Löfstedt’s report ‘Reclaiming health and safety for all’ proposed that H&S regulations remain the same but disproportionate box-ticking needs to be removed.
This may sound like a potential boon for insurers and when professor Löfstedt claims the regime is broadly working, a continually risk-averse culture should benefit the industry – continued safety, fewer claims? However, health and safety bureaucracies are both friend and foe for insurers and should these reforms be adopted then underwriters face a return to the training room themselves.
#2 LASPO & the Jackson Reforms
The Legal Aid, Sentencing and Punishment of Offenders Bill was marshalled through the Houses of Parliament carefully by its supporters throughout 2011 until hitting a roadblock in the Lords in December when 51 peers tore it to pieces. However the sections relating to insurance and in particular the reforms of civil litigation and costs drawn up by Lord Justice Jackson appear to be protected with a view to their implementation in late 2012.
But despite insurers’ confidence, rumblings about potential delays to this deployment have begun to circle the corridors of power. This means that preparation by insurers for a regime which could significantly alter the balance of power in personal injury litigation towards them must be carefully planned.
1# The industry’s reputation
When Labour MP for Tottenham David Lammy described the response to last August’s riots by insurers as “woeful” the industry’s task in managing its reputation was laid bare. No sooner had the dust settled before claims of people left destitute and on the street with companies themselves – namely Zurich – the culprit.
Having witnessed the scale of the devastation myself, I would argue the criticism was slightly unfair, but insurers make a rod for their own back and could be in the midst of fashioning an entirely new one.
With the ending of the ABI Statement of Principles – a formal agreement for insurers to underwrite coverage for properties at risk of flooding – about to expire, it is highly likely the public will again point the finger of blame at insurers when next the deluge comes. Thousands of homes and businesses will be affected by this change and those unable to afford risk adjusted premiums will most likely go without insurance all together. How on earth will a disunited insurance industry tackle that challenge to its reputation? After all, flooding is not unprecedented like riots. Eh? oh.
this article was written by freelance journalist and PR consultant, Ralph Savage