IP An insight into the insurance market January 2009 INSURANCE PROFESSIONAL Personal injury claims TIME FOR A CHANGE? Pleural plaques LET THE FIGHT BEGIN Are insurance companies safe? HOW TO CHOOSE A SECURE PARTNER Goods in transit | Protection insurance | Solvency II | Technology We don’t like sub-standard standards. We don’t think ‘good enough’ is, well, good enough. At AXA we think it’s time for things to change, and for the better. Isn’t that something worth making a stand for? For more information visit axa.co.uk JANUARY 2009 CONTENTs PLEURAL PLAqUEs 17 EDITORIAL COMMENT 4 IP investigates the arguments surrounding the Scottish parliament’s move to reverse the Law Lords’ decision on pleural plaques ROUND-UP AND FOREWORD 5 PERsONAL INjURy CLAIMs 8 IP ﬁnds out why insurers were disappointed at the recent reforms to the claims system HOW sECURE ARE INsURERs? 12 Despite market turbulence, insurance is still regarded as relatively stable. IP explains what to look out for when choosing an insurer to partner PROTECTION INsURANCE 22 At the same time as demand for credit insurance increases, providers are restricting their activity in the market. IP explains why COUNTRy ANALysIs: THE Us 26 IP ﬁnds how the US insurance market is responding to the credit crunch, concerns over commission disclosure and the changing distribution landscape GOODs IN TRANsIT 28 IP ﬁnds out how hauliers and insurers are responding to the pressures of recession FIGHTING INsURANCE FRAUD 30 Sue Jones of the Insurance Fraud Bureau gives us the lowdown on ﬁghting insurance fraud A LOOk TO THE FUTURE 34 We ask three experts to look ahead and give their views on what issues will affect the insurance market in 2009 sOLvENCy II 10 We ﬁnd how Solvency II will bring greater conﬁdence in insurers, more choice and greater competition kEEPING sysTEMs CURRENT 36 A few hundred pounds a month invested in IT means your business can achieve greater efﬁciency REDUCING yOUR CARbON FOOTPRINT 38 Follow our practical steps to ensure your business minimises its impact on the environment Ask IP 41 Ask IP is your chance to ask those burning questions and AXA will provide the answer INsURANCE TALks 42 Paul Meehan brings his broker experience to AXA IP 3 COMMENT IP Amanda Jarvis on... preparing for a bumpy ride Happy New Year and welcome to Insurance Professional (IP), which is now entering its second year. When the magazine launched last January, nobody could have predicted just INSURANCE how badly the credit crunch would affect ﬁnancial markets across the UK and PROFESSIONAL the rest of the world over the year. Insurance Professional Those hoping the new year will bring with it promise of easier times will Volume 2 Issue 1 Published by Ten Alps Group be disappointed. As we went to press, the Ofﬁce of National Statistics (ONS) released ﬁgures to show that industrial output had plummeted at the fastest Ten Alps Publishing 9 Savoy Street rate in nearly six years in October 2008, with previous months also weaker London, WC2E 7HR than estimated. Managing director: Ian Carter ONS ﬁgures, which one commentator described as a ‘horror story’, Editor: Amanda Jarvis indicated that there is more doom and gloom to come over the coming months Tel: 020 7878 2404 and Britain will ofﬁcially be in recession once the fourth quarter GDP ﬁgures, Email: email@example.com which are expected to show a sharp contraction, are published in late January. Publisher: Tony Morbin To help you gain an idea of how deeply the insurance sector is likely to be Design: Dan Lewis affected, IP has asked experts to give their views on how the sector will fare Proofreader: Martin Croft this year and over the coming years. Because ﬁnancial security is more important than ever before when it Production manager: Louise Greenall comes to choosing an insurer to partner with, IP has put together a guide to All images by Photolibrary unless otherwise stated. choosing a secure insurer. Turn to page 12 to ﬁnd out all you need to know Photography: Rob Clayton, David Williams about how to assess the stability of an insurer. Printed by: Stephens & George Print Group, On page 34 we talk to three experts to ﬁnd out what issues they think Merthyr Tydﬁll, CF48 3TD will matter to the industry this year. Read what they have to say about the Insurance Professional is published on behalf of economy, customer service and the maturing of aggregators. We also bring AXA Insurance by Ten Alps Publishing, 9 Savoy you the latest on the issue of pleural plaques, Solvency II and the personal Street, London, WC2E 7HR. All rights reserved. This publication (and any part thereof) may not injury claims system. be reproduced, transmitted or stored in print or The Big Interview is with Sue Jones of the Insurance Fraud Bureau (IFB). electronic form (including, but not limited to any online service or database or any part of the Turn to page 30 to ﬁnd out how the IFB, in partnership with insurers, is helping internet), or in any other format in any media to ﬁght fraud, which will save the industry money. whatsoever, without the prior written permission of Ten Alps Publishing. Your ﬁrm, whether insurer or distributor, needs to prepare for a bumpy year. Any views or opinions expressed in this magazine So fasten your seatbelts, keep calm and carry on – the industry needs you! are solely those of the author and do not Finally, please continue to write in with your news, views and questions. necessarily represent those of Ten Alps Publishing. We’re always interested in what you have to say about your experiences and AXA Insurance happy to answer your questions. You can email me on AXA Insurance plc Registered in England No. 78950. Registered ofﬁce: 5 Old Broad Street, firstname.lastname@example.org London EC2N 1AD. A member of the AXA Group of Companies. AXA Insurance UK plc is authorised and regulated by the Financial Services Authority. In order to maintain a quality service, telephone calls may be monitored or recorded. AXA Insurance does not necessarily agree with, Your ﬁrm, whether insurer nor guarantee the accuracy of statements made or distributor, needs to by contributors, or accept any responsibility for any statements which are expressed in the publication. prepare for a bumpy year. So fasten your seatbelts, keep calm and carry on Amanda Jarvis, editor 4 IP nEWS And EVEnTS Round-up Calendar January 16 ABI Retail Distribution Review: Building a Successful Future. ABI, 7th Floor conference suite, 51 Gresham Street, London, EC2V 7HQ. See abi.org. Homeowners underinsured uk/events Government to produce draft Floods by £10,000 and Water Bill for consultation February HoMe insurance would advise people to keep receipts 5 CII Learning and development forum. Britain’s homeowners underinsure their of all major possessions, take pictures 20 Aldermanbury, London, EC2V 7HY. belongings by almost £10,000 per of their most valuable items and factor Can be included as part of your CII CPD household, according to AXA Insurance. in realistic replacement costs for things requirement. Email email@example.com for The average home’s contents are such as personal effects.” more details insured for just under £29,000, more AXA’s research found that the most 10 CII Counter-Terrorism, half-day than £9,000 less than the average value expensive room in the house is the workshop. 20 Aldermanbury, London, placed by consumers on their home lounge, valued by consumers at an EC2V 7HY. See www.cii.co.uk for more contents, at just under £38,000. average of £2,752, followed by the details Nick Kidd, AXA’s head of household, kitchen at an average of £2,299. warns consumers against cutting costs Furniture, electrical equipment, 12 Motor Claims Management Brieﬁng. by choosing cheaper insurance options. appliances and crockery all add up to a The future of motor claims. Victoria “It may seem a good idea to many – signiﬁcant sum to replace. Park Plaza, 239 Vauxhall Bridge particularly in today’s climate – to pick Personal effects such as Road, London, SW1V 1EQ. Visit www. the cheapest option when it comes to photographs are at the top of incisivemedia.com for more details home insurance and save a few pounds, homeowners’ lists of most precious but £20,000, or even £30,000 worth items, with a high sentimental value MarCH of insurance is unlikely to cover all the of almost £14,000, although it is hard 5-6 UK Broker summit. Hanbury Manor contents in a home.” to put a real replacement price on Hotel, Ware, Hertfordshire, SG12 0SD. Kidd explains how underinsuring could these items, which are, in many cases, Visit www.ukbrokersummit.com for lead to a policy being invalidated: “We irreplaceable, says AXA. more details aPrIL 23 Property Claims Management UK whiplash capital of Europe Brieﬁng. Details TBC 29-30 The Chartered Institution of Motor claiMs Claims are higher in the UK than in Water and Environmental Management. Nearly 12,000 people every day claim for the rest of Europe, says the ABI: 75% Annual Conference 2009. Water & whiplash following a motor collision, says of motor personal injury claims are for The Global Environment. Olympia the Association of British Insurers (ABI). whiplash, compared to an average of Conference Centre. Visit www.ciwem. Over 430,000 people claimed 40% throughout the rest of Europe. org/events for more details whiplash in 2007, up by a quarter in ﬁve Reasons the ABI gives for the rise in years. These claims cost the industry claims includes, motorists tailgating cars May nearly £2 billion a year in compensation. and incorrectly adjusted head restraints. 7 CII Learning and development forum. It has joined forces with motoring 20 Aldermanbury, London, EC2V 7HY. and road safety groups to set out a Can be included as part of your CII CPD programme for action and has made the requirement. Email firstname.lastname@example.org for following proposals: more details 13-15 BIBA 2009 Conference & n The Government’s proposed new Exhibition. Manchester Central. See framework for learner drivers should www.biba.org.uk for more details emphasise the importance of safe following distances. June n Vehicle retailers should demonstrate, 9 ABI Biennial Conference. Details TBC. when selling a vehicle, how to adjust To register your interest email Amanda. the head restraint correctly. Chase@abi.org.uk n The Government should develop and JuLy implement clear guidance on how to effectively diagnose and treat 8 British Insurance Awards. Details TBC whiplash. Ip 5 NEWS AND FOREWORD Fraud increasing Anthony Middle on... FRAUD Attempts to commit fraud by including lies on application forms for insurance products increased over 4% during the ﬁrst nine a challenging year months of 2008 compared with 2007, according to CIFAS, the When the US catches a cold the UK sneezes, so the saying fraud prevention service. The most frequent lie told remains goes. This has never been truer than in recent months. The the failure to disclose a previous address where the applicant’s ﬁnancial crisis, which began in the US sub-prime mortgage insurance history has been impaired. market has affected not only the UK market, but the global CIFAS data also shows an increase in false insurance economy too, and you’d be forgiven for thinking that it was claims, which increased 7.52% between June and September only a matter of time before the problems in the ﬁnancial 2008 compared with the same period in the previous year. system infected insurers. However, disaster is not inevitable in the insurance sector for several reasons. Unlike the banks, insurers are not over A matter of opinion leveraged, and with a few notable exceptions, have avoided becoming ‘the new banks’. Below we publish the results of some of the most recent In particular AXA is in a strong ﬁnancial position. Our opinion polls. If you want to give your views on the latest focus is long term and we concentrate on what we do well issues affecting your business, visit the website at – general insurance, life and pensions, wealth management, www.axa.co.uk/connect protection and health insurance and have not ventured into any banking-related areas, which is where other ﬁrms have Is there any demand for green insurance products? fallen victim to economic circumstance. Both personal lines and commercial lines demand Our strength and security should be a source of conﬁdence for you and your customers. However, on its 80% own, ﬁnancial security is not enough, we need also to focus No demand on our customer service, and our priority is to provide our 20% customers with consistent delivery and support. Do you think the Scottish government is right to We are doing this through a combination of developing introduce a pleural plaque bill? our people and focusing on our delivery to our customers to ensure speed and accuracy and the accessibility of our Yes key people. 14% For example, we are developing our staff through No programmes such as our award-nominated ‘intensive 86% customer experience’ where members of staff spend a day Do you deal with more car insurance claims when the in the shoes of our customers clocks go back? However, Rome wasn’t built in a day and we have to ensure that we deliver day on day, week on week and month Yes on month, at the same time as meeting the demands of a 25% challenging market place. No The hardening market is long overdue and we will play a 75% leading role in improving rating strength throughout 2009 and beyond. A challenging year ahead for all of us! Have you seen an increase in the number of claims associated with fuel theft? Yes 25% No 75% Our strength and security should be a How is the credit crunch impacting on your business? source of conﬁdence A lot for you and your 22% customers None 44% Anthony Middle, Some managing director, 34% commercial lines, AXA Insurance 6 IP We don’t like sub-standard standards. We don’t think ‘good enough’ is, well, good enough. At AXA we think it’s time for things to change, and for the better. Isn’t that something worth making a stand for? For more information visit axa.co.uk Taking it personally I n July last year the Ministry of claims from the reforms has not warranted reform. However, many in Justice released its decision only prompted renewed lobbying the industry are of the opinion that on the proposed reforms to in the insurance industry, but has lack of change was due to political the personal injury claims also prompted anger among those pressure from trade unions. process. After months of in the sector. Commenting, Stephen Haddrill, consultation and deliberation, Matthew Scott, head of director general at the Association Bridget Prentice, the parliamentary liability claims and professional of British Insurers (ABI), criticised under-secretary of state for the services at AXA Insurance, said the decision. He says: “The Ministry of Justice (MoJ), outlined the lack of reform to introduce exclusion of workplace-related changes that many hoped would a more widespread regime was claims, which take on average improve the way personal injury disappointing. He says: “It is a real three years to settle, is illogical and claims are handled. disappointment that the Ministry of bizarre. Trade union pressure must The changes were limited to Justice decided the reforms should not be allowed to block change.” road trafﬁc accident personal injury only include low-value motor injury The key driver behind the push claims valued at between £1,000 claims. It is a huge opportunity for reforms was to get a better and £10,000. New procedures missed to adopt the whole principle deal for claimants, but the reforms were proposed that would provide on employer’s liability and public failed to do that, he added. “These for early notiﬁcation of a claim as liability claims too.” proposals can only be the start well as promote early admissions Steve Foulsham, technical of a programme of much-needed of liability and early settlements. services manager at the British reform. Many claimants will remain The proposals would also remove Insurance Brokers’ Association stuck in a slow, complex and duplication of work from the (BIBA), agrees that the MoJ expensive system, that denies process. The Government also missed a trick by excluding EL and them speedy compensation and proposed ﬁxed time periods and a PL claims. He says: “We welcomed care. Even the motor reforms do speciﬁc ﬁxed legal cost regime for the recognition that the claims not go far enough, and will only such claims. process should be accelerated, have a small impact on the 10% The funding However, the Government also but in just dealing with the motor of motor insurance premiums that regime and concluded that there should be no element, we think the Ministry are swallowed up in legal costs.” the cost change to the small claims limits, of Justice has only done half a It is these legal costs that structures including those for personal injury job. We are concerned that it is remain the bone of contention for are still and housing disrepair claims, but a missed opportunity and would many in the industry with many that the fast-track limit should be have liked to have seen employer’s citing claimant lawyers as the only wholly in increased to £25,000. liability and public liability real winners. favour of the While the changes to the included.” “The funding regime and the claimant low-value motor claims process cost structures are still wholly legal were welcomed by the industry, the Complex settlements in favour of the claimant legal community market was also unanimous in its One of the reasons cited for the community,” says Scott. “And agreement that the reforms stopped lack of reform on EL and PL claims because no reforms have been short of adequately addressing is that they are a lot more complex introduced to EL and PL, the old Matthew Scott, the problems faced by the entire than motor claims, and with road procedures will still apply. This will head of liability claims personal injury claims sector. trafﬁc accidents constituting mean that we will continue to see and professional services, The exclusion of employer’s approximately 75% of personal inﬂationary costs hitting insurance AXA Insurance liability (EL) and public liability (PL) injury claims, it was this area that and, therefore, businesses.” 8 IP News aNalysis: PersoNal iNjury claim reforms Angela Faherty explains why insurers were disappointed at recent reforms to the claims system and finds out what the industry is doing to move the system forward Failed attempts Perhaps one of the major problems with the old system is the referral fees paid by lawyers to trades union and other organisations. And with no changes to the process being introduced, this problem is unlikely to be resolved. “If EL was simpliﬁed, lawyers would get reduced fees and wouldn’t in turn be able to pay the high referral fees to the trade unions,” says Scott. He continues: “The lawyers can afford to pay the referral fees because there is little proportionality in claiment legal costs. The lack of meaningful liability decisions has been And with AXA having begun work restraints on such costs in EL imposed on insurers. While Scott on a pilot scheme with at least and PL claims means those says he welcomes the decision one claimant law ﬁrm that runs charging such fees know they can as it will enable insurers to step a more streamlined process for get the money.” in early, thereby cutting out any motor EL and PL claims to prove The exclusion of EL and unnecessary costs from lawyers, the system can work, it seems the If EL was PL claims means that many some believe the timeframe is legal community too is looking at simpliﬁed, customers will remain embroiled in too tight. ways to move the system forward. lawyers a protracted legal process that will “Fifteen days is not a long Scott says: “There is a school would get prove costly and time-consuming. time,” says Foulsham, “especially of thought that market forces will reduced One of the key reasons for when it has to pass from client to dictate what happens, but that’s fees and instigating changes to the broker to insurer. What we have not true. Government intervention personal injury claims process was suggested to members is that is critical. Clearly they are doing wouldn’t in to streamline the process as well they set up a means of electronic something but we will continue to turn be able as address the transactional costs communications so as to avoid challenge, as the current reforms to pay the associated with many claims. It postal delays.” are too slow and too narrow in high referral seems that the Government has Going forward it seems the focus. The message is simple. fees to the actually failed in its attempts to industry will continue to lobby The majority of claims can be trade unions do this. Government on the issue of reform. handled simply and efﬁciently Therefore it means that where Admittedly such matters take time, without the transactional costs reform is warranted, the old but with associations such as now associated with these claims. Matthew Scott, procedures still apply. There BIBA, ABI and the entire insurance We need a process that does not head of liability is also additional pressure on industry wanting greater change, it revolve around litigation.” n claims and professional brokers and insurers as a appears the Government has not Angela Faherty is a freelance services, 15-day limitation period to conﬁrm heard the last of this matter. journalist AXA Insurance iP 9 The ABI’s Elizabeth Larkin and Sophie Lloret explain how Solvency II will bring insurance regulation into the 21st century A way to clearer S olvency II is a project Solvency II provides which it is hoped a risk-based analysis will culminate in of the additional capital the adoption of a buffer needed over and above world-leading approach the amount of the technical to insurance risk management and provisions. Specifications capital assessment on a common describing how to calculate both basis right across the European the technical provisions and the single market. Solvency Capital Requirement For customers, this should (SCR) are being assessed in mean greater confidence in the Quantitative Impact Studies insurers, more choice and greater (QIS). The fourth QIS results were competition. For insurers, it published in November 2008. should mean access to more markets on a common basis, Risk management with consistent supervision and The firm is not only required solvency standards, with proper to identify its risk profile and credit for diversification and good calculate the appropriate capital internal risk management. For buffer; it also needs to incorporate regulators there will also be a these results as part of the significant change, with the need decision-making process in its by supervisors and run in parallel to understand their firms’ entire business. Thus, the board and with a standard model for up to two businesses, and they will need to management of an insurer need an years. This dual running will provide There is a co-operate much more closely with understanding of the results of the a benchmarking system for the other supervisors across borders. risk and capital assessment, either risk that internal model. a ‘standard formula’ or an internal the Czechs Market consistency model where the firm has one. In might Group supervision Solvency II uses a principles-based either case, a formal “Own Risk propose One of the new ideas behind approach founded upon market and Solvency Assessment” (ORSA) a further Solvency II is to create a group consistency in its pricing of risk. is required from all firms weakening of model that allows the streamlining Where market prices are not to show what the key risks and the groups’ of supervision across the EU, available, it uses an estimated dependencies are, how these are proposal with co-ordination through one value together with a risk margin. managed and mitigated within the group ‘lead supervisor’. Countries Economic scenario generators business and the consequences outside the EU, the so-called ‘third and scenario tests are used to this has for capital. The ORSA countries’, could also be part of subject the values of the assets must also reflect the firm’s ABI this group arrangement. and liabilities to ‘stress tests’ that internal strategic decisions and This would provide for one determine what the impact of a be forward-looking to assess the capital calculation using one sudden significant change in the future impact of these decisions. group model, full recognition of assets or liabilities would be on the diversification effects and one solvency of an insurer. Internal models comprehensive risk review of the By using this approach, which Firms have the option of using a group, supplemented by local allows for risk mitigation and standard formula or an internal review as necessary, but conducted diversification, an overall view can model approach. Internal models in a consistent way, co-ordinated by be obtained of the organisation, encompass both partial internal the group supervisor. of the interactions between the models, which allow for changes to assets and liabilities and of how to parts of the standard formula, and From concept to reality adjust for risk – in the amount of a full internal model. The internal We have now reached a critical capital needed, for instance. model will need to be pre-approved stage in the preparations for 10 IP NEWS ANALYSIS: SoLvENcY II supervision Steered by ‘rapporteur’ to the planned 2012 implementation date. Peter Skinner MEP the ECON ‘Level 2’ measures Committee voted However, even once we have through a text at its agreement on the ‘Level 1’ Committee meeting in Directive, much of the detail of October. The outcome of Solvency II will follow in ‘Level this vote was very favourable 2’ measures through the advice to the European industry. of the Committee of European However, both Parliament and Insurance and Occupational the Council of Ministers need to Pensions Supervisors (CEIOPS) agree their own text to proceed to following consultation processes the next stage (called tri-logue) to with the industry. This consultation finalise a common text between will address the calibration of the Council, the Parliament and the the standard formula (SCR and Commission, to enable Solvency II MCR), as well as measures on to be adopted. elements of capital, model approval requirements, public disclosure From here to 2012 etc. In other words, there is about Solvency II. The European and beyond? two years’ worth of work to develop Commission published the draft If the French were not able to get the detail of Solvency II, even after Framework Directive (Level 1) an agreement, it is still possible high-level agreement has been There is in July 2007. This establishes that a deal could be achieved under reached on the Directive. the overall architecture of the about two the Czech Presidency and approved regime, to be enhanced by Level 2 years’ worth by the Parliament before the May An ambitious approach implementing measures and Level of work to elections. However, the Czechs will We are seeking to achieve many 3 national guidance. The text of the develop the have to face several challenges as new ideas – a market-consistent Directive is now in its concluding detail of this is their first time holding the approach to valuation, a stage of negotiation in the Council Solvency II, Presidency of the EU and it often comprehensive risk assessment of Ministers and European even after takes the strength and experience regime linking firms’ internal Parliament but its final adoption high-level of a big member state to carry out processes with the regulatory rests upon the resolution of some agreement big projects such as Solvency II. review, the capability to apply firms’ key areas of debate. has been Moreover, the Czechs are among own internal models and use the In the Council, the French held reached on the ‘Group of 12’ who are sceptical results to drive regulatory capital the rotating Presidency from July of the groups’ proposals – mainly requirements, and finally, a bold the Directive until December 2008. Whilst because their market is composed new approach to group supervision agreement has been provisionally of many subsidiaries of overseas with a single lead supervisor. reached on some controversial groups and they fear losing power While we await the outcome to issues such as the Minimum ABI – so there is a risk that the Czechs the negotiations, if what emerges Capital Requirement (MCR) and might propose a further weakening respects the principles of the “surplus funds” (a form of capital of the groups’ proposal. In that Commission’s original proposal buffer used only in Germany and a case the adoption of the Solvency then we will have a world-leading few other member states), there is II Directive may be deferred until regime for insurance supervision still debate on group supervision the Swedish Presidency starting in in Europe, which will bring benefits and calculation of the appropriate July 2009, which would coincide to regulators, to insurers and most equity risk charge. with the re-election of the European importantly to our customers. n In the European Parliament, Parliament. However, this would Elizabeth Larkin and Sophie Lloret greater progress has been made. almost certainly mean a delay are policy advisors at The ABI IP 11 in the midst of market turbulence, insurance is regarded as a relatively stable sector. However, it still pays to do your homework safety when you are choosing an insurer partner, says Katie Puckett w ith headlines shouting of impending at the heart of the sub-prime crisis. Few other doom and the collapse of some insurers have strayed into the same waters. For of our most established financial example, Nicolas Moreau, group chief executive institutions, insurance distributors for AXA UK and Ireland, said recently: “Contrary could be forgiven for being a little to other insurers, AIG developed business in wary of insurance companies. Choosing an insurer certain investment bank-related activities... is the equivalent of staking your reputations and Our situation at AXA is not at all comparable, customer relationships on a third party, and the last because we have not strayed from our core thing you want is that company to sink without trace insurance business.” when there are claims to pay. Where insurers will be hit, Bramall warns, The apocalypse on Wall Street has been felt is from claims arising as a result of corporate throughout the world’s markets and it seems as if no collapses – against company directors for corner of the financial services sector is safe from the example – from the general negative perception of devastating impact of a few bad loans in the US. But the financial services industry, and most significantly, while the credit crisis and turbulent market conditions in the value of their investments. Firms rely on will undoubtedly be felt by every company in some way, the returns from their carefully invested money to potential customers can take comfort in the fact that cushion the impact of surprise losses – from freak insurance is regarded as a relatively stable sector. weather events, for example. The falling value of their For a start, insurers are experts in managing risk. investments leaves insurers much more vulnerable to Their business models aren’t based on the kind of a series of large losses or a major catastrophe. short-term, high-stakes gambling that brought the In the event banks such rich rewards before leading them to ruin. secure backing of a large A report from the Market Security Team at global Another key difference between banks and insurers is storm, broker Willis points out that unlike banks, insurers that insurance is subject to much stronger regulation without didn’t play a key role in the chain that traded bad from the Financial Services Authority (FSA), which mortgage debt and they’re not so heavily exposed scrutinises upcoming risks and whether insurers are reinsurance to the toxic derivatives that have hit the banks. setting aside enough to cope with them. One of the many Sally Bramall, managing director of Global Carrier key things the FSA looks at is how well an insurer insurers Management at Willis and one of the authors of the has insured its own risks, known as reinsurance. For would be report, says: “The general insurance sector as a example, a firm might insure its losses from floods in severe whole appears to have remained relatively isolated from £60 million up to £120 million, so that if flood financial from the direct impact of the credit crisis so far. claims top £60 million the reinsurer picks up the difficulties Whilst there have been some notable exceptions, excess. In the unlikely event they rise over £120 these have been companies that have stretched the million, the risk is back with the insurer. “In the event boundaries of traditional insurance.” of a large storm, without reinsurance many insurers There has of course been the $143 billion bailout would be in severe financial difficulties, possibly driving Mike Roberts, reinsurance manager, of AIG by the US Treasury, but its problems relate to some of them out of business,” says Mike Roberts, AXA Insurance a subsidiary which specialised in the toxic derivatives reinsurance manager, AXA Insurance. 12 iP How safe are your insurers? first If you have four claims with one insurer and they’re all being disputed, it’s telling you something Peter Staddon, head of technical services, BIBA iP 13 “Insurers tend not to have pots of money in the bank to pay large claims. They buy cover from reinsurance companies which pay out in the event of the insurer having to pay out.” As the value of their investments drops, Roberts suggests some insurers might have to temporarily buy more reinsurance to compensate. “Insurers will need to factor any resulting increases in reinsurance costs into their business models.” An insurer’s credit rating will take all this and much more into account (page 15) and is an indispensable guide for anyone thinking of placing business. But brokers working with the market day in, day out will have their own ways of sussing out whether a firm is to be trusted. Peter Staddon, head of technical services at the British Insurance Brokers’ Association (BIBA), says the key factor for any broker is not price but trust, and their relationship with an insurer. “You might get cover cheaper from the Angolan Mutual Women’s whatever, but will they be around to pay the claim in two years’ time?” Most often, he says, the feedback has been very positive: “People have brokers will use tried-and-trusted names, and if been saying ‘We wouldn’t have considered trading they’re placing business outside their comfort zone with AXA before because we didn’t have a relationship they always prefer a colleague’s recommendation with them, and now they’re a preferred supplier’”. than to take a chance on an unknown. Brokers’ closeness to the market also gives them The perfect match a sixth sense for when an insurer’s in difficulty. “If For corporate partners, there’s another dimension to an insurer has always been proactive in relation to the decision. They’re entrusting their own hard-won its liabilities and then starts to make lame excuses, brand reputation to a third party, and they need the if you have four claims with one insurer and they’re insurer to provide the same standards of customer all being disputed, it’s telling you something,” says service as they would offer themselves. Paul Meehan, Staddon. One professional indemnity insurer is If we can get AXA Insurance’s customer experience director, known to question every claim. “It’s cheaper than a distinctive recommends corporate partners examine an insurer’s other insurers, but if brokers have got a claim, they product existing customer list. “If they’ve got good names, don’t want the hassle.” and a good you know they’re providing a good level of service,” Beware also the too-low quote, says Staddon. The customer he says. “As well as listening to a pitch, get the view cost of paying claims is only one component of a experience from people who they’ve been trading with.” premium. On top, the insurer adds its own costs and and our James Furse is managing director of Greenbee, a profit margin for shareholders and a bit extra to go objectives John Lewis’s financial services brand – and could into its reserves to cover it in the event of a very rainy are aligned, perhaps lay claim to the most uncompromising day. “Brokers have a gut feeling what each account is the customer base in Britain. Furse has set up worth. When you get quotes within 10% of each other commercials partnerships with 12 different businesses, including and another one that’s a third of the others, that AXA for household and travel insurance. He lists four take care of says to me they’ve got no idea what they’re doing, or very definite criteria, in descending order. The most themselves they’ve got their numbers wrong. It’s not sustainable.” important is the ability to develop a unique product At AXA, head of customer delivery Paul Taylor says for John Lewis’s customers, to offer them something it has just spent a year restructuring its broker-facing different in a crowded market. Next is the customer teams to nurture these relationships.“They told us James Furse, experience, not just the way calls are handled, but the they wanted access to decision makers, a consistent, managing director, end-to-end process including online and underwriting. Greenbee reliable service and people who understand their Then he wants to know that the two companies can business. Now they can get to know a small team work together and that the brands fit. Only then does of underwriters, and there’s four or five people they Furse broach commercial matters: “If we can get a deal with rather than 50. In the past we focused on distinctive product and a good customer experience, the account manager, but the day-to-day relationships and our objectives are aligned, the commercials with the underwriters are just as important.” He says take care of themselves. We want a partner who’s 14 IP How safe are your Insurers? prepared to learn with us, share the pain instead of strong) and D (weak) there may also be a plus or minus nailing us to a contract. We may have a way we want sign to indicate relative stability within the category. The to engage with the customer from our experiences cut-off point for a decent bet is BBB (good), and below as a retailer that’s quite new to a financial services this, ratings are considered vulnerable. company.” For example, with AXA, Greenbee has An insurer’s credit rating will take into account altered the renewals process for household insurance nine factors: industry risk, competitive position, based on its well-honed customer instincts and management and corporate strategy, risk management boosted renewal rates significantly. strategies, operating performance, investments, Furse doesn’t use a broker to select partners – capitalisation, liquidity and financial flexibility. though he does take professional advice throughout Credit rating agencies are privy to information that the process – and he and his team conduct all companies don’t tell the rest of the market – it’s in selection meetings face to face to get a sense of insurers’ interests to keep them up to date because whether the two firms gel. Contracts are tendered, any unexpected announcements can put them in and then early due diligence includes financial the ignominious position of being on ‘credit watch’, scrutiny and also a close look at how the two firms’ as with AIG in May. Watch status comes with one of IT systems might be integrated. “We partner with three qualifiers – positive, developing or negative. 12 businesses and they all have different systems. It’s supposed to last no more than 90 days while We need to get an early sight of what can be done,” the agency gets to grips with the situation, but says Furse. Service-level agreements concentrate on Peter Hughes, S&P’s vice-president of ratings in the quality as well as more quantitative measures such insurance market, says that in practice they try to as response times, and staff listen in remotely to resolve it within 30. “Companies don’t like being monitor standards before and during the contract. on credit watch, and we don’t like putting them on “It is subjective: it’s more about the extent to which it, because it means we don’t know what we think. the customer has to say ‘pardon’, attempts to create So perhaps it’s better to tell us beforehand if it’s empathy; it’s all about making the customer feel something within their control and then we can react some difference in the service – our customers do when they make the announcement.” have very high expectations.” Furse is also keen Ratings are under ongoing surveillance – each to hear about his prospective partners’ business member of Hughes’ team will have a watching brief continuity planning and disaster recovery. on between 10 and 15 companies, though the ratings Ian Barclay, head of distribution at AXA’s corporate are set by a committee. “We’re regularly in touch with partner business, says site visits are always offered They want insurers; there’s a lot of communication between the as part of the tender process. “They can listen to the somebody finance director, treasurer or whoever.” calls and actually touch and feel AXA as a business, they can But the rating is only half the story, he warns. so it’s not just words on a Powerpoint presentation. trust with “These are shades of grey, not black and white. We Some of our partners have members of staff on site their brand don’t give certainty, only degrees of probability. It’s every day working with our teams.” and offer important to look at the words we write too.” He attributes the success of the visits to AXA’s real value The accompanying commentary explains the investment in its staff – every new starter has three to their direction the rating is going and outlines any conditions months’ training, not only in their own trade but customers that might cause an upward or downward shift in in the brand values of the partner. In an uncertain future. For example, after AIG announced a first-quarter market, financial stability is undoubtedly important, loss of $7.8bn in May, S&P downgraded the Group’s but it’s only half the story: “They’re looking for rating from AA to AA-, with several caveats on its an organisation that will help them to grow their Ian Barclay, proposed $12.5bn capital raise, and a general warning head of distribution, business in true partnership. They want somebody corporate partners, on the direction of the market: “If AIG were to raise they can trust with their brand and offer real value to AXA Insurance no capital, we could lower the ratings by two notches. their customers.” Following the capital raise, the outlook is likely to remain negative because of continued negativity in the Credit where it’s due investment markets… Further significant deterioration An insurer’s credit rating is the definitive best guess in mortgage market performance or in AIG’s relative of how likely it is to be able to pay claims when they performance or capital could result in further arise in the future. Agencies such as Standard & Poor’s downgrades.” So while AA- still sounds good, anyone (S&P), Moody’s and Fitch use a descending alphabetical reading the small print would realise the situation system of ratings – for example, S&P’s runs: AAA, AA, could change pretty quickly. n A, BBB, BB, B, CCC, CC, C, D. Between AAA (extremely Katie Pucket is a freelance journalist IP 15 We don’t like sub-standard standards. We don’t think ‘good enough’ is, well, good enough. At AXA we think it’s time for things to change, and for the better. Isn’t that something worth making a stand for? For more information visit axa.co.uk PLeurAL PLAqueS Kathleen Hennessy finds out what consequences the Scottish parliament’s move to reverse the Law Lords’ decision on pleural plaques might have south of the border A law unto themselves T he power of a single word can be ‘plaques do not interfere with the function of the astonishing, far outstripping its actual lung and are not pre-malignant.’ Seaton goes on to malignance. Take pleural plaques, for describe them as ‘medically trivial’ and as ‘causing example. These are small areas of scarring no impairment or medical problem’. in the pleura, the membrane that covers What’s more, there is unanimous agreement on the lung. According to Professor Anthony Seaton, this, from the medical profession to insurers and former consultant chest physician and recently lawyers. “Pleural plaques don’t impact on a person’s retired head of the Department of Environmental and health,” says Malcolm Tarling of the ABI. “Having Occupational Medicine at the University of Aberdeen, pleural plaques doesn’t give rise to damage, loss or IP 17 reduced life expectancy,” adds Matthew Scott, head Although all parties continued to agree that plaques of liability claims and professional services at AXA. themselves cause no disability, some medical “Plaques don’t cause any symptoms or disability,” sources agreed with the plaque sufferers’ support agrees Simon Hiscock, principal specialist for the groups and claimant lawyers that the anxiety complex liability team at Cunningham Lindsey UK. caused by plaque diagnosis is sufficient grounds for It really is the general consensus: plaques cause compensation. no harm. But – and it’s a very big but – they are The net result was draft legislation, currently before caused by inhalation of asbestos fibres and, no the Scottish parliament, which – if it succeeds – will matter how asymptomatic they might be, those who essentially reverse the Law Lords’ decision and discover that they are suffering from plaques are allow pleural plaque sufferers to continue to claim thus made aware that they have been exposed to compensation in Scotland. And there are fears in the asbestos. And the potentially greater dangers of such insurance community that things might not end there. exposure – asbestosis and the cancer mesothelioma “Further legislation south of the border can’t be – are well documented. ruled out,” explains Scott. “Westminster launched This is the crux of a current legal upheaval. Since a consultation period earlier this year, indicating the early 1980s, those diagnosed with pleural Government was against overturning the Lords’ plaques have been allowed to claim compensation decision. This has now closed and the Government from an employer on the basis of negligent exposure response is still awaited.” to asbestos. “When I joined the claims division, we Tarling suggests an even more worrying outcome. used to categorise claims as either asbestos disease “If the Scottish parliament succeeds, it will change or not, so plaques automatically fell under the the basis of the law of negligence, and that has far asbestos category,” recalls David Williams, managing wider-reaching implications than just the issue of director of claims at AXA. pleural plaques,” he explains. “It would set a legal All that changed, however, after a group of insurers precedent for compensation claims from people brought ten test cases in England and Wales. They who had been exposed to a condition but were not argued that, as plaques caused no symptoms and suffering from any of its symptoms. It’s like allowing thus no damage in and of themselves, they should not people who have been exposed to sunlight to claim give rise to an action for compensation under the law damages even though they haven’t developed skin of damages. In October 2007, the Law Lords agreed. cancer. It overturns a fundamental rule of law that “There were many court cases along the way but allows claims for suffering as a result of negligence.” eventually the Law Lords made the sensible decision The Scottish parliament disputes this, stating that that plaques should not be compensatable: they “there is no way in which the bill, if it becomes law, cause no symptoms at all, and without the benefit could be used to widen the extent of claims to include of a chest X-ray you wouldn’t even know you had claims based purely on anxiety. That cannot happen.” them,” says Williams. “Clearly, there is something Westminster disagrees, however, stating in its there, but if that something is symptom-free, should recent consultation document: ‘Interference with it be classed as an industrial injury or disease that the fundamental principles on which the Law Lords’ requires compensation? Of course it shouldn’t.” decision was based could have wider consequences and could be used as a precedent to argue for The case for the prosecution compensation in other situations…’ It might also raise Following the Law Lords’ decision, however, the the possibility of compensation claims being made If something is Scottish parliament was fiercely lobbied by several much more widely for the risk of an illness occurring symptom-free, groups representing pleural plaque sufferers, or for worry that something might happen. This could should it be including Clydeside Action on Asbestos and considerably increase the level of litigation and the classed as an Thompsons Solicitors, one of the largest specialist possibility of weak or spurious claims and could have industrial injury personal injury firms in the UK. They argued that damaging effects on business and the economy’. or disease people with plaques suffer immense stress and that requires anxiety and that this, coupled with the fact that Interested parties compensation? damages for plaques had been an established legal Opponents of the draft bill argue that the Scottish feature for the past 20 years, meant compensation parliament has been unfairly swayed by less-than- should continue to be paid to plaque sufferers. impartial observers. Insurers say Scottish MPs A consultation period ensued, during which the came under intense lobbying by the legal community, David Williams, managing director parliament heard evidence from medical experts, especially Thompsons Solicitors, which handles the claims, sufferers’ representatives, lawyers and insurers. majority of asbestos claims in Scotland. AXA Insurance 18 IP We don’t like sub-standard standards. We don’t think ‘good enough’ is, well, good enough. At AXA we think it’s time for things to change, and for the better. Isn’t that something worth making a stand for? For more information visit axa.co.uk “There’s an impression that employers and insurers are simply trying to weasel out of their legal responsibility here, but that impression is being supported by parties with a financial interest in the Scottish legislation succeeding,” points out Williams. “Unfortunately, there are certain firms of claimant lawyers that earn substantial sums from referral of plaques claims and they are driving the erroneous idea that there is some association between plaques and asbestosis and mesothelioma. There is a lack of transparency in the public arena that this company has a vested financial interest in keeping plaques as a compensatable disease. “The ones who should be sued are the scaremongers frightening people into believing there’s a chance they could develop mesothelioma. We should be relieving plaque sufferers’ stress with an informed education programme about the true nature of pleural plaques instead.” Hiscock also believes people need to be better informed. “I’m all in favour of an education programme that better informs people about the true nature of pleural plaques, distributed through GP surgeries, CAB branches, unions and employers,” he says. “The Government here seems to be in favour of this, too: in its consultation paper it refers to the level of public misperception of pleural plaques.” Tarling is another fan. “We would like to see the emphasis placed on education rather than legislation,” he says. “People need to be informed about the true nature of pleural plaques and their non-connection to the subsequent development of asbestosis and mesothelioma. Currently, a lot of people with plaques are enduring severe stress because they fear they will develop these conditions – education about the subject would help to relieve that stress.” We should Supporters of plaque sufferers, however, have be relieving already disputed this. ‘The people with pleural plaque plaques who come to us know that plaques do not sufferers’ develop into mesothelioma,’ said Phyllis Craig of by mobile scanning units that travelled to work sites stress with Clydeside Action on Asbestos in her submission – to determine whether they had suffered asbestos an informed to the Scottish parliament’s consultation process. exposure. The subsequent flood of lawsuits meant education ‘But they are also well aware that the exposure to several companies went bust paying out enormous programme asbestos that caused the plaques can also cause a claims, leaving no cash in the pot for claimants with about the terminal condition.’ asbestosis and mesothelioma. true nature In his submission to the consultation, Seaton of pleural conceded that plaques do inevitably cause anxiety The cost of success but that it ‘can be allayed if the person is given a It’s a situation that could develop here, according plaques clear explanation of the implications of having to Hiscock. “Insurers don’t have a bottomless pot pleural plaques.’ of money,” he notes. “Any cash spent on paying out Williams also thinks an education programme might claims for pleural plaques leaves less available for David Williams, help prevent a recurrence of the US situation, where more serious conditions like mesothelioma.” managing director claims, thousands of workers were actively encouraged by Williams shares his fear. “As long as the courts AXA Insurance claimant lawyer firms to undergo X-rays – supplied and the public purse are tied up dealing with this 20 IP Pleural Plaques “This means several corporations will be looking at having to pay these claims – if successful – from their own funds.” If the Damages Bill does become law, the first area to feel an impact will be employer’s liability insurance, where insurers’ costs would almost certainly rise. This would pile inflationary pressure on premiums, and lead to a bizarre situation where the same insurance costs more in Scotland than in England and Wales, though how much more is hard to say. “We took a pasting from the Scottish Justice Committee for not being more specific about potential cost increases, but until we know the finer details of the bill and any limits on compensation payouts that might be imposed, we can’t really say for sure how much costs might inflate,” says Scott. “It’s like asking how long is a piece of string.” The Scottish parliament’s current estimate for the cost of continuing to pay compensation claims for plaque sufferers is from £5.5 million to £6.5 million a year; Westminster believes the figures to be more in the region of £76 million to £607 million. For the whole of the UK – should the current situation in England and Wales be changed – the ABI estimates the future cost of plaque claims settlement at between £3.67 billion and £28.6 billion. Fighting back The insurance industry is not going to take these costs lying down, however, and has already begun considering its options.“Several insurers, including AXA, have taken legal advice from Brodies solicitors of Edinburgh and obtained counsels’ opinion,” says Scott. “We believe we have strong grounds for challenging the legality of the Scottish Government’s planned legislation. We presented compelling evidence against an overturning of the House of Lords decision before the Justice Committee of the Scottish Parliament as part of the legislative process. issue, there are no resources for the reforms that But if the Bill presently before the Scottish Parliament are needed, like speeding up the claims process is enacted we will take steps to mount a judicial for mesothelioma so that sufferers don’t have to review of the resultant Act in the courts.” die while waiting for an agreed settlement to be Several And where does this leave the sufferers of pleural reached,” he points out. insurers, plaques? “Someone suffering from plaques right now The fallout doesn’t stop there, however. Tarling including would have to be advised that there is no legal claim suggests that success for the Damages Bill might AXA, have to be made,” explains Hiscock. have even broader implications for Scotland: “It might taken legal “Any claim that was in process prior to the Law damage Scotland’s economy as companies thinking Lords’ decision is now null and void south of the advice of setting up business there reconsider on the basis border,” adds Scott. “AXA’s approach to lawyers is: of increased costs,” he suggests. ‘your client has no entitlement to damages – we Hiscock adds that even existing businesses might ask that you withdraw your claim and shall expect face catastrophe. “Employer’s liability insurance Matthew Scott, their funding arrangement to meet our costs in head of liability became compulsory only in 1972, and many of the claims, defending it.’” n pleural plaque claims pre-date that,” he explains. AXA Insurance Kathleen Hennessy is a freelance journalist IP 21 Protecting your G iven the onset of recession, which some In a financial crisis businesses need to have suggested may feel more like a depression, and the overwhelming protect both their operations and their liquidity and credit problems we are assets and consumers their income, or risk facing, it is no surprise that protection losing them, says Edward Murray insurance in its many forms has come to the fore. But what part does credit insurance have to play in the commercial arena, how can protection insurance help retail customers and what sort of things should wall, but will also help many businesses from enduring brokers be suggesting to their clients? costly problems that hamper them into the future. Perhaps the first point to note is how important it According to global broker Marsh, trade credit is for brokers to react to changing circumstances. insurance is only used by around 20% of UK firms. It is very easy to develop a standard response to However, given current trading conditions, more firms protection issues, but are they really right in today’s are looking at this type of cover. Unfortunately, at the fast-moving times? same time, a growing number of insurers are restrict- Brokers that are on top of the changing ing their activity in this market. environment understand the different solutions Tim Smith, leader of Marsh’s Trade Credit Practice, available and are quick to adopt best practice will comments: “As the recession takes hold, more and soon prove their worth to clients and win their loyalty more companies now seek the relative protection long past the current difficulties we are enduring. and enhanced credit management procedures that In the second quarter of this year, economic growth a trade credit product can bring to their organisa- came to a standstill, halting the uninterrupted rises tions. However, the current volatility, particularly in the the country had enjoyed for the previous 63 quarters. non-food retail and construction sectors, is driving Add to this the unprecedented cuts the Bank of changes in underwriters’ behaviour and appetite England has made to its Base Rate and the turmoil towards credit insurance.” that has engulfed financial markets and it quickly He continues: “From 2002 to 2007, the ratio of becomes plain why protection insurance can no insurers’ losses as a percentage of premiums written longer be regarded as a luxury cover. averaged between 40% and 50%. This year, ratios are In the past commercial clients may have been loath already exceeding 60% and fast approaching even higher to spend extra money on protection premiums and levels. We expect this trend to continue into 2009.” brokers have been happy not to push the issue, but the current environment must surely demand that Assessing risk more attention be given to the matter in present and The current Brokers looking to help clients secure credit future insurance reviews. volatility is insurance cover must therefore help them driving demonstrate they are a good risk. To do this, firms Cash flow crisis changes in will need to show clearly how they audit and review Cash flow is a huge concern for businesses even underwriters’ their exposures and how they manage these risks. when times are good. When the tide turns and behaviour Being able to provide help in such areas and help turnover is harder to generate, waiting around for and appetite clients put in place and demonstrate sound credit invoices to be paid can be terminal. towards management procedures will not only help them Certainly this is what research from credit insurer secure the cover they need, but also help them to credit Euler Hermes has found. It claims 18% of companies see just how valuable their broker is and how positive insurance that fail do so because they have experienced bad an impact they can have on their business. debt or poor working capital. Indeed, Marsh has seen such a spike in the Indeed, because credit insurance can reduce the number of clients looking for information on credit unnecessary cost of bad debt, protect success, and Tim Smith, insurance that it has established a dedicated hotline Trade Credit Practice provide the cornerstone of future growth, it will not only leader, to deal with enquiries. Smith comments: “While the help a significant number of firms from going to the Marsh extreme volatility in the financial markets continues 22 IP Protection insurance customers As recession bites, more firms put their cash flow on to the back of their smaller suppliers Stephen Alambritis, chief spokesperson, The Federation of Small Businesses iP 23 and impacts the wider business community, our team There has already been a lot of criticism of both of trade credit insurance and risk professionals can brokers and product providers who have sold policies offer practical and considered counsel.” inappropriately and the Financial Services Authority Not every broker will want to set up a dedicated (FSA) is beginning to come down a lot harder on desk to deal with such work, but making sure those found wanting in this area. information is available and effectively communicated An ongoing investigation into the market by the to clients will help firms differentiate themselves from Competition Commission is also likely to open up competitors and clearly show the value they can add access for brokers looking to sell protection to clients in difficult circumstances. and so it is imperative they take this opportunity to The Federation of Small Businesses has also been demonstrate the expertise they have in this area, keen to highlight issues facing small businesses and and how they can help clients through the various the role that credit insurance can play. Chief spokesman products that are out there. at the federation Stephen Alambritis comments: “As For clients looking to protect their income, rather than recession bites, more firms put their cash flow on to the a particular bill or monthly payment, there are two main back of their smaller suppliers and it is these that suffer types of insurance available. Income payment protection when they do not get paid on time.” provides a monthly benefit, normally up to £2,500 and Despite efforts by the Government and local for a period of either 12 or 24 months. authorities to set an example by paying quickly, At these levels, the insurance is aimed at the mid- Alambritis says many larger firms are upping their to low-net worth market and for many will help them payment terms. Add this to those that struggle and stay financially upright if they cannot earn due to indeed fail to pay and it soon mounts up to a very accident, sickness or unemployment. significant problem for businesses across the UK. There is a significant difference between the cost Clients are likely to have a very clear and practical and flexibility of the products available in the market understanding of the risks they face, so for brokers and there is definitely a role for brokers who want to the challenge is to make sure they realise there are help clients get effective cover at affordable prices. safeguards they can put in place. They also need to help Simon Burgess, managing director at PPI specialist commercial clients present risks attractively to insurers British Insurance, comments: “Historically it has been who are proving increasingly cautious in this sector. too easy for income payment protection to be sold as an add-on to another product such as a mortgage and Consumer concerns to come from the same credit provider. This might be However, it is not just in the commercial arena that easy for everyone concerned, but this approach rarely people are facing problems. As a nation we owe works to the benefit of the client. If brokers take the almost £1.5 trillion and making sure we can afford time to get the best deal possible for their clients, our commitments to pay it back is essential if we are they will begin to prove their worth in this market at to remain financially afloat. a time when more and more people are realising the Payment protection insurance (PPI) provides cover importance of having this kind of insurance.” for individuals who are unable to work through Although consumers are becoming better educated accident, sickness or unemployment and different in this market and are increasingly turning to the policies will provide for individual monthly costs such internet for cover, this should not necessarily as mortgage, loan or credit card payments. preclude intermediaries from being able to provide a While these insurances are designed to cover the highly effective service. This may be the opportunity monthly cost of these bills, they do not replace an to consider selling insurance online. individual’s income and in the main do not provide Shane Craig, managing director at PPI intermediary for living costs over and above the specified credit Paymentcare.co.uk, adds: “We are being bombarded payment. with enquiries from all sectors, and the common To this end, such insurance will help an individual theme is that people are finding the cover offered by stay on track with their repayment schedule, but will high street lenders exorbitantly expensive. A growing not help them meet living costs such as food, travel number of applicants are telling us that they’ve and heating bills. always thought PPI to be a good thing but simply This is something that brokers need to make their can’t afford the prices the high street lenders want clients aware of and taking the time to talk them to charge. On top of that, more people seem to be through the various options in the protection market aware of the ongoing competition inquiry into PPI, a is incredibly important if they are to get cover that sure sign that consumers are becoming ever more actually works for their particular circumstances. savvy when it comes to their personal finances.” 24 IP Protection insurance Clearly consumers want income payment protection and are increasingly realising that they do not simply have to take what has been offered to them in the past by their credit provider. If brokers can ride this wave of momentum and help clients get what they want and need, then there is a significant opportunity for them to take advantage of. AXA Insurance underwrites the policy offered by the Post Office and there is no doubting the increase in demand over recent months. Duncan Caesar-Gordon, head of protection products at Post Office Financial Services, comments: “In the last couple of months we have seen a significant increase in our sales volume.” Indeed, he says although there has been a lot of criticism of the PPI market, he believes people are looking to find better-value options for their protection needs, rather than simply cancelling the policies they had originally put in place. High-end products At the higher end of the market, income protection or permanent health insurance, as it is sometimes called, is also seen as a highly valuable insurance. Like PPI, it provides cover in the event of accident, sickness or unemployment, but tends to pay out for as long as it is needed, up to the age of retirement. It also provides significantly larger benefits, running to annual benefits in the hundreds of thousands in the vast majority of cases. Given these added benefits, the cover is more expensive, but the product is certainly something brokers should be talking to clients about and one which may also be of interest to corporate We are being bombarded with clients looking to set up group schemes for their enquiries from all sectors, and employees. the common theme is that Indeed, income protection at this level should in no people are finding the cover way be treated as a secondary insurance and there is no offered by high street lenders reason why brokers should not be highlighting particular exorbitantly expensive clients on their databases that they could contact with a view to discussing their needs in this area. Businesses and consumers at all levels have Shane Craig, very different financial needs. However, if there managing director, is one thing that binds them together, it is their Paymentcare.co.uk increased vulnerability in today’s uncertain economic environment. It is up to brokers to make sure clients have considered their position and are taking appropriate action to protect it. If they are not, then it will be too late to do something when redundancy has hit or a client has fallen prey to accident or sickness. The opportunity exists now and brokers should seize it for their own sake and that of their clients. n Edward Murray is a freelance financial journalist iP 25 Winners and losers The US financial crisis, which started with a few sub-prime mortgages, has affected the US insurance industry too, with AIG the most notable victim, finds Amanda Jarvis L ast autumn, US Four life insurers, including Chris Winans, Government officials, Aegon NV, applied for bailout senior vice-president concerned that capital on the application deadline of AXA-Equitable shares the collapse of a date and have gained ‘thrift this view. “There are two major insurer could status’ to acquire savings and main pressure points,” says further destabilise the financial loans, which opens the door for Winans. “The first is weakness system, extended the scope them to seek bailout funds. in investment returns, making it of the bank bailout to include However, insurance agents are harder for insurers to cut rates.” staking ownership in the nation’s concerned that the Government’s The second is the disruption insurance companies. rescue bill has created a situation caused by AIG’s situation. “AIG The problems at AIG highlighted of ‘winners and losers’ and was the largest player, especially the difficulty of rescuing insurance may reduce competition in the in commercial lines coverage, and companies after they begin marketplace. there is a reduction in the capacity to unravel, a reason why the that AIG provided in the market.” Government decided to step in Market trends As well as the difficulties earlier when other firms began to With the exception of auto and resulting from the credit crunch, show signs of weakness. homeowner, premiums have been US insurers suffered major losses While US insurers are low with commercial property/ due to storm damage. Hurricane keen to emphasise that their casualty premiums continuing a Ike, which was the third major industry is less vulnerable to downward slide during the third hurricane of the 2008 Atlantic mortgage-backed securities and quarter of 2008. But there are hurricane season, resulted in other complex investments that suggestions that the market insured losses estimated at $9.8 have caused the problems with decline may have levelled off, says billion, making Ike the fourth most How long the banks, many insurers are the Council of Insurance Agents expensive hurricane in US history. carriers can struggling to raise enough capital and Brokers, which represents maintain to keep their credit ratings and commercial agents and brokers. Regulation price cuts meet regulatory requirements. There is doubt that prices will More than 7,000 insurance without Hartford Financial, MetLife and remain low. “We won’t know until companies, and 3.2 million Prudential Financial all reported a January renewals what toll the individuals are licensed to provide damage difficult third quarter. economic crisis has taken on the insurance services within the US. to their US insurance companies have industry,” says Ken A Crerar, Council State legislators set broad financial historically kept much of their president. “What we do know is policy for the regulation of health is investment portfolio in corporate that investment income is down insurance. Under the state anybody’s bonds of banks and insurers, dramatically, carrier profitability commissioner they establish guess which means that portfolios is being eroded, net underwriting and oversee state insurance are very highly exposed to the losses are higher and combined departments, regularly review and financial sector. As banks lose ratios are inching up over 100. How revise state insurance laws and Ken Crerar, money, insurance companies have long carriers can maintain price approve regulatory budgets. president, Council of Insurance seen a significant chunk of their cuts without damage to their A state regulator’s primary Agents and Brokers investments disappear. financial health is anybody’s guess.” responsibility is to protect the 26 IP Country analysIs: us Distribution top 10 property and casualty Insurance in the US was companies by countrywide premium traditionally distributed through a number of channels: via Market share % agents who are employed by State Farm Group 9.71 or represent an insurance American International Group 7.41 company, via independent Zurich Insurance Group 5.73 agencies that represent a Allstate Insurance Group 5.45 small number of insurers, Travellers Group 4.36 and through brokers Nationwide Corporation Group 3.17 who often started out as Berkshire Hathaway Group 3.02 underwriters. Progressive Group 2.75 Recent technological Hartford Fire and Casualty Group 2.26 advances mean that Source: NAIC alternative distribution channels have sprung up, Disclosure is currently only including direct sales by phone, on a voluntary basis, but there mail and internet. Insurers are is a move to make it mandatory, also using other types of outlets which has not gone down well with Weakness such as banks and car dealers to some agents who argue that it is in returns access customers. anti-competitive. will make it A 2008 study of online auto “Efforts to ban contingent harder for insurance purchases by comScore commissions, yearly bonuses, insurers to interests of consumers, and The also saw strong growth in this or any form of incentive cut rates National Association of Insurance sector, says the Insurance compensation must be seen for Commissioners (NAIC) helps Information Institute. The results what they are: anti-competitive regulators fulfil that obligation. show that the number of quotes attacks on how our American While the regulatory processes requested online increased by 15% free-enterprise system operates,” Chris Winans, senior vice-president, in each state vary, three principles and the number of auto insurance said Donna Pile, president of the AXA-Equitable guide every state’s rate regulation policies purchased online PIA, at the beginning of 2007. system: that rates be adequate increased by 37% from 2006 to Another concern for agents is (to maintain insurance company 2007. Consumers requested more how they will be treated either solvency) but not excessive (not than 100 million auto insurance directly or indirectly through their so high as to lead to exorbitant rate quotes between 2004 and carriers and regulators following profits), nor unfairly discriminatory. 2007, according to the study. the Government bailout. The PIA Increasingly, even in the most fears that the rescue bill can be regulated states, officials are Broker issues used to change the insurance relying on competition among One of the hot topics on industry’s oversight and operative insurance companies to keep the National Association of structure in a manner that was rates down and are modernising Professional Insurance Agents never intended. It is concerned and streamlining the rate-setting (PIA) website is commission – or that Treasury officials have created process. For example, in Georgia compensation. a list of ‘winners and losers’ and legislation was signed in May In 2004, US insurance brokers will create super-entities from 2008 that allows auto insurance came under attack from the then ‘the ashes of those that limped in companies to adjust most rates New York attorney general Eliot seeking assistance’. without the prior approval of the Spitzer, following a tip-off from an “Will current financially sound insurance commissioner. Georgia industry insider. The investigation and responsible institutions that joins 30 other states that let rates led to allegations of price fixing, have no need of rescue actually more closely reflect competition. kickbacks and rigged contract bids have to be able to compete And from January 2009 auto at one of the US’s largest brokers, in the ongoing marketplace insurers in New York State will be Marsh & McLennan. Following against these federally anointed allowed to adjust their rates up or a court case that resulted in super-competitors that have been down within 5% without seeking thousands of job losses at Marsh, granted a position of privilege by approval from the state’s insurance many major US brokers abandoned Treasury and been given billions commissioner. This should their system of accepting in taxpayer money?” asks Patricia encourage more auto insurers to ‘contingent commissions’ – Borowski, senior vice-president, do business in the state. rewards from insurers. PIA National. n IP 27 In for the long haul T he UK freight and nationwide coverage. “Most most now subcontract to third-party haulage industry has customers want to avoid the hauliers or freight forwarders. rarely faced more expense of engaging a 38-tonne This guarantees a steady income challenging times. lorry to shift a relatively small stream, but means they have to Rising fuel costs, amount of goods, so they will buy bring their insurance in line with the falling margins, European pallet space instead. Their goods larger ﬁrm, says Graham Davies, competition and the credit crunch will be taken to a hub and sent on. director at insurance brokers We were are putting the industry under Rather than charging large vehicle Ratcliffes. “Hauliers working for the ﬁrst intense pressure. rates, costs are quoted major transport groups such as The market has seen major per pallet”. CEL Group and Elite Transport insurance changes and innovations, some Services require enhanced cover company to of them spearheaded by AXA, Economic barometer above the standard Road Haulage offer all-risks says Peter Hulyer, assistant The goods in transit insurance Association (RHA) rate of £1,300 cover and casualty insurance manager at market is dominated by a small per tonne.” continue to AXA Insurance. “We were the number of insurers. “Traditional They typically need to raise limits be one of ﬁrst insurance company to offer underwriting results have been in line with the Contract for the the market all-risks cover, for example, and good. The market is currently International Carriage of Goods leaders continue to be one of the market extremely competitive, and it is by Road (CMR), which is between today leaders today.” likely that we will see an increase £6,000 and £8,000 per tonne. The structure of the haulage or hardening of rates in 2009,” Until recently, this posed a industry has also changed, Hulyer says Hulyer. problem for hauliers and their Peter Hulyer, says. Only the larger manufacturing He anticipates that more brokers. “We would often set assistant casualty and wholesaling companies ﬁnd business will go through specialist up a standard RHA policy with a insurance manager, AXA Insurance it cost effective to run their own intermediaries, who can use their subcontractor only to discover that, ﬂeet of business delivery vehicles. volume to negotiate the widest say, CEL or Elite wanted higher Most hire haulage contractors possible cover and terms for limits and wide wording. We then to shift their goods. A relatively their clients. had to reinsure our customer on recent development has seen The haulage industry once the London market. It was a pain to contractors banding together to boasted a number of one-man do, plus the client ended up paying form ‘palletised’ networks giving bands and smaller businesses, but higher premiums,” Davies says. 28 IP SECTOR ANALYSIS: GOODS IN TRANSIT Haulage is a barometer of the economy, ﬁnds Harvey Jones. He investigates how hauliers and insurers are responding to the pressures of recession though they have to pay higher fuel threat of theft, which the economic and wage bills,” says Davies. downturn is likely to aggravate. Plus they must cope with “Mobile phones and computer growing bad debts. “If a customer chips are of great concern to goes out of business without insurers, who often impose large paying, they lose money. Many deductibles to protect them. ﬁrms have credit terms of 30, Hauliers are constantly under 60 or 90 days, which is a hell of threat from opportunistic criminals a risk. They are becoming more and organised crime.” savvy about who they deal with Tobacco and spirits also remain and making credit checks.” a favourite target, but the criminal Soaring fuel prices have placed threat is now largely under control. further pressure on margins. “Trafﬁc is limited to selected “Hauliers can’t afford to absorb carriers who have long-standing an extra 30p per litre of petrol. relationships with their customers, Some of their customers have and a good understanding of understood that, and increased what they need to do to protect rates, but it has often been a case themselves against theft,” of too little too late,” Davies adds. Wheatley says. Those days are over. “AXA saw AXA’s Hulyer says the industry the problem and took action, Facing threats works hard to reduce theft.“There agreeing to increase its cover EU proposals to introduce has been a substantial increase in limits to match the demands of the unrestricted cabotage in the next thefts involving non-ferrous metals, major forwarding companies. This six years, giving European hauliers particularly nickel, but the industry meant we could secure affordable greater access to the UK market, is responding with increasingly premiums for more exotic cases.” could cause serious damage to the sophisticated security.” With recession looming, Davies Goods haulage industry. It would expose He is conﬁdent that hauliers and says the industry has a major battle in transit heavily-taxed British hauliers to insurers have the knowledge and on its hands. “Haulage is a barometer insurance foreign carriers who beneﬁt from experience to overcome the various of the economy. The downturn remains low-cost diesel, which the Freight challenges facing the industry. “We means fewer goods are being Transport Association estimates have to understand trends in the competitive moved around, and the housing gives them an 8% cost advantage market, and respond by producing market slump is causing problems and over British ﬁrms. a more sophisticated insurance for furniture removals and building affordable. Home-grown carriers will offering. We also have to innovate materials companies. People are also This is very struggle to compete. “European and broaden our scope of cover. The buying fewer cars, which hits car helpful to hauliers could deliver here, and haulage industry is very thorough transporters.” hauliers and carry out subsequent work within and very professional. From an Falling volumes of business will helps to the UK at lower rates because of insurance point of view, it is a strong make competition between haulage secure the the lower cost base. This allows performer. It has a strong future, and companies even tougher. future of the them to undercut UK hauliers as a leading insurer in this market, To make matters worse, the industry shipping overseas. UK haulage is our role is to support that.” haulage industry felt that it was already mostly conﬁned to Britain Davies says there is a bright subsidising UK industry in the and this trend will strengthen,” spot for the industry. “Goods good times. “Hauliers have found says Davies. in transit insurance remains Graham Davies, it difﬁcult to negotiate carriage director, Paul Wheatley, technical competitive and affordable. This rate increases, because somebody Ratcliffes manager, haulage, at insurance is helpful to hauliers, saving them was always willing to do the work and risk management specialists a fortune and helps secure the at a lower rate. Many still get the The Davis Group, says hauliers future of the industry.” ■ same rates as ﬁve years ago, even and insurers have to cope with the Harvey Jones is a freelance journalist IP 29 Amanda Jarvis talks to Sue Jones of the Insurance Fraud Bureau about the Bureau’s work and finds that greater deterrents are needed to change the mindset of cheats We were set up to tackle organised insurance fraud and to disrupt those people who use the industry to commit financial crime Sue Jones, head of unit, Insurance Fraud Bureau 30 IP the big iNteRVieW Changing criminal minds S ue Jones is head of unit at the Insurance accidents involving their buses, and we also have a Fraud Bureau (IFB). Her career in the number of local authorities that are affected by slip insurance industry spans twenty years. and trip claims.” She was anti-fraud manager for Churchill Jones says that the IFB is currently trying to recruit Insurance for seven years and then those that aren’t members and is also discussing moved to RBS Insurance as head of counter-fraud with Lloyd’s the possibility of one of the motor in 2003. She joined the Insurance Fraud Bureau syndicates coming on board too. (IFB) three years later as head of unit. Jones is an Associate of the Chartered Institute of Insurance Success rates (CII) and holds a post-graduate certificate in fraud Insurance Professional (IP) asked how successful the management. IFB actually is at tackling fraud. The IFB was founded in 2005 by the Association “It depends on how you measure success,” says of British Insurers (ABI) anti-fraud committee. The Jones. “We were set up to tackle organised insurance bureau was formed to tackle organised insurance fraud and to disrupt those people who use the fraud (with proof of concept indicated) that’s currently insurance industry to commit financial crime. affecting the industry – according to ABI figures, “The fact that we’ve had more than 230 people fraudulent claims cost UK insurers £1.6 billion in arrested for committing organised insurance fraud, 2007, up from £1.5 billion in 2003. 14 convictions at trial and a number of other trials The IFB leads or co-ordinates the industry response to pending for 2009 and 2010 is testament to the the identification of potentially fraudulent networks and success of the industry collaboration.” works closely with police and law-enforcement agencies. High-profile successes have included ‘crash for cash Jones explains how the IFB creates links with other scams’, where the police and the IFB uncover scams organisations that allow it to deliver what the member involving accidents being staged to raise money. companies are expecting. “We’ve been successful with the amount of “We’re a relatively small team of fraud profession- publicity we’ve managed to attract,” says Jones. We als and some are ex-law enforcement,” she explains. hope this is a deterrent message for those tempted “My role specifically is to make sure the IFB delivers to commit insurance fraud. We’ve also delivered on insurers’ expectations. I spend a lot of my time indemnity cost savings back to our members. We’ve meeting with stakeholders, meeting with the heads of either been able to identify fraudulent activity that fraud and senior claims people within our contributing they didn’t know about before, or confirmed their member organisations.” suspicions about fraudulent networks.” The IFB is led by an operational steering group IP asked why fraud rates are increasing now that made up from the majority of UK personal lines detection methods are getting better. insurers who are members and funders.“In addition “It’s hard to know if fraud is increasing or if the to insurers we also have a growing number of industry is getting better at detecting it,” says Jones. compensators in particular, bus companies which “The more you measure, the more you will face an increasing number of whiplash claims from inevitably pick up. Awareness of fraud has certainly iP 31 increased and also the capability to tackle it.” She explains how monitoring fraud has made the industry more aware of the size of the problem. The beneﬁt of this, however, means that insurers are better able to manage their risk. Despite high-proﬁle arrests, it seems that the threat of fraud is as strong as ever. “We strongly suspect that the industry is still seen as a vulnerable target, by the fact that more than 15 applications for personal injury claims are received by the claims management regulator every week.” Criminal minds In many lines of business ﬁnancial hardship and fraud are certainly linked and insurance is no exception. believes that something needs to be done to tackle While the IFB was set up to deal with organised the mindset that ‘it’s OK to commit insurance fraud’. insurance fraud Jones says that it has evidence from “People pay premiums for years and years and don’t its members that there is an increase in the volume receive anything back in return. They don’t see their When there of opportunistic fraud. Jones puts this down to the service until they come to make a claim. I think that is publicity deepening economic gloom. publicity around insurance fraud being a crime rather in the form According to the ABI, dishonest motorists are using than being a socially acceptable thing to do would help.” of a TV their policies as a way to clear debts. Investigators The IFB operates a ‘cheatline’ on behalf of its programme, have uncovered 24,000 fraudulent claims worth members and statistics from this show that publicity radio £260 million over the past year, according to the ABI. is vital to getting the message across. “We operate broadcast or “The types of individuals that we see being the industry cheatline which takes telephone calls arrested are indicating that it’s a combination of and email reports anonymously from members of the newspaper ﬁnancial hardship as well as being coerced into public in relation to persons committing insurance articles, the participating in something that they don’t realise fraud and we know that when there is publicity in the volume of is organised crime. They are simply engaging as form of a TV programme, radio broadcast or newspaper calls [to the opportunists who can’t afford to repay loans or repair article, the volume of calls goes up signiﬁcantly.” cheatline] vehicles and so on and ﬁnding themselves inadvert- Jones says that after the broadcast of ITV’s Fiddles, goes up ently involved in organised crime as opportunists.” Cheats & Scams call volumes increased twofold signiﬁcantly At an individual level fraud falls into two types: inﬂated against normal volumes. and invented, with exaggerated claims more common Education is always important, says Jones. “As than invented ones, according to the ABI. Research an industry we need to embark on a campaign of carried out in 2007 by Keele University found that 7% education. We need to educate people that insurance Sue Jones, head of unit, of people surveyed admitted to ‘padding’ an insurance fraud is a crime. Some high-proﬁle prosecutions being Insurance Fraud claim. This is a recurrent problem for insurers, but hard publicised wouldn’t go amiss. We’ve relaunched our Bureau to prove and expensive to investigate when you are website which allows people to report fraud online talking about £50 here and £100 there. IP asked Jones and we do hope to publish some examples of case why she thought generally law-abiding people would studies on the website.” inﬂate an insurance claim. Another advocate of using publicity as a deterrent “Market research that has been conducted about is AXA’s David Williams. He believes that Britain insurance fraud has indicated that people genuinely should follow the example of Ireland and the USA and don’t see insurance fraud as being a crime,” says invest in advertising to combat insurance fraud. Jones. “They see it as part of the game. It’s more He believes advertising campaigns in Ireland and acceptable than what people might regard as petty the USA have helped to stigmatise insurance fraud. crime such as taking towels from hotel rooms.” Jones agrees with Williams: “We can use advertis- ing to encourage individuals to report people who Preventative measures commit insurance fraud and more importantly to Jones believes that there are several ways to ram advertise the fact that insurance fraud is a criminal the message home that insurance fraud is a criminal offence and that if individuals are caught they will be offence and people can be prosecuted for it. First, she prosecuted, so I certainly support that message.” ■ Watch the interview on Broker TV at axa.co.uk/connect 32 IP We don’t like sub-standard standards. We don’t think ‘good enough’ is, well, good enough. At AXA we think it’s time for things to change, and for the better. Isn’t that something worth making a stand for? For more information visit axa.co.uk 2008 was a tumultuous year for financial services and we’ll be feeling the effects into the new year and beyond. We ask three experts to look ahead and give their views on what issues insurers and distributors may face in the year ahead What do you think are facing the insurance Karen Osborne is head of customer strategy, AXA Insurance T he Customer Experience Team has been created to ensure that we put the customer at the heart of everything we do – whether that’s the broker, the corporate partner, the SME or the consumer. In the current climate customers want to make sure that the insurer they deal with is financially secure. They also want to deal with companies that make their lives easier. For example, brokers would rather divert resources from transacting with insurers to dealing with customers. To this end, the Team is looking at removing the barriers that prevent our front-line team from doing their jobs effective- ly. We aim to give them the support they need to offer a superior service to our customers. We are operating in an environment where it is important to contain costs. This means that there isn’t always the opportunity to do things as quickly as we would like. However, we will build on the excellent progress made last year and continue to empower our people to focus on customer priorities. We will also remain mindful of the circumstances that some of our customers may find themselves in. For example, the current financial situation may have an impact on our customers’ ability to pay their premiums or extend their cover. This will have a knock-on effect on results and on brokers, who may find their commission reduced. Insurers are seeing an increase in large losses, such as claims for fire and theft. This affects loss ratios and will have an effect on our end customer as insurers move to increase rates. n 34 IP the big question: Looking ahead the key issues industry in 2009? Dr Tom Kirchmaier Hayley Parsons is visiting fellow, is chief executive, London School of Economics Gocompare.com T R he credit crisis and the ensuing trickle- ecent research revealed that car down effects in the real economy are insurance costs in the UK have been undoubtedly going to be the key issue for rising in excess of 8% for the past 14 the UK insurance market in 2009. years. With claims costs still outstripping The crisis of the global financial systems even this level of inflation, 2009 looks set to revealed the widespread and highly leveraged be another year of rising premiums. exposure to poor creditors by most major Against this backdrop we have witnessed financial institutions, and substantial deficits the rapid rise of comparison sites. in the governance of banks. The ensuing The historical context for comparison result has been a dramatic shift in the risk sites is the ability to shop around for a perception of lenders and borrowers leading cheaper premium, but it is likely that their to the ‘shutting down’ of the debt markets development will be based on a more rounded and seizing up of interbank lending. offering of greater product transparency and The result of falling asset prices, financial more customer interaction. sector adjustment and de-leveraging from With the majority of big insurers already on record levels of borrowing is likely to take a comparison sites, wider choice increasingly heavy toll in 2009 and possibly beyond, marked means working with brokers with a strong online by reduced business and consumer spending presence and a differentiated offer. Brokers are and confidence, increased economic uncertainty helping to broaden the reach into niche markets. and tightened credit markets. In return, brokers get the opportunity to quote on The immediate impact for the UK insurance over a million cases a month. industry has so far been modest. But the wider There will always be consumers who prefer implications of the weakening economy and to buy their insurance from their high street distressed financial markets will keep insurance broker, or who want to speak to somebody over executives busy in 2009. the phone. We are not here to determine how Falling investment income, reduced liquidity people buy their insurance, but provide another and potentially increasing regulation coupled way for consumers to make informed decisions. with the fall in consumer and business We have worked hard to create a comparison spending will strain insurers’ top and bottom industry that insurers and brokers want to work with line and fuel competitive pressures. Next year and consumers can trust. As for the future, could could also see restructuring of the competition we get to the point where the insurance industry and distribution landscape as M&A activity views itself more as a whole rather than individual and consolidation continue (or even intensify distribution channels? This is one of the reasons we as more assets are sold at distressed prices) decided to join BIBA – we are passionate about the and the crisis in banking translates into a industry and keen to work together with providers, more visibly diminished role (of banks) in the brokers and trade bodies to tackle the wider issues insurance market. n and help move the industry forward. n iP 35 Keeping pace A few hundred pounds a month invested in IT means your business can achieve greater efficiency, which can save you money, explains Andrea Kirby S oftware is processes from crucial to enquiry and quotation any broker’s all the way to claims business. processing and settlement. But because Some of these systems are now many brokers started twenty years old – OpenGI, original- with an in-house system, ly part of Misys, goes back a long or third-party software, way. Sirius21 was born of the and then added on new 2007 merger of two companies solutions every time they with significant experience – Sirius needed something, many and SSP (ex-CSC). On the other systems look as if they are hand newcomer Acturis was only held together with sellotape founded in 2001, but has rapidly and bits of string. expanded by gaining new clients. Acturis, which provides Within the London reinsurance software solutions for brokers, markets, Trace Isys, Total Objects estimates that just over a third and Sequel all compete strongly. of all premiums are absorbed Total Objects’ Global XB broking in overheads such as multiple solution is a good example of a hand-offs, duplication, rekeying, modern, modular system, with its errors, and rework necessitated by internet quote engine, separate incompatible systems. reporting module, electronic It needn’t be that way. The messaging and core workflow. Systems insurance broking sector is too will support small for big companies like IBM Managing workflow processes or Logica to have targeted it, Many of of these larger systems from but there are a number of major now include workflow software that enquiry and systems designed specifically for can manage the entire process. quotation brokers. Systems such as SSP’s However, some brokers prefer to all the way Sirius 21, CDL Strata, and Acturis use separate workflow products. to claims will help handle a broker’s entire Document management (DM) business from the quote engine is another area where separate processing at the front to the back office. software is available. INVU, for and Indeed Acturis claims to be ‘the instance, provides DM software settlement only system a broker needs’. which can integrate with back office Such systems will support systems such as OpenGI. A good DM 36 IP Technology: Back To Basics with change system can help save storage space Most of the major software A suitable host as well as improving efficiency. packages now link to iMarket; in Increasingly, software is available Brokers have to decide whether addition OpenGI links to PowerPlace as a hosted solution – that is, it’s Hosted to choose an all in one package, for its Countrywide brokers. run on the software company’s systems are or select ‘best of breed’ for each servers, not the broker’s. With the great news type of software. Each strategy Maintaining relationships ASP model, the service provider is for smaller has its advantages – single For the front office, Customer responsible for system availability, brokers, packages may be simpler to Relationship Management (CRM) and handles upgrades and support but larger purchase and support, but specific software is available from major issues. It avoids a big up-front brokers may DM or workflow solutions may companies such as Siebel/Oracle, investment, since the broker pays prefer to provide more functionality. Where SAP and Microsoft, but also from a monthly fee rather than buying have their legacy systems need upgrading, industry-specific suppliers such hardware and software, and it own systems installing a new DM solution can as Quotiva. At the lower end of also avoids the need for a large vastly improve efficiency without the market Miraquel offers CIS in-house IT department. the expense of having to replace Insurance Broker, suitable for Julian Penfold, a director of Trace the whole back office. smaller brokers. Isys, says that hosted systems are Julian Penfold, director, Many of the ‘all in one’ systems This software takes over great news for smaller brokers, Trace Isys are now modular, so that brokers many of the broker’s front-office providing economies of scale and can pick and choose which processes. In particular, a good a single connection to the London functionalities they want. CRM implementation will save on market processing bureau. But, he rekeying, since prospects reaching believes, larger brokers may prefer Advent of the internet the broker via the web enter their to have their own systems and Originally it was only the back office own data on the website, and this in-house support – or to outsource that was automated – brokers becomes the basis for the broker’s completely. Marsh, for instance, dealt with their clients and with own documentation. has appointed Capita to provide its insurers by letter and telephone. CRM software can help qualify back-office support requirements However, the advent of the internet your leads – for instance Quotiva is for the next 10 years, while Cooper made a huge impact on the able to add Acorn segmentation to Gay has hired Xchanging to run its way the market works, so most your customer data – and can even back office. brokers now demand systems allocate them to account execs It’s not easy to choose. But the which enable them to handle and help to manage the pipeline. good news is that brokers now client communications through Again, much of this can be done have a huge amount of choice, at the website as well as via email, by using leading broker systems, different price points from a few phone and letter, and also need but specialised CRM software may hundred pounds a month to a their systems to link to online have more potential for complex £500,000 one-off investment. n marketplaces such as iMarket. processes in larger broker firms. Andrea Kirby is a freelance journalist Keeping your systems current ●n There’s a definite benefit from using a hosted solution, since updates are automatic. ●n Try to ensure your systems comply with standards such as those set by ACORD and are up to date with the latest version of those standards. ●n Systems should be fully internet capable, complying with standards such as XML. ●n Using modular systems can help upgrade individual aspects of your system (CDL Strata for instance has a number of plug-in modules) without having to overhaul the whole IT infrastructure. ●n Make sure all your offices and branches have the same versions of the software. That will drastically cut helpdesk issues! ●n Make sure systems you buy are scalable and can grow with your business. ●n Have a regular review process – check for new versions, and assess any new companies providing a competing product. In particular, ask whether your software is making it difficult or impossible to achieve strategic aims such as introducing full e-commerce or using marketplaces to the full, or whether errors or shortcomings are costing you money. iP 37 The green T he finance sector is direction’ across all products and funded programme, says: “You probably not the first services including insurance. need a two-pronged approach: anyone would think And in 2007 a group of insurers there’s the technology side like We cover of if asked to name a set up ClimateWise, which now low-energy computers, and there’s a number green industry. Given comprises over 40 leading behavioural change in staff.” of things that most financial businesses companies and organisations in Behavioural change can have a without are office based, do you really the industry. Each commits to a huge impact. Last year Envirowise dressing up need to worry about your impact list of principles including reducing said that more than half of office the policies on the environment? There is the environmental impact of their workers admitted to wastefully as green an increasing need for you to be business. The British Insurance printing documents and urged green aware and to be able to Brokers’ Association (BIBA) has people to think twice about ‘trigger- show your green credentials. signed up and spokesperson happy’ printing. Another significant This year should see the launch Leighann Burtrand says: “Once we area is transport. Douglas Truska Angel, of the first global framework for have our own house in order we hope Barnett, head of customer risk head of climate, AXA Insurance the finance sector’s response to to provide guidance for members.” management at AXA Insurance, climate change. Last October The says: “Insurance brokers can do a Climate Group announced that it Practical steps lot of travelling. But do meetings was working with major international Perhaps your company already have to be face to face, or would institutions to provide ‘strategic recycles paper, but what else a telephone conference be OK? can you do? Matthew Rowland- What vehicles do staff have? It Jones, spokesperson might make sense to establish a for Envirowise, a pool of energy-efficient cars.” He Government- suggests using public transport Green tips n Monitor water and energy use. If you run a 9-5 site, consumption should be negligible out of working hours. n Consider water-saving devices such as sensor taps, hand towel dispensers, urinal controls, waterless urinals, low-flush and dual-flush toilets, and air intake showers. n Introduce sensors to lights in rooms that are used infrequently and ensure that lights are switched off at the end of the day, except for emergency lighting. n Don’t throw away fixtures and fittings – some charities take furniture and can re-use or recycle it. n Put paper recycling bins in all your offices – a good guide is one bin between six staff. n Put a paper recycling bin next to photocopiers. n If your printers are single sided, re-use paper in the fax machine. Ideally, you should print double sided. n Work with suppliers to ensure that deliveries are packaged using recyclable, returnable or re-usable materials. n Buy in bulk to reduce packaging and costs. Source:www.envirowise.gov.uk 38 IP Running a business: going gReen scene more often. “People always think Jo Holmes finds out what practical steps you can take to ensure your business minimises its impact on the environment plan, tailored to your company’s offsetting carbon emissions by you have to drive. But travelling sector, size and experience level, the policyholder’s car, say. AXA by train can be quicker – and you using the action plan tool on has teamed up with Climatesure have time to work. How productive our website.” The Carbon Trust to offer travel insurance which AXA is can you be sitting in a traffic jam?” carries out carbon surveys (free, offsets the estimated carbon principal In terms of technology, it’s depending on the size of your dioxide emissions of flights. insurer of unlikely to make sense to replace energy bills) and you may be able Truska Angel, head of climate, windfarms equipment with energy-efficient to apply for loans to replace or AXA Insurance, says: “We cover a across models overnight. Rowland-Jones upgrade equipment. number of things without dressing Europe, so says: “When you’re renewing The Carbon Trust developed up the policies as ‘green’ – our we have equipment you can look at its the Standard in response to standard house insurance policy knowledge energy consumption.” And in consumer mistrust of green covers solar panels and wind of carbon reality you may not be able to do claims and confusion amongst turbines, for example.” everything you’d like. “Sometimes business about cutting emissions. Barnett suggests brokers might reduction things are not entirely in your To achieve it an organisation has be interested in an insurer’s level and control. If your business rents its to measure, manage and reduce of expertise. “AXA is principal sustainable accommodation, you’ll need to its carbon footprint and make real insurer of windfarms across energy get the landlords to buy into your reductions year-on-year. Europe so we have knowledge of issues process. When looking for new AXA’s website has a guide to carbon reduction and sustainable office space, take the opportunity reducing your carbon footprint and energy issues.” to consider environmental issues.” a calculator for businesses with With the ever-increasing concern Douglas Barnett, Envirowise has produced a fewer than 250 employees and up about climate change, it’s likely head of customer risk guide – ‘Green Efficiency’ – which to five sites. You get a report on that more ‘green’ products will managment, AXA Insurance provides advice on ‘running a your emissions and suggestions of emerge. And Angel hopes they’ll go cost-effective, environmentally ways to reduce them. You’re also beyond the concept of offsetting. aware office’. It focuses on paper, quoted a price for offsetting the “We would rather drive a change in waste, recycling, water, energy, damage. The money is invested behaviour and see a reduction in transport and environmental in projects that reduce emissions carbon rather than a carbon offset reporting. It also produces a – forestry schemes or renewable – it is not a cure and unfortunately CD-ROM toolkit for implementing a energy initiatives for example. we cannot simply buy our way out waste minimisation programme. Barnett says: “If you offset, you can of the problem. However, offsets The box, left, gives some of print a certificate and use a logo on can generate funds for sustainable the basic tips from Envirowise. your stationery.” projects which, is a good thing. If Envirowise also suggests you If you want to sell insurance you must offset check the provider contact the Carbon Trust for reflecting your stance on carbon chooses internationally certified information on energy efficiency. reduction, there are a handful credits, like climatecare.org or An independent company set up of ‘green’ products – where the cdmgoldstandard.org.” n by Government in response to the premium includes payment for Jo Holmes is a freelance journalist threat of climate change, it works with organisations to reduce carbon emissions and develop commercial Contacts low-carbon technologies. n AXA www.AXA.co.uk/connect n Carbon Trust www.carbontrust.co.uk 0800 085 2005 n CDM Gold Standard www.cdmgoldstandard.org n Climatecare www.climatecare.org An action plan n Climatesure www.climwwwatesure.co.uk n Climate Wise www.climatewise.org.uk Harry Morrison, general manager n Envirowise www.envirowise.gov.uk 0800 585794 of the Carbon Trust Standard, n National Industrial Symbiosis Programme www.nisp.org.uk n uSwitch www.uSwitch.com says: “A good starting place is n Waterwise www.waterwise.org.uk to create an energy-saving action iP 39 We don’t like sub-standard standards. We don’t think ‘good enough’ is, well, good enough. At AXA we think it’s time for things to change, and for the better. Isn’t that something worth making a stand for? For more information visit axa.co.uk Q&A ASK IP Documentation errors important is the impact upon you. STAR LETTER Please send 1 Aldgate London EC3N 1RE email@example.com not ideal. There is a programme in We are concerned about the I would be keen to hear from you if your letters place to review all documentation accuracy of AXA documentation. things do not improve as you’d expect. and emails to and the improvements will be in It is of the utmost importance ASK IP at the place this year. above address. that information is sent to our Your letters With regard to branch contacts clients at the earliest possible Call centre concerns may be edited. the London office launched the opportunity, including renewals, We are very happy with the service We welcome ‘Concept’ branch structure on your feedback mid-term amendments and new that AXA provides, but we do have and views on 1 November 2008, and as part business documents. one concern and that is your use of the magazine. of this change the teams will be It would be nice to have a Indian call centres. Please moving away from process-led email your service standard of, say, a Andrew Dartford, Regency FIC Ltd comments and teams to customer-led teams. seven-day turnaround for all questions to The account manager, underwrit- documentation. One of the Paul Meehan, customer amanda. ers and team managers will all jarvis@ constant moans about AXA is experience director, AXA axa-insurance. be aligned to manage specific the documentation issue and Insurance, replies: You are not co.uk accounts, therefore enabling this would certainly improve the the first broker to mention our call relationships to develop and customers’ opinion of AXA. centres in India. You will be pleased mature. More detail regarding these In addition, accuracy of to hear that although India remains changes will be issued shortly. documentation needs to be a core part of our structure, we are improved. It’s all very well receiving undertaking a review of all voice documents within a few days but if activity and in the last two weeks Transaction troubles they are incorrect we have to send all claims and personal lines work We are a new insurance brokerage them back and start again. came back to the UK. and are looking to obtain a direct Rachael Orrock, R G Ford Insurance agency with AXA to be able to offer Brokers Ltd a wide range of products. Building relationships We are also hoping to trade Paul Meehan, customer We do motor business, and would online using various web channels. experience director, AXA like to do more business, with We have an agency with AXA Life Insurance, replies: We are AXA. However, we have a few and Health and we were told that we currently addressing the concerns problems with your service. have General Insurance permissions that you have with our service and First, underwriting contacts too but I don’t think this included documentation. seem to change constantly, so any personal lines. I would We have invested significantly we have difficulty in building a appreciate your help with this. in reducing outstanding workloads relationship with AXA. However, Alex Brincat, Wise Owl Insurance and no longer have unmanageable when we do the results are good. backlogs. Our aim for the end of We also have problems in Nicci Barrett, new business 2008 is to action all our customer getting the documentation through executive, Personal Lines requests within a maximum of and are expected to print it out in Intermediary (PLI), AXA five days. A number of areas are PDF format. This is not something Insurance, replies: Our preferred already achieving this. which we feel clients paying solution for delivering PLI products is As far as documentation is upwards of £3k would normally via Full-Cycle EDI. concerned, we are introducing expect – a bound set of policy AXA has developed Full-Cycle quality and accuracy measures to documents always looks so much products with all the major software help us get it right first time. more professional – an image houses and a list of all products This will be done through making which we and, we imagine AXA, currently available is shown on improvements to our dispatch wish to cultivate. www.axa.co.uk/connect. and post processes. Our branches Nigel Ashley, director, BMA When you are ready, the EDI will also be restructured to align Insurance Services Ltd support team will ensure that underwriters with brokers. The new You can also you are set up to trade as quickly teams are now fully accountable for Paul Meehan, customer email your as possible. We will activate the questions via accuracy and results. experience director, AXA www.axa.co.uk/ products you require and provide All these measures are key to us Insurance, replies: I agree. The connect you with full details on how to order improving service, but what is more use of PDFs for policy wordings is supplies and policy booklets. IP 41 INSURANCE TALKS Paul Meehan explains why pace is important in business and in success Heading for substantial improvement Paul Meehan joined AXA Insurance as customer What are your observations since arriving at AXA? experience director last September. Prior to that AXA has a phenomenal brand and good core values, he was group chief executive of Smart & Cook, but there is work to do to improve the customer which was sold to AXA in April 2007 experience. I was impressed and surprised at the quality of the front-line staff, but we have some heavy How did you get where you are today? lifting to do in terms of the systems and the legacy. I started working for NatWest in the City of London after leaving the LSE. I moved back to Leeds in What are your plans for AXA? 1974 and got a job with an independent insurance To deliver value in terms of customer experience, build brokerage. up relationship management and loyalty systems with I worked for several brokers and then got a job with brokers and improve retention strategies. Smart & Cook in 1987. I know what looks good in terms of the broker/insurer relationship and I want to move AXA into that area. Who has had the biggest inﬂuence on your career? I want to ﬁnd some quick ﬁxes across all strategic Geoff Cook of Smart & Cook. Shortly after I joined John business units, in particular for the front line. If you Smart retired. Geoff and I grew the business together. move quickly you can take advantage of the market We had very complementary skills – his strengths were conditions and that’s as true for AXA as any business. my weaknesses and vice versa, and he taught me a lot We’re concentrating on commercial lines about business and business processes. intermediary as they contribute 50% of our turnover. With corporate partners it’s about individual policy What’s the best piece of advice you have been given? holders and customer retention. I have been Always follow your instinct and be brave. Don’t be afraid to do things wrong. If it goes wrong then ﬁx How do you intend to achieve your plans? a customer it. Inaction is a bad thing. Pace is very important in We’re sending eight to ten work streams out into the of AXA business and in success. business to establish what we’re doing well and where and other we need to improve. There is a large piece of work insurers What has been your biggest success so far? to do with documentation. It’s slow to arrive, badly for many The buy and build exercise we did with Smart & Cook designed and inaccurate in many cases. I want to years and I between 1993 and 2007 with the help of 3i the update the processes that inhibit our ability to deliver. know what venture capitalists. We started with one ofﬁce and 15 We’re heading for substantial improvements, but the good looks people and ended up with 25 ofﬁces and 650 people. plans are not going to bear fruit for some time. It’s all like from a about gradual change. customer What experience and beneﬁts do you bring to AXA? point of view Philippe Maso is aware of the importance of the broker Where would you like AXA to be in a year’s time? market and I know what broker opinion is. I have been a AXA is not experiencing the same problems that other customer of AXA and other insurers for many years and I insurers are experiencing. We have a strong balance know what good looks like from a customer point of view. sheet and I hope to secure the advantages of this and Paul Meehan, I have not been brought up within AXA so I can be make proﬁts in a hardening market. I would also like to customer experience director, objective. I’ve been brought in at a high level which improve our perception in the media and to do well in AXA Insurance means I can inﬂuence quickly the steps we take. the Insurance Times survey. Watch the interview on Broker TV at axa.co.uk/connect 42 IP We don’t like sub-standard standards. We don’t think ‘good enough’ is, well, good enough. At AXA we think it’s time for things to change, and for the better. Isn’t that something worth making a stand for? For more information visit axa.co.uk I AXA Insurance UK plc Registered in England No 78950. Registered Ofﬁce: 5 Old Broad Street, London EC2N 1AD A member of the AXA Group of companies. AXA Insurance UK plc is authorised and regulated by the Financial Services Authority. In order to maintain a quality service, telephone calls may be monitored or recorded.
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