However it now appears that the ‘not so ready to lend’ lenders, principally the banks and building societies who caused the mess in the first place, are now restricting the capital flow further with the provision of ‘new’ products designed to protect their capital and circumvent the recent legislation outlawing the selling of PPI (Payment protection insurance) at point of sale of the loan or mortgage.

Fortunately both the FSA and consumer watchdog , the OFT (Office of Fair Trading) have been keeping a close eye on these activities and have today issued a joint statement warning the providers of these products to obey the rules or face the consequences. Both UK Government organisations are determined that another PPI mis-selling scandal should be avoided as new mortgage protection products emerge.

The two quangos have joined forces on proposed guidelines to lenders in relation to new PPI type products, the responsibility for which can fall within either regulator’s area of operations.

The statement emphasises that now is a key time to reinforce the regulations as the insurance market shifts away from PPI and providers begin to develop new products or product features.

Under particular scrutiny are short-term income protection marketed as debt freeze or debt waiver when included with a credit or loan agreement or mortgage.

Some of the payment protection products that the FSA and OFT considered during the preparation of this proposed guidance are:

Insurance. This includes short term income protection or ‘STIP’, an insurance contract which provides a pre-agreed amount to the policy holder if they experience involuntary redundancy or are incapacitated through sickness or as a result of an accident and may be combined with other forms of insurance cover or include other benefits, and which:

o has a maximum time-limited benefit duration;
o is written for a term which is less than 5 years and not predetermined by the term of any credit agreement or RMC; and
o can be terminated by the Insurer.

Non Insurance the creditor agrees to freeze or waive the requirement on a consumer to make periodic repayments, or to freeze or waive interest or other charges, when a specified ‘event’ occurs, such as sickness or unemployment.

Insurance products are regulated by the FSA under the Financial Services and Markets Act 2000 (FSMA). Non-insurance protection linked to a regulated first charge mortgage contract are also regulated by the FSA. Non-insurance protection linked to a credit or hire agreement (including a second charge mortgage) will typically be regulated by the OFT under the Consumer Credit Act 1974 (CCA).

The two organisations will continue to monitor developments in the market, and will take appropriate action under their respective powers where products or practices risk causing detriment to consumers.

The FSA’s guidance stresses that firms should ensure that product features reflect the needs of the consumers they are targeting.

Margaret Cole, FSA managing director, said: “This is the first time that the FSA has issued guidance on the design of a specific product. Firms must learn the lessons of the past and make sure they have consumers’ needs at the heart of new product development.

“That is why we are acting early to ensure firms understand the risks they should bear in mind when designing these products, and how they can manage these risks when developing or distributing the product.

“The FSA cited new forms of payment protection products as an emerging risk in its Retail Conduct Risk Outlook earlier this year, and we are following up on that warning.”

The OFT’s guidance sets out how the OFT considers the Consumer Credit Act applies to payment protection products such as debt freeze or debt waivers linked to a regulated credit agreement, and what firms can do to ensure compliance.

In particular, firms should ensure that consumers are absolutely clear about the nature, price and implications of payment protection products.

For example, if an agreement is offered with an option to choose debt waiver terms, on payment of a fee, it may be necessary to provide financial information including and excluding the cost of the debt waiver.

The guidance also sets out examples of business practices in relation to payment protection products which the OFT is likely to regard as unfair or improper (whether unlawful or not) and so may cast doubt on fitness to hold a consumer credit licence.

David Fisher, the OFT’s Director of Consumer Credit, said: “It is important that the problems encountered with mis-selling of PPI do not arise in relation to new payment protection products.

“Firms need to ensure that they comply with relevant legislation and do not engage in unfair or improper business practices. In particular, they should make clear to consumers what they are signing up to and how much it costs, so that they can make properly informed decisions.”

The consultation will be open for ten weeks, closing on January 13.

With unemployment threatening to reach record levels as the public sector shrinks, it is essential that consumers can purchase protection against accident sickness and unemployment when they commit to a mortgage or large loan. Mortgages must be made easier to obtain and mortgage protection products available to alleviate some of the risks involved in lending for both parties.
There are many established independent specialist companies out there who offer insurance at much cheaper rates than the loan or mortgage providers. Maybe one solution to this ongong saga would be to outlaw totally the provision of cover for debt by the debt provider and its subsidiaries however they want to dress it up in fancy wordings.

Related posts:

1. Insurance Brokers Pay for UK Banks PPI Claims
2. FSA orders GBP 60 Million Mortgage Protection Insurance Repayments
3. Financial Ombudsman Service Overwhelmed With PPI Complaints

Todays official figures show levels of unemployment last enjoyed under Margaret Thatcher’s Tory Government of the Eighties.

Youth unemployment is at its highest level for 19 years.
Womens unemployment is at its highest level for over 23 years.
The public sector is traditionally a large employer of both these groups.
The Governments argument that the private sector creating new jobs will prop up the public sector has proven to be widely inaccurate.
David Miliband pointed out that for every two jobs lost in the public sector only one was being created in the private sector.

The result is that the economy is in a downward spiral and the public sector job cuts are fuelling the maelstrom.
Maybe our public schools are failing as well, because it is obvious that neither David Cameron or the Chancellor bloke, whose name Insurance Blog can’t remember, have even the basic skills in macro economics!

When there was a global depression in the USA in the late 1920′s, FD Rooseveldt’s ‘New Deal’ of public works and public sector employment, brought America out of the downward spiral and introduced infrastructure which gave the post war US a massive competitive advantage.
President Obama has finally realised that cuts don’t work and has announced a massive Federal investment in public works. Alex Salmond, Leader of the Scottish Parliament today said that unemployment was down in Scotland during the last three months due to a large public building program.

David Cameron is carrying on making people and public sector workers unemployed.

If you work in the Public Sector there is still time to get unemployment insurance and income protection however you must hurry.

Income Protection Insurance is available to eveyone in full time employment. As long as you have not been informed by your employer that your job is at risk, you can still take out an income protection policy.

Act quickly and you can protect your mortgage, rent and other regular payments such as council tax, utilities bills, finance agreements and even gym memberships and satellite/cable tv bills. With low monthly payments you have a choice of cover between accident, sickness and unemployment, accident and sickness or unemployment only, with 12 or 18 month benefit options.

Related posts:

1. Public Sector Employees Facing Redundancy Should Consider Unemployment Insurance
2. UK Unemployment hits record heights
3. Unemployment to hit North of UK First warns Specialist Insurer

The UK Government has declared war on the private motor insurance market.

The Government has yet to decide who the enemy actually is, although one ethnic group ‘CFA referal collectors’ have been singled out for the death camps and news coming out of Westminster today confirms this.

The call for the ‘War on Car Insurance’ from the media and consumer led groups has reached deafening proportions recently and the UK Government will tell you they have been forced to act.

The AA have stated that the ‘average’ car insurance premium has risen by 40% and on the word of the AA and probably as a deflection away from the more pressing economic issues, battle has begun.

Government Forces Attack

First into battle yesterday for the Government, was the consumer watchdog the OFT (Office of Fair Trading). They have been asked by HQ to find out if the price rises are real and whether there are any (choke) anti competitive practices occuring in the UK private motor insurance market that may be pushing up prices.

To do this they have initially asked those thought to be contributing to the high costs of car insurance and will then ask the nation to contribute in an open call to arms, to publically air their grievances on car insurance price hikes, by filling in a form.

The OFT has asked all the suspects to contribute to the war effort or else stand accused of being part of the problem not the solution to higher car insurance premiums.

Most Wanted Suspects

1.  Price Comparison  Websites

2. Replacement Vehicle and Car Hire Companies

3. Approved Motor Vehicle Repairers.

4. Insurance Companies Products.

None of the major suspects is being pulled in for interrogation at this point in time. They have been given 5 weeks until October 12 to comply with the resolution or face shock and awe.

A spokesperson for the regime said’

“We will be engaging with participants in this market, trade bodies, the Government, regulatory agencies and consumer groups over the next five weeks by issuing information requests, arranging roundtable discussions and holding bilateral meetings.

Information requests:

• Questions for credit hire providers (pdf 96 kb)
• Questions for insurance companies (pdf 157 kb)
• Questions for vehicle repairers (pdf 97 kb)
• Questions to price comparison sites (pdf 93 kb)

We will also be inviting comments from consumers and other interested parties. The OFT is, however, unable as part of this study to address or advise consumers in this market on individual matters or complaints.

Any party that wishes to submit their written views, can e-mail motorinsurance@oft.gsi.gov.uk by 12 October 2011 or write to:

Private Motor Insurance Call For Evidence
Fourth Floor
Office of Fair Trading
Fleetbank House
2-6 Salisbury Square
London EC4Y 8JX “.

Second Front Opens with Pincer Movement

As soon as the OFT went into battle yesterday, it was immediately announced that the Government were opening up another front with a full out attack of its heavily armed praetorian guard, the FSA, against those supplying information to the enemy in return for money.

The practice is to be banned immediately it has been confirmed today, indicating that the government will take the side of Insurers against Lawyers. Questions of the legality of the war and the interfering with free trade could be raised at the international courts at a later date.

Tensions between Solicitors and Insurance Companies have been rising steadily over the last few years with Insurers furious about having to pick up massive bills for professional negligence by solicitors involved in mortgage and building surveying disputes. In many cases Solicitors PI premiums have been raised so high that many solicitors are now finding it impossible to practice.

Coupled with the massive amounts that the insurance companies are having to pay against public liability and employers liability claims for negligence, it appears the Insurance companies have finally had enough.

The number of car accidents involving personal injury claims is 31% down on the average for ten years prior, however the cost of personal injury claims has more than doubled from £7bn to £14bn in the past ten years and motor insurance premiums have risen at least 30% this year.

Insurance companies are blaming Conditional Fee Arrangements (CFA’s) or ‘No Win No Fee’ for the rising costs of car insurance. They argue that there is no disincentive, such as having to pay if you lose, that’s stops people making a claim if you have been injured in a car insurance accident.

The Government has stopped going as far as banning CFA’s completely, which would seriously impede that right to justice for the majority of the people in this country who cannot afford solicitors bills of £180 per hour +.

Today it has announced that those referring accident injury victims to solicitors and lawyers will be banned from receiving payment!

It also seems that the special relationship that UK Insurance companies have with UK Government through the ABI etc. appears stronger than that of the Law Society and Solicitors Regulation Authority (SRA) who traditionally only find allies in the other place, the House of Lords.

It also appears that the Government think that the Insurance Companies, who set the car insurance prices, are not actually responsible for their own pricing!

Insurance Blog will keep you abreast of all the developments as the war on car insurance unfolds. We will also be running a series of posts that examine in detail the questions being asked of the Motor Insurance Market.

Related posts:

1. Solicitors Are To Blame For Car Insurance Premium Hikes!
2. Car Insurance and Motor Insurance premiums reach record levels
3. FSA To Clampdown On Insurance Selling On The Internet In The UK

The ABI warn…..

On current estimates insured losses and damage suffered by individuals and UK businesses are likely to be well over £100 million.

The ABI has reassured customers that they are covered for riot damage under their home and business insurance and claims will be paid by their insurer as quickly as possible. People with insurance should claim directly from their insurer as soon as they can.

Riot Damages Act 1886

When a riot happens a statutory police compensation scheme is activated to provide compensation to organisations and individuals for losses that they could not possibly have predicted. This compensation scheme has existed on the statute books since 1886 with its operation having stood the test of time for the last 125 years.
The scheme means that people who are under insured or do not have insurance have somewhere to go for compensation and redress.

Other organisations, including insurers, can claim under the scheme for money they have paid out to their customers for loss and damage they have suffered as a result of the rioting, although insurers will themselves be liable to pay for business interruption losses, which are not covered by the scheme.
The scheme means that people do not have to pay higher premiums every year to insure their home or business because of a riot which may only happen once every thirty years.

For example, shopkeepers in Tottenham have still been able to get insurance, despite events in 1985, and have not had to pay extra because the police compensation scheme gives individuals and organisations, and their insurers, certainty that costs of the unexpected will be covered.
Contrary to some reports, neither the Home Secretary nor the police need to designate the events as a “riot” in order for the police compensation scheme to be activated. The law sets out a range of criteria for this, for example the number of people causing a disturbance.

Extension of Claims Period

The ABI met with the Home Secretary on Tuesday and have written to ask her to extend the claims period to the police compensation schemes from the usual 14 days to the maximum 42 days to give people the time they need to fully assess the loss and damage they have suffered and properly submit their claim.
Insurers’ priority is to support people affected by the riots in London and other major cities, and people are urged to contact their insurer as quickly as possible to start discussing their claim. Many firms have 24 hour helplines and are on hand with support and advice.

David Cameron has just finished speaking for 165 minutes on the riots in the House of Commons, and has confirmed that the ABI’s request will be met and the period extended to 42 days.

Mr Cameron also stated that the Riot Damages Act provided ‘unlimited’ funds for those affected by riots and both the Treasury and the Home Office would provide the financial support for claims against local police authorities.

Related posts:

1. Police Negligence Fails to Mitigate Riot Insurance Losses
2. Riots and Business Insurance Claims For Property Damage
3. Insurance Industry reacts to ‘immoral’ claims farmers:

Listening to these patronising Chief Constables talking about how they were going to go after these criminals  ‘after the event’ made Insurance blog feel sick.

Countless stories appeared on the TV news of how business people saw the Police stand by and watch doing nothing to prevent their livelyhoods being trashed by mindless kids.

From recent dealings with the Police I am disgsuted that their attitude to everything is that Insurance is there to pick up the bill for their professional negligence.

Well it isn’t!

Insurance Blog urges all UK Insurance companies to refuse to pay for riot damage where the Police stood around idly and watched a bunch of kids run riot.

Under UK Law if the Police are not able to deal with a situation the risk becomes Fundamental and is the responsibility of inept UK coalition Government, and not covered by any insurance policy. The taxpayer will then be footed with the bill for damage that could have been mitigated.

Insurance Blog predicted that the minority conservative Government would cause riots on the streets of Britain and we were right. If the cuts continue there is a lot worse to come!

Don’t rely on the Police saving your home and property and if the trouble gets any worse, they just stand around filming, and I’d read that fineprint of that policy very carefully!

Related posts:

1. New Year Recession Fears
2. UK Unemployment hits record heights
3. UK Government CON DEM The FSA Insurance Regulator

Payment Protection insurance (PPI) is in the news again with the UK financial complaints service, the Financial Ombudsman Service (FOS) reporting that its first quarter was the busiest ever with over 81,000 complaints – more than double the number received in the same period 2010.

Payment protection insurance, such as mortgage protection insurance, was the main reason for this substantial increase and the FOS have been receiving on average over 900 PPI cases each day.

Banks and others are already reporting record numbers of new complaints and it will be some time before we see the impact of those on our figures. So it’s difficult to tell whether we will be seeing still higher numbers yet – or whether the figures will now start to decline.

Tony Boorman, principal ombudsman at the FOS said, “When we come to publish the results for the next quarter, I expect the position on PPI will have changed again.”

“With complaints-handling rules ‘waivers’ agreed by the Financial Services Authority, the rate of new PPI cases has slowed – for the moment at least. ”

And the efforts by many banks to clear the backlog of cases that has built up should see record volumes of cases closed, and high uphold rates.

Bad Banks

Unsurprisingly, the bulk of complaints have concerned PPI after the banks lost an appeal on a ruling to pay back the policies in the High Court earlier this year. The period also saw both the High Court decision on the PPI judicial review and the decision by the British Bankers’ Association not to appeal that decision.

Figures from some of the banks this week have revealed that the PPI saga is having an adverse effect on their balance sheets.

Barclays said that its profits had fallen by 33% compared to the first six months of last year, with a £1 billion provision for PPI claims largely to blame.

Results from HSBC also showed the bank has put almost £270 million to one side to deal with customers’ claims.

Lloyds Banking Group has also previously revealed that it has put £3.2 billion aside to pay possible claims. PPI was sold by banks on unsecured credit products such as loans, credit cards and some mortgage products.

Santander is the latest bank, and the last of the  big banks to cave in and to set aside money to pay the compensation bill. Santander owns Abbey Alliance and Leicester and Bradford and Binlgley has set aside £543 million for PPI  claims.

In April, the banking industry lost its High Court challenge to new rules on the sale of PPI.

Among other things, the rules require sellers of PPI polices to review all their past sales to see if their customers have a claim for mis-selling, whether or not they have actually complained.

While the legal case was going on the banks put on hold tens of thousands of fresh PPI complaints that came in.

Santander was second, behind Barclays, in the list of most complained-about financial institutions during the second half of 2010.

Related posts:

1. Insurance Brokers Pay for UK Banks PPI Claims
2. Payment Protection Insurance Claims cost Lloyds Bank £3.2 Billion
3. What a bunch of Bankers! UK Banks challenge PPI ruling

So what has gone so wrong? Why are we paying more for motor cover?

Well first we were told it was uninsured drivers, two million of them apparently, that were pushing up the costs of car insurance because the Insurance Companies were having to pay more into the collective fund, administered by the Motor Insurance Bureau, to cover the costs of claims against drivers with no cover.

So after much pressure from interested parties, the Continous Insurance Enforcement legislation has been passed but to date we see no evidence of reduced premiums.

Then we are told that criminal gangs (mostly johnny foreigners if the British press is to be believed) are fraudulently staging car crashes that are adding to claims costs. Given the amount that Insurance Companies have invested in detecting fraud in recent years, Insurance Blog cannot believe that these claims are more than marginal costs.

Next we are told that the actual reason for increasing  car insurance costs is the amount that has to be paid out in claims and held in reserve for personal injury claims due to road traffic accidents.

Could we be somewhere near the truth?  The problem with this is that given the latest figures, in 2009 the number of road accidents involving personal injury was 31% down on the average for 1994-98 primarily due to better car and road safety.

So it’s not the number of claims but the costs of claims. The cost of personal injury claims to Insurance companies has doubled in the last ten years from £7bn to £14bn.

So why are the costs of PI claims rising so fast and leading to expensive car insurance for us all?

Well Mr Jack Straw would have us believe that its all the fault of the Claims Management companies that have sprung up in recent years, the so called ambulance chasers. Claims management companies collect details of claims and typically sell these onto solicitors for a fee ranging from £100 to £1000 per case.

Mr Straw has called these a racket and demands that referral fees should be banned as was proposed by Lord Jackson in the 2009 report on court costs prepared for Mr Straw’s government.

Yes, maybe those who refer the accidents to the claims farmers for a fee such as the insurance companies themselves, hospitals, police and repair garages, should be denied the introducer fee but do you really believe that an extra hundred pounds or so is the reason for £7 billion pounds worth of extra claims expense? Who really is benefiting from these PI cases?

Insurance Blog thinks that this is all smoking mirrors, and that the real reasons for the increasing costs of claims and car insurance are something quite different, even though they are mentioned in the Jackson Report, and they are:

1) The ridiculous fees charged by Solicitors. How can any profession especially one that just creates more work for itself justify charging £150 to £200 per hour? Solicitors costs should be fixed for civil litigation as they are for criminal at around a quarter of what they currently charge. Civil Solicitors are the racket and social pariahs!

2) The question of proportionality. How on earth can the UK courts allow claimants to bring cases that run up solicitors and expert witness costs on both sides that are often 1000% more than the value of the claim. (see the figures in the Jackson Report appendices)

This is morally wrong and makes a joke of British Justice. No costs for both parties combined should ever be allowed to exceed the value of a claim and where an award for damages is less than the amount claimed then costs against the defence should not be awarded.

Mr Straw like when he was Home ‘Class B’ Secretary has failed to grasp the real facts and jumped on the populist bandwagon of lets attack the claims management companies and conditional fee arrangements (CFA).

Access to justice at a fair rate should be written into humans rights law and if you were injured you would be glad of a CFA. Because Solicitors charge exhorbitant rates, a CFA is often the only way to get justice if you’ve been injured by someone else.

As for cheaper car insurance, shop around, compare car insurance quotes and if you don’t want to pay more at renewal ask the Insurance company what its current claims exposure is!

Related posts:

1. Insurance Companies Blame 2009 Losses on Personal Accident & Bodily Injury Claims
2. Car Insurance Fraud puts £60 on every policy premium
3. UK Car Insurance Rates Must Harden As Loss Making Companies Claims Reserves Run Dry!

Insurance Blog will be the first to admit that the FSA in it’s swansong is at least trying to do the right thing, with some notable recent successes in prosecutions and forcing the banks to heel over the mis-selling of payment protection insurance.

Those small insurance brokers, insurance agents, consultants and intermediaries whose rising FSA authorisation costs and annual fees have helped fund the Financial Services Compensation Scheme to pay for the banks mis-selling crimes would be the first to disagree, however their contempt for the organisation might be tempered some if they were aware of the FSA’s latest moves against their largest competitors……

The Insurance price comparison websites and aggregators selling general insurance products on the Internet.

If the FSA’s latest proposals for the regulated Selling of Insurance on the Internet are enforced, this could be a good thing for all small insurance intermediaries out there, who collectively currently receive less than 5% of the total internet traffic searching for Insurance.

First in the line of fire has been the Insurance price comparison websites, particularly those that compare car insurance and home insurance, and recommend insurance products to the public. In it’s investigation the FSA found serious breaches of it’s rules on the regulation of giving advice and selling of insurance. It subsequently wrote to 19 firms that it considers are breaking these rules in regards to advice and arranging contracts of insurance.

The letter advised the 19 Price Comparison websites:

· review your regulated activities and ensure you are appropriately authorised or otherwise exempt;

· ensure that you only enter into contracts with firms holding the appropriate authorisation and permissions to conduct that regulated activity (or who are exempt);

· withdraw your assistance from third parties if they are in breach of the general prohibition;

· review your disclosure documentation, sales procedures and your terms and conditions and make sure that these are compliant with all relevant regulatory requirements including our Guidance consultation Principles, ICOBS and the Unfair Terms in Consumer Contracts Regulations 1999. In particular, you should ensure they comply with  requirements on: customer eligibility, status disclosure, advice suitability, providing a proper statement of demands and needs, and that you do not seek in your terms and conditions to exclude liability for the regulated activities you are undertaking; and
establish, implement and maintain adequate policies and procedures to ensure your firm complies with all relevant obligations under the regulatory system and for countering the risk of furthering financial crime, in particular breaches of the general prohibition and restrictions on financial promotion.

A price comparison firm may be arranging contracts of insurance where its activities involve any of the following:

· the firm provides links to product companies or intermediaries for the purpose of enabling the customer to purchase a chosen insurance product;

· the firm requires a pre-purchasing questionnaire to be completed in order to filter sales (i.e. where the intermediary asks a series of questions and then suggests several specific products.

Under these guidelines it would appear that any website that collects information with the view to arranging insurance or even provides a link, is breaking the FSA rules if not authorised to do so….

The FSA found the folowing types of Insurance websites in breach where they are not FSA regulated:

· the firm provides a comparison of the terms of different policies as opposed to a passive display of the features of different policies;

· the firm runs a website which is funded by one or more insurance or mortgage providers (i.e. it is not ‘independent’); and/or
· the firm offers a special discount on the product to its website users.

. Even where no financial benefit is derived, the firm may still be making arrangements if it brands the comparison service with its own name, endorses the service or otherwise encourages users to respond to it, negotiates special rates for users, or holds out the service as something arranged for the benefit of users.

Advising on insurance
The FSA now considers any type of recommendation as giving advice. In addition where the effect of the firm’s arrangements constitutes a recommendation to purchase a specific product or products, that recommendation is likely to involve the firm giving regulated advice.

Some indicators of where a website or price comparison website may contain advice which is regulated by law include:

· where the name or logo of only one insurance product is displayed on the website in a manner that suggests that the particular product is to be preferred over other products (for example, a particular logo might appear on a webpage containing generic advice on the merits of incapacity insurance contracts);

· where a particular insurance product is recommended as the ‘pick of the best’ product out of a number of other products in its category;

· where a particular insurance product is star-rated by a website, for example, the product is awarded five out of five stars, by contrast to a similar product which is awarded two out of five stars;

· where a scripted questionnaire gives a recommendation or opinion which influences the choice of insurance product and then goes on to identify a particular insurance or regulated mortgage product to which the advice relates;

· where the questioning process has resulted in the identification of one or more particular contracts of insurance based on a non-objective assessment of the product features;

· where the website generally makes any value judgement as to the merits of one or more insurance products or regulated mortgage contracts, by way of scripted questioning or otherwise;

· where generic best buy tables are used and are not populated from specific consumer information this might be advice depending on the consumer’s experience of it. So, for example, a website containing solely generic ‘best buy’ tables explaining the merits of futures as opposed to options would not be advice, but if those tables guide the consumer to a particular insurance product based on the consumer’s personal requirements, this is likely to be regulated advice;

· where generic statements on a website are not dependent on consumer information being populated; this could be regulated advice where they are displayed in such a way that the website operator is making value judgements as to the merits of buying, selling, etc. For example, ‘The products of the month are XYZ, ABC and DEF investments because they offer the best returns’.

Clearly if implemented to the full the following types of insurance marketing would be illegal on the Internet in the UK for all websites that are not authorised and regulated and will have huge ramifications for the way insurance is distributed online in the future:

· Linking of any sort to Insurance Provider or Insurance Comparison website (Text links and Banner ads)
· Distributing Articles and Media that link to or promote insurance products (Article Directories, Video Directories, Social Media, Blogs)
· Affiliate Marketing and Vertical Marketing by non regulated affiliates
· Review Websites
· White Labelled Websites
· Marketing Websites

Insurance Blog thinks that this is a good thing, if it is properly policed as it will remove a lot of the chaff from the Internet, much eminating from unqualified webmasters both inside and outside of the UK. We are of course authorised and regulated under our Insurance Publishing Group owners Insuretec Ltd. FSA no. 422934 and would love to see our FSA fees used in this way! And as a word of advice, when filling out an insurance proposal form online, no matter it’s detail, always check that the website states its FSA number and regulatory status, which can also be found at the FSA’s website.

Related posts:

1. Google Buys Insurance Aggregator Beatthatquote.com
2. Quotezone comes out top in UK car insurance price comparison website review!
3. UK TV Ad Revenue Underwritten by Car Insurance Price Comparison War!

A mature student friend of ours was struggling with his first year accountancy exams when asked to write an essay on the following, so he thought he’d approach us for some answers and help writing his assignment.

1.Explain how Insurance shares risk across the population?
2.What is a fair insurance premium?
3.How can adverse selection prevent Insurance being available at a fair premium?
4.What strategies do insurance companies follow to reduce the problem of adverse selection?

So we farmed it out to our technical expert Dave Healey and this is what he came up with.

The Primary Functions Of Insurance As A Service Industry

By Dave Healey

There are three primary functions of Insurance which determine how Insurance companies operate and how the public interacts with these companies.

The first is as a risk transfer mechanism, whereby the individual or business can shift some of the uncertainty of life onto the shoulders of others. In return for a known premium, usually a very small amount compared to the potential loss, the cost of that loss can be transferred to an insurance company. Without Insurance there would be a great deal of uncertainty experienced by both the individual and the enterprise, not only as to how and whether a loss would occur, but also to the extent and size of the potential loss.

The second primary function is the establishment of the common pool. The Insured’s premium is received by the Insurer into a fund or pool for that type of risk, and the claims of those suffering losses are paid out this pool. Applying Bernoulli’s ‘Law of Large Numbers’, because of the large number of clients that any particular risk fund or pool will have, Insurance companies can predict with high accuracy the amount of claims or losses that might be suffered over a period of time. The will be some variations in losses over different years and Insurance companies include an element of premium to build up a reserve, to pay for additional losses in bad or catastrophic years. Therefore in principle, subject to the limitations of the type of cover bought, the client should not have to pay additional premiums into the common fund after a loss or claim.

The third primary function of Insurance is to provide fair and equitable premiums. Assuming that a risk transfer mechanism has been set up through a common fund or pool, the contributions paid into the fund should be fair to all parties participating. Each party wishing to insure and paying into the fund will bring with it varying degrees of risk. To avoid adverse selection and provide equitable premiums each risk is broken down into various components and rating factors that can be priced individually on a statistical scale of probability determined by Actuaries. Therefore those who present the greater statistical risk will pay more into the common fund for the same cover, when their individual premiums are calculated.

Insurance companies employ underwriters to reduce the problem of adverse selection and protect the fund. The underwriters will determine parameters of the hazard and value of a risk that is acceptable for the fund, and decline risks that fall outside these parameters. In fixing a fair level of premium they must also take into account the contributions made by others into the common fund and price accordingly.

Underwriters and insurance companies will employ many techniques to deter or price adverse selection out of the risk pool. These typically include exclusions to cover in the form of policy wordings and additional conditional clauses, exempting the risk under certain conditions. They will employ all types of mechanisms and devices to install fear into the population to increase the size of the risk pool and attract the niche or sector of the market that they are aiming for. For example large marketing campaigns aimed at the ‘safe’ sector e.g. women drivers who are statistically less likely to claim. On the Internet, Insurance companies employ automated underwriting that excludes cover to everything that does not fit the desired risk pool parameters.

Ultimately the Government can in certain cases decide the size of the risk pool through leglislation and compulsory insurance as is the case for car insurance where it is illegal to drive without cover and business insurance where it is illegal to trade without liability insurance cover.

Insurance companies can also take further risk transfer from the insurer to a reinsurer (reinsurance) laying of some of their exposure as a mechanism for adverse risk control.

We originally published the Article at: http://EzineArticles.com/?expert=Dave_Healey

http://EzineArticles.com/?The-Primary-Functions-Of-Insurance-As-A-Service-Industry&id=6292397

Well there’s obviously a lot more to write on this subject so if some of you FCII fellows out there who read this blog  wish to contribute, feel free to leave your comments on the questions!

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The guys over at the tradesman insurance quotes comparison site tradesman-insurance.com sent us it!

Watch!

Insurance Blog – keeping up the crusade against rip off banks that we are all paying for now in higher taxes and soon to be higher interest rates!

Someone should tell Cameron that he could get rid of the so called deficit if he sold the Banks that this Country owns!
However it suits his political purposes to line the pockets of his banking prep school chummies with Government money is the form of treasury bonds………

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If you haven’t taken out unemployment insurance yet, there may still be a little time, although given latest figures you will have to move as fast as the postman with the redundancy notices, as UK Unemployment hit record heights.

Here’s the facts of the state of Britains Economy

The employment rate for those aged from 16 to 64 for the three months to November 2010 was 70.4 per cent, down 0.3 on the quarter.

The number of people in employment aged 16 and over fell by 69,000 on the quarter to reach 29.09 million.

The last time there were larger quarterly falls in the employment level and rate was in the three months to August 2009.

The number of people working full-time fell by 37,000 on the quarter to reach 21.16 million and the number of people working part-time fell by 32,000 to reach 7.93 million.

Part Time Working at all time high!

The number of employees and self-employed people who were working part-time because they could not find a full-time job increased by 26,000 on the quarter to reach 1.16 million, the highest figure since comparable records began in 1992.

The unemployment rate for the three months to November 2010 was 7.9 per cent, up 0.2 on the quarter.

The total number of unemployed people increased by 49,000 over the quarter to reach 2.50 million.

Male unemployment increased by 43,000 on the quarter to reach 1.48 million and female unemployment increased by 6,000 on the quarter to reach 1.02 million.

Youth Unemployment at record levels!

The unemployment rate for those aged from 16 to 24 increased by 1.0 on the quarter to reach 20.3 per cent, the highest figure since comparable records began in 1992.

The number of unemployed 16 to 24 year olds increased by 32,000 on the quarter to reach 951,000, the highest figure since comparable records began in 1992.

Redundancies on steady increase.
There were 157,000 redundancies in the three months to November 2010, up 14,000 on the quarter.

The number of people claiming Jobseeker’s Allowance (the claimant count) fell by 4,100 between November and December 2010 to reach 1.46 million, although the number of people claiming for up to six months increased by 7,200 to reach 960,300.

The total number of male claimants fell by 6,600 on the month to reach 1.02 million but the number of female claimants increased by 2,500 to reach 439,300.

The inactivity rate for those aged from 16 to 64 for the three months to November 2010 was 23.4 per cent, up 0.2 on the quarter.

The number of economically inactive people aged from 16 to 64 increased by 89,000 over the quarter to reach 9.37 million.

Early Retirement at Record levels !

The number of people who were economically inactive because they had taken retirement before reaching the age of sixty-five increased by 39,000 on the quarter to reach 1.56 million, the highest figure since comparable records began in 1993.

Wages Stay the Same!
The earnings annual growth rate for total pay (including bonuses) was 2.1 per cent for the three months to November 2010, unchanged from the three months to October.

The earnings annual growth rate for regular pay (excluding bonuses) was 2.3 per cent for the three months to November 2010, unchanged from the three months to October.

The Oulook.

Very Bleak!  The current situation is comparable to the early Thatcher years and the axe has yet to fall on 600,000 public sector workers. The knock on effects to the high street of this contraction in money flow will damage small to medium sized businesses as demand inevitably drops. Further unemployment within the already contracted private sector is inevitable as orders dry up and the unemployemt queues will increase.

All sectors of the economy will suffer from this so called ‘double dip recession’ particularly high end products and high street businesses will suffer. Insurance will not have an easy time either! Already we are seeing once profitable sectors like shop insurance virtually disappear as a viable large market as the number of shops rapidly decreases. When was the last time you saw a high street travel agents or hardware store? The pattern is being repeated across all sectors of the UK Commercial Insurance market.

Coupled with this we are under immense inflationary pressures from energy prices and global food markets which inevitable, although foolishly, will lead to the Bank of England be foreced to politically raise Interest rates. After all, there are no more weapons in the economic arsenal.

Darwinian ConDemNation.

The future is blue and orange and civil commotion – If you are not a merchant banker, are you fit enough to survive?

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If all the Economic pundits are to be believed, you would think that the economy was rosy! No chance of a the dreaded double dip recession now ……..

Hmm, what about the 600,000 job losses in the public sector that still have to be made this spring and will have to be paid for out of a shrinking GDP, rising wage demands from the private sector, fuels costs going through the roof and VAT at it’s highest ever 20%!

However you look at the current situation the immediate future does not look too bright!

Amongst all the coalition division and noise about quangos, cuts, student fees, interest rates and inflation, the UK Government has this week raised Insurance premium tax to 6%. With the cost of Insurance already at record highs as companies try to build up lost claims reserves, maybe they thought we’d not notice more indirect taxation!

The future doesn’t look too orange for Corporal Clegg and his Liberal lackies either who are currently enjoying their lowest popularity level for 30 years.

Meanwhile David Cameron is making noises about the housing sector while failing to enforce the necessary lending from the banks that would inject some momentum into a recovery, he has spoken out about plans to clamp down even further on mortgages in the name of responsible lending.

Tory Housing minister Grant Shapps has said that under the new  FSA’s Mortgage Market Review (MMR) proposals, he himself would have failed to get a mortgage.

Now Cameron has said that lenders have already gone too far in preventing ‘good risk’ buyers from getting mortgages.

The Prime Minister warned that the housing market was ‘stuck’ and would not improve until banks and building societies got back to ‘respectable’ lending.  Cameron said the reaction to the crash had now gone too far.

He said: “The pendulum has now swung too far the other way. If you are a single person, you are earning a decent salary, you go to the bank or building society, you are actually quite a good risk, they won’t give you 80% of the value, they won’t give you four times your salary.

“So we are working with them to try and say, of course we don’t want to see the unsustainable boom of the past, but we’ve got to get proper lending, respectable lending, going again.”

Cameron made it clear that he did not want to see a return to 120% mortgages and loans based on seven or eight times earnings.

He said: “We don’t want another housing boom where prices rise out of people’s reach, but the housing market is a key part of the economy. You need a housing market where people are able to sell and people are able to buy.”

Yeah and one where banks lend money! It wasn’t irresponsible lending to UK homeowners that caused the current recession, if this was the case then repossessions would not be at the levels they are! Moreover bad banking and buying toxic debt from the USA were the root cause. With the same people in control, these banks must be forced to lend to both homeowners and businesses alike if we are to see any real recovery in the housing and employment markets in the UK in 2011.

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The FSA and their American cousins the US Financial Industry Regulatory Authority (FINRA) have  taken an unprecedented step of entering an agreement to work more closely together. Whether this means that they will be able to compare notes on incompetency or even heaven forbid try to learn from each other’s mistakes, we will have to wait to find out. It does however show that maybe, just maybe, that they may be prepared to start listening to outside suggestions. Could this lead to the unthinkable, the mighty FSA one day actually listening to the humble broker? Well one step at a time lads, mighty oaks and tiny acorns and all that.

So what do we know of  FINRA?

Well we know that they have a habit of over extending their reach into areas where its not particularly welcome. Towards the end of 2009 a group of prominent Financial Planners were moved to petition US congressional leaders to amend a bill including them within FINRA’s authority. On the surface a strikingly similar situation to the UK General insurance industry being shoe horned into the FSA’s remit. Certainly both bodies have shown an overzealous one size fits all attitude to financial regulation when it is clear that a more refined, considered and cultivated approach is more suited to such intricate industries.

Somewhat ironically it was FINRA’s broker bias that had upset the apple cart with those pesky  financial planner fellas who claimed  that the “conscious or subconscious conflict of interest could result in a broker bias in FINRA” claiming that their involvement would further “deepen the differences in how broker-associated advisers are regulated versus independent advisers.” Some may argue this could be a positive influence on the FSA, however in my opinion regardless of where the bias lies, there is no space for such an imbalance in any form of regulatory body.

They must remain impartial, whilst understanding the markets they are supposed to serve.

As I and many others have stated many, many times we need an industry regulator that understands  Insurance. A generic financial regulator lumping us in with the banks simply will not work. Now these two bloated bodies have established a memorandum of understanding which is intended to establish a stronger framework for regulating the worlds two largest markets.

Of course I thoroughly support the move in principle as an opportunity to further strengthen bonds between these two dominant markets and the intention to ease the exchange of information on firms and individuals under common supervision, is of course a very sensible which reflects the global nature of the industry. However, I cannot help but feel that this is nothing more than a bit of back slapping by two organisations that are causing more harm than good to their respective markets.

Perhaps I am being overly critical of poor old FINRA, but if you will lie with dogs…

The FSA have successfully managed to alienate insurance brokers, insurers, bankers and IFA’s alike throughout their relatively short existence and show absolutely no signs of bucking the trend any-time soon. Can we really be expected to take an organisation seriously when they are currently even failing to run their own business prudently? Figures bandied around of late have indicated that they are limping towards the end of their financial year at an estimated £14m in debt. It has also been suggested that they have indulged in some £20m plus in bonuses. Now tell me that is in compliance with proper standards.

I hope I am proven wrong and that this benefits us on both sides of the Atlantic. However, I see little of value other than raising the profile of two overgrown, megalomaniac organisations, both more concerned with the amount power they hold, than how effectively they use it for the greater good.

I do genuinely hope wrong, but somehow I doubt it.

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The CPI fell by 0.2 per cent between June and July this year compared with no change over the same period a year ago. These 1-month changes are both within the normal range for a June to July period; since 1996, the monthly movement between these two months has varied between a fall of 0.8 per cent and an increase of 0.1 per cent.

Some myopic Internet financial analysts who have been arguing for a base rate increase for over a year are still crying foul……

“Inflation is a stealthy enemy for savers and when rates are low, it quietly erodes the spending power of a hard earned nest egg. Savers may have had a short respite from a marginal fall in inflation, but savings rates have hit a plateau and may be there for a while.

“The average one year fixed bond rate has fallen from 3.07% in January to only 2.54% today and the average five year fixed bond rate has fallen from 4.56% to 4.08% for the same period.

“The average instant access savings rate is still at rock bottom at a rate of only 0.74%. The only trigger for any improvement in savings rates may be a surprise increase in the Base rate by the Bank of England, but this is most likely not to happen soon.”

Stated a recent industry commentator,  who Insurance Blog thinks is living in cloud cuckoo land and who obviously has been sitting on his dwindling nest egg of savings, and foolishly thinks he will survive a double dip recession caused by an increase in Interest Rates!

However the Bank of England sensibly have other ideas, and quite rightly given the downward curve of inflationary pressures have decided to leave things as they are!

The Bank of England’s Monetary Policy Committee voted two weeks ago to maintain the official Bank Rate paid on commercial bank reserves at 0.5% and their decision now looks justified with inflation self balancing. The recent inflation has been artificial with rises in the RPI in areas such as fuel and power and food, although where there are alternative suppliers the markets have had to adjust to the temptation of putting prices up to pay for their past mistakes, and the UK Insurance Market is a typical example of this.

The Committee also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at £200 billion. The Committee’s latest inflation and output projections will appear in the Inflation Report to published on Wednesday 11 August.

The minutes of the Bank’s meeting will be published at 9.30am tomorrow on Wednesday 18 August.

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By Insurance Blogger

The use of asbestos was banned over thirty years ago, but the UK Insurance Industry now faces a time bomb of claims from people directly or indirectly exposed to the deadly substance.

Asbestos was once hailed as a miracle product but its use has exacted a terrible price for those exposed to it. Diseases caused by ingestion into the lungs such as Asbestosis and Mesothelioma may take over forty years to become apparent, and the true cost of the substance use in damages claims, is only just beginning to occur.

Asbestos has been used by man since ancient Greece for its fire resistant properties, but even then it was recorded that slaves exposed to it were dying from terrible lung disease and breathing difficulties.

In the twentieth century Asbestos was used in all sorts of construction and manufacturing processes. In every public building you would find pipes and boilers covered with the material. Shipbuilders and dockyards were particularly prevalent in its use and it was not uncommon to regularly see old ‘laggers’ and pipe workers coughing up the so called ‘Dockers oysters’. Offices were also exposed to asbestos with the use in partition walls and suspended ceilings. In the home it was used in all sorts of ways ranging from ironing boards to car brake pads and shed roof coverings.

By far the most deadly variety of asbestos is ‘blue asbestos’ of which a single strand in the lungs can cause the deadly disease years later.

The first asbestos related industrial injury claims appeared in the 1960′s and have risen dramatically since then. The use of the material in the UK was stopped by the H&SE (Health and Safety Executive) in the 1970′s but it was only finally banned in 1980. During that time many asbestos removal firms sprung up primarily to remove the substance from public buildings such as hospitals and schools. By 2003 it is estimated that the number of direct asbestosis claims accounted for a payout of over 1.3 billion pounds in the UK.

There are four recognised types of asbestosis related disease ranging from the savage lung cancer mesothelioma which usually kills within a year, through to what are known as ‘pleural plaques’ for which legislation in the UK does not currently allow claims, though this is set to change and could trigger billions of pounds worth of claims.

Pleural plaques are areas of scar tissue on the lungs caused by exposure to asbestos.

Although not directly covered for claims as the cause and outcomes cannot be proven, UK Insurance companies used to pay out small amounts to compensate for the anxiety of the possibility of the plaques developing into something more serious such as mesothelioma. In 2007 the House of Lords ruled that these conditions are no longer entitled to compensation, though this is currently being challenged by the Scottish Courts and others and is expected to be overturned.

The United States is about twenty years ahead of the UK in asbestos related claims with more than three quarters of a million claims being paid out since 1980. The vast majority of these claims were for pleural plaques and the cost so far is estimated to be around $120 billion, which has been paid out by US and foreign underwriters.

In the UK it is not as easy to bring a claim for asbestosis as it is in America where class actions against the manufacturers of asbestos can sue a multitude of companies who each pay a small amount of damages. In the UK even though more people are expected to die from exposure, causality and proximate cause need to be proved before any legal action can be taken.

The worrying thing for Insurance company claims departments is that the range and spread of claims for asbestosis has changed dramatically in recent years as the true cost is exposed. In the past the majority of claims were from laggers and those directly involved in the use of asbestos, mostly in the industrial parts of the country.

Claims are now being made from all over the UK from for example, carpenters, plumbers, teachers and family members of those who worked with asbestos, such as wives washing clothes and children who greeted their fathers after work.

According to the health and safety executive, the body in charge of workplace safety in the UK, there is still over half a million tonnes of deadly blue and brown asbestos and nearly 3 million tonnes of white asbestos in buildings around the UK. Each year over 2500 people die from mesothelioma.

Although claims for mesothelioma are expected to peak by 2012 as those directly exposed to it will all be dead, the ticking time bomb for all asbestos claims is predicted to continue until 2040. By this time over 200000 claims will have been made which will cost the UK Insurance industry in the region of 10 billion pounds, which the Insurance companies will have to set aside in claims reserves.

If you are suffering from an asbestos related illness visit Simpsons Solicitors who are the UK’s leading lawyers for Industrial Disease Compensation and experts in maximising damages for all work injury and work accident claims.

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