IP Cover Jan 09_.indd by kzgpwtxtim


									IP                        An insight into the insurance market

                                                                           January 2009

  injury claims


                     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

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

                                                                           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

                                                           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: amanda.jarvis@tenalpspublishing.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,        amanda.jarvis@axa-insurance.co.uk
   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
                                                                                            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


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 ldf@cii.co.uk 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
   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

                                                                                            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 ldf@cii.co.uk 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
                                               implement clear guidance on how
                                               to effectively diagnose and treat            8 British Insurance Awards. Details TBC

                                                                                                                                 Ip 5
                   NEWS AND FOREWORD

Fraud increasing                                                   Anthony Middle on...
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
                                                                   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
                                                                   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
                                                                   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?
                                        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
                                                                                                                  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
                                 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
                              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
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
              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
                                                                                               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

                        when you are choosing an insurer partner, says Katie Puckett

                                           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
                        to the toxic derivatives that have hit the banks.          setting aside enough to cope with them. One of the
                        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?

                                  If you have
                                  four claims
                                  with one
                                  and they’re
                                  all being
                                  disputed, it’s
                                  telling you

                                       Peter Staddon,
                                     head of technical

                                              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
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.
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
             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
                      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
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
              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
Euler Hermes has found. It claims 18% of companies                                    see just how valuable their broker is and how positive
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


                            As recession
                            bites, more
                            firms put
                            their cash
                            flow on to
                            the back of
                            their smaller

                             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
                         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

                                      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
                         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.
 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

                                   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
                        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
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
fraud and
to disrupt
people who
use the
to commit

        Sue Jones,
      head of unit,
   Insurance Fraud

30 IP
                                                                       the big iNteRVieW

               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
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

                                        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

                             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
           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
                                 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
                                                                                  n Buy in bulk to reduce packaging and costs.

38 IP
                                                                  Running a business: going gReen

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
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
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

Documentation errors                     important is the impact upon you.
                                                                                  STAR LETTER
                                                                                    Please send
                                                                                                                                 1 Aldgate
                                                                                                                                 EC3N 1RE

                                                                                                    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
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
                       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
                       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

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