Insurance: Feed the beast but ignore the elephant

Insurers are so desperate to maintain GWP that they will forego underwriting profit in its pursuit!

Every time the premium bar rises it benefits them but hurts individuals, households and businesses…in short the whole economy! This is how skewed the “logic” of the prevailing culture in financial services has become. And, believe me, they are comforted by the fact that Politicians, FSA and the general public concern themselves with “effect” rather than dealing with “cause”:

A morally corrupt corporate culture.   

The secondary industries that have sprung up around insurance claims – in particular motor accidents – bear testimony to this culture. Massive costs come back around to policyholders in the form of increased premiums. No surprise there then but did you know that much the costs come about as a result of insurers’ desire to secure income from lawyers who are happy to pay for details of claimants. Still not too shocking!?

How about if the insurer who may end up making payments is the same one that  is selling the details of a third party intent upon pursuing a claim, (for damages, personal injury) against them??? That’s right. Read it again if you need to but that is how it is!

An interesting article in a recent issue of Scotland on Sunday: Scottish drivers pay price for English law, touched upon the wider issues but contained this “alarming” quote from one company spokesman:

“someone is going to make money out of this referral. If there is going to be a claim anyway, it might as well be us.”

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UK insurers: Arrogant, ignorant or deaf?

This isn’t the first time that PwC have warned the insurance industry. It is just after the 1st Anniversary of a warning that was “supported” by Citi…hence my question.

March 2010: Transparency – Trust – Trends – TRANSFORMATION

“According to our research, non-life firms could see significant capital increases under the directive as it currently stands, so it is vital insurers explore what options they have available to maximise capital now. This will include identifying where they believe current measures are inappropriate.”

Post Magazine Group News | LinkedIn.

Here is a “surprising” blog from Martin Friel at Insurance Age. I say surprising, merely because it was deemed worthy of comment! In the grand scheme of things that have gone so badly off the rails, in UK insurance, this strikes me as pretty mundane. Truth is, the really juicy stories just don’t tend to openly talked about or published. These are more about the people…whether directly (policyholders) or indirectly (investors)…who, ultimately, pay the price of yet more FS shenanigans. Because someone will pay the ferryman and, in reality, it looks like insurer results are going to have to be REALLY bad before they even attempt to justify rate-hikes in the current economic climate – and make highly leveraged, high growth, strategies pay off before financial collapse follows the, evident, failure of risk management and moral corruption – but NOT BEFORE all kinds of awkward questions about rating bases, broking remuneration and claims handling/management are asked:

Why on earth would an underwriter go anywhere near a book of business that had a 90% loss ratio? Unless the company in question is putting some astronomical rates into the market, then I just don’t see how this can work. I’m not an expert by any stretch of the imagination but surely this is essentially encouraging every broker with a poorly performing motor fleet book to, I believe the term is, fill their boots.

UK Budget 2010: Insurance Premium Tax hike and rate increases to follow

LONDON - JANUARY 26:  A worker uses the lift o...

Image by Getty Images via @daylife

Bad news for UK business but this may only be the start! You may get the impression from the following that it is only a matter of time before insurance premiums rise and you would be right. Responsible brokers will already have warned their clients to be prepared because they recognise the value of communication in a genuine business relationship. Particularly in such a difficult trading climate.

Unfortunately, many (some would say most!) “intermediaries” will not be so forthcoming. They will leave it as late as you will let them because it is in THEIR interests that they leave you little or no time to seek alternatives AND that they retain your business at an increased premium. Of course there will be the usual empathising and rhetoric but, at the end of the day, this is the time that many brokers (and insurers) have been waiting for. The time when aggressive growth strategies, aimed at capturing market share, start to payoff. DON’T ALLOW THEM TO “PLAY YOU”.

If you want VALUE insist that the pre-renewal process commence at least 2 months prior to expiry of your existing cover and that a thorough review of your current cover, future needs and past claims – ask for a claims print out for the last 3/5 years for each policy – is carried out.   YOU set the deadline for their response and I would recommend at least 3 weeks prior to expiry…if you are not happy with what they offer you may need that time but, at least you will have all the information you or another broker will require to help you.

Assess their proposals based upon more than price. Consider terms, conditions, excesses, insurer security, claims handling and the service that the broker provides – do they offer agreed service standards?

ONCE YOU HAVE ALL OF THAT REMEMBER that you are entitled to ask them to detail their earnings. What commissions are they receiving from the insurer?


They are obliged to tell you and, once they have, you can judge for yourself if the service they provide is worth the money and whether any empathising was sincere. You could be in for a BIG (and nasty) surprise but, by adopting this approach, you may just secure the means to “soften” or balance the impact of rating increases at a time when your business needs it most!!!

I am happy to provide a personal and impartial opinion too.

Post Magazine: Bluefin CEO Stuart Reid has admitted a more significant increase in insurance premium tax may have further delayed a hard market.Commenting on the changes to insurance premium tax, Mr Reid said: “While we would have preferred Insurance Premium Tax to remain fixed, the standard rate rise from 5% to 6% will be welcomed by many, especially as there had been much speculation that it could have risen as high as the new VAT rate of 20%.“Clients will be pleased for obvious reasons. Insurers will breathe a big sigh of relief because a more significant increase would have put pay to any ability to influence premium rates upwards, something not yet happening in many areas but which will be needed sooner rather than later.”

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