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

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

Part Eight: The emergence of Lloyd’s as the worlds major insurance organisation:

In the previous article in this series we learnt about the humble beginnings of Lloyd’s as a relatively small coffee shop on Tower street. Whether it was an incredible piece of foresight or simple luck Lloyd developed a very specific clientèle of sailors, ship owners and merchants for boat insurance and marine cargo insurance risks.

Lloyds wasn’t the only coffee shop to do insurance business but it set the standards. In 1748 nearly one hundred houses including the famous coffef houses of Jonathan’s, Garraways and others were destroyed by a fire that ravaged Cornhill and in which scores of people perished and damage to the exent of £200,000 (nearly 200million in todays money) was caused. This event and another in the Cornhill when it was again destroyed by fire in 1765, left Lloyds in a prominent trading position.

It is evident however, that Lloyd cultivated this customer base by providing reliable and regular updates on the shipping news to those that visited his coffee house and soon Lloyd’s had established itself as a focal point within the very heart of the Shipping industry.

It was therefore inevitable that the coffee shop also quickly became a second home to a number of early insurers seeking to business with the Lloyd’s clientèle. Similarly it soon became accepted that if you were a merchant seeking insurance, then Lloyd’s was always a recommended first port of call. In fact within just three years Lloyd’s had grown to a level of importance and popularity that a new location was required and Lloyd moved his coffee shop to Lombard St – where it would remain for the next 83, years long after Lloyd himself had passed away.

As Britain established itself as a leading economic power through the exploitation of the slave trade, the shipping industry was at the heart of this economic boom. As slave trading was a high risk trade (1053 slave vessels are recorded as having been lost between 1689 and 1807) the insurers of Lloyd’s also found themselves in high demand.

Lloyd himself died in 1713 however his legacy remained strong.

In 1774 when the participating members of the insurance arrangement formed a committee and moved to the Royal Exchange in London, they became The Society of Lloyd’s. The Society’s objectives included the promotion of its members’ interests and the collection and dissemination of information amongst members helping them to further dominate the marine insurance industry which indeed they had created.

The first Lloyd’s act was passed in parliament in 1871 and it was this act that gave the Society a firm footing both  commercially and legally and it continued to remain at the heart of the insurance industry, growing in tandem with the industry to eventually become one of the most powerful and well respected organisations in the world today.

In fact in many ways very little of Lloyd’s of London then changed for almost a century and this is even true of their motor insurance risks department. The membership of the society, which was made up in the main of market participants, became the market specialists. Lloyd’s continued to grow, and it’s members continued to flourish, mostly due to the force of economics. Insurance moved from being desirable to essential across just a few centuries. If you were in shipping you needed marine insurance. If you needed marine insurance you got it from Lloyd’s. It was as simple as that.

However, eventually the bubble had to burst. Just under a hundred years after the first Lloyd’s Act had been passed, the membership of Lloyd’s was realised to be too small for the risks that it was underwriting. The Cromer report commissioned in 1968 advocated opening membership options to both non-market participants and crucially to non-British subjects for the first time.

The insurance industry had become a global industry and Lloyd’s had to adapt to survive. In the next article in this series we shall explore the rise of insurance in the US and how they too had to adapt to the globalisation of the industry within the twentieth century.

Related posts:

1. A Brief History of Insurance: Part 7 Lloyds and the London Market
2. A Brief History of Insurance: Part 1 The Ancient World
3. A look at Lloyd’s Insurance Market

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

Part seven: A small coffee shop called Lloyd’s

Welcome back to this series which aims to briefly plot the key times and places in the historical journey of insurance, from the earliest Chinese civilisations some seven thousand years ago right through to the modern day. As we discovered in the last article in this series, the seventeenth century was of major importance to the development of insurance.

The tragedy of the Great Fire of London saw the first insurance company The Fire Office appear and soon after a number of competing fire insurers had arrived including Sun Fire Office, which we now know today as RSA – one of the largest insurers in the word.

We also discovered that the era was one of great advancement in the field of mathematics, which led to the emergence of first true development of actuarial systems and relatively sophisticated risk management models.

Of course no history of insurance would be complete without reference to Lloyd’s of London and it was during this same period of innovation within insurance, that Mr. Edward Lloyd opened his first coffee shop in Tower Street, London.

It needs to be mentioned that the coffee shop of the seventeenth century was a far more important venue within a society than your local Starbucks or Costa Coffee is today. In fact at this time the coffee shop was a relatively new phenomenon in Europe.
Whilst they has been in existence in the Muslim world for much longer, they had only recently appeared within the West.

Originally thought to have been introduced to Europe via the Kingdom of Hungary, the first documented coffee house to open in Europe was in Venice in  1645.

The first English coffee house, The Grande Café, opened in 1650.
Less than a century later there  were 551 coffee houses in London alone.

A fundamental reason for the success and popularity of these coffee shops was that they were great social levellers. They welcomed men from all levels of society and as a result they became synonymous with equality, republicanism and the ideals of a free market.
As such it was almost inevitable that the coffee houses of the late seventeenth century were to become vital hubs in which to discuss politics, the current affairs of the day and of course business.

It was 1688 when Edward Lloyd first opened his own coffee house in Tower Street, London.
Capitalising on the current growth in popularity for coffee houses across the city, Lloyd was able to carve a strong niche  in the city by providing regular and reliable news from the shipping industry.
Soon Lloyd’s of London had a vibrant and faithful community of sailors, merchants and ship owners visiting the coffee house on a daily basis.

It was not long before  Lloyd’s of London had become synonymous with the shipping industry and establishing itself as the key meeting place to discuss business in the shipping world.

In the next article within this series we shall look at how boat insurance and the shipping industry became intrinsically linked and how Lloyd’s of London developed from a humble coffee shop to one of the major organisations in modern insurance.

Related posts:

1. A Brief History of Insurance: Part Six- The First Insurance Company
2. A Brief History of Insurance: Part 5 Post Renaissance Europe
3. A look at Lloyd’s Insurance Market

Insurance Fraud is on the rise again!

A symptom of every recession, the difference this time is that detection rates of Insurance Fraud are also on the increase, but that doesn’t seem to be bothering those intent on criminal deceit, according to the latest figures released today by the ABI (Association of British Insurers).

A gymnast with back trouble, a flying toilet roll holder, an invented wedding engagement, a fake photograph and an invisible wall were among the record number of fraudulent insurance claims detected by insurers in 2010, state the ABI.

The figures highlight that in 2010:

• Insurers uncovered 133,000 fraudulent insurance claims – 2,500 every week – up 9% on 2009. The value of these claims was £919 million, also up 9% on the previous year. Over the last five years both the number and overall value of insurance frauds detected have risen by over 100%.
• The most common frauds involved home insurance with 66,000 bogus or exaggerated claims detected, followed by dishonest motor insurance frauds with 40,000 frauds uncovered.

Car Insurance frauds were the most costly, costing the industry £466 million.

• The value of savings from detected frauds represented 5% of all claims, compared to 4% on 2009

Cheats uncovered by insurers include:

• A claim for back injuries apparently sustained from a fall while working in a nightclub was rejected when Facebook images showed the claimant performing gymnastics, and training for a charity run.
• A woman’s claim for facial injuries she said resulted from a falling toilet roll holder in a fast food outlet was rejected when it was shown that the holder would have had to have fallen upwards to cause the injury claimed.
• A man claimed for a ‘lost’ engagement ring. His ex partner said that she was never given a ring as they had never been engaged. On the same day the man said he had suddenly found the ring.
• A claim by a woman for the loss of a £2,000 watch after a night out was rejected when the photograph she provided of her allegedly wearing the watch turned out to be that of a friend.
• A claim for injury said to be caused by falling over a wall was rejected when it was proved that there was no wall at the scene of the alleged incident.

It is estimated that insurance fraud costs £2billion a year, adding, on average, an extra £44 a year to the insurance bill for every UK policyholder.

New National Insurance Fraud Register
Nick Starling, the ABI’s Director of General Insurance and Health, said:

“Insurers are working harder than ever to protect honest customers against fraud. The savings made by weeding out fraudulent claims would otherwise end up being paid for by honest policyholders through higher premiums.

“Fraudsters continually look for new ways to con insurers, so we are upping our game. Early next year we will be setting up a national Insurance Fraud Register, which will contain details of all known insurance cheats. And at the same time the first ever national police insurance fraud investigation unit will begin its operations, making it harder than ever to commit insurance fraud.”

Glen Marr, Director, Insurance Fraud Bureau comments:

“Fraudsters will increasingly find the insurance industry a hostile environment. The IFB is committed to supporting insurer efforts to systematically root out and tackle fraudsters. At the IFB we have access to a significant volume of industry data, use sophisticated and powerful analytical software, work in partnership with insurers, law enforcement and regulators, and have no shortage of reports being received from consumers of their knowledge or suspicions of those concerned with defrauding the industry, through our Cheatline facility.

“We would urge anyone with information on any type of insurance fraud to support industry efforts to root out the fraudsters, by calling the IFB free and confidential Cheatline on 0800 3282550 or by using our online reporting facility at www.insurancefraudbureau.org/report.

Reports to Cheatline can be completely anonymous if necessary. It’s important to underline that some of those concerned with insurance fraud, are also involved in criminal activities where there is harm to local communities”.

Insurance Blog is pleased that when these criminal gangs are caught, their assets will be seized as part of the new Proceeds of Crime Act. Fraud is not a victimless crime and we all pay higher premiums because of it!

Related posts:

1. Car Insurance Fraud on the rise
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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3. The Hidden Costs of Uninsured Drivers in Your Car Insurance Premiums

The big insurance industry story that made the headlines of both the trade papers and the nationals this month was mega global search engine come media owner come O/S provider come whatever else they are now, company Google have bought financial comparison site Beat That Quote for a cool £37.7m.

It was an interesting if somewhat fairly inevitable move from the mega global search engine come…. well you get the point.

I say inevitable as apart from the fact that Google are trying to get their grubby little mitts into pretty much every possible vertical there is to be had, it was also a fairly well known industry ‘secret’ that they were looking to step into the financial comparison site arena, ever since news of their failed attempt to purchase LoveMoney.com.

In many ways Beat That Quote fit the acquisition profile perfectly for Google. They are a ‘two click’ property (a website which has short, quick user journey) and Google have often shown a taste for these in the past.  Also the business model of aggregators is proven to be successful as long as you have traffic and Google have more traffic than you can shake a big, digital stick at.

The proprietary comparison technology Beat That Quote represents is arguably the strongest in the sector with exception of Moneysupermarket.com which would have proven to be a much more complex acquisition. They brought in £6m in revenue last year but due to a hugely aggressive (and expensive) customer acquisition strategy made a £2m loss. Google can take a large part of the cost away from delivering ‘eye balls on the page’ so has the opportunity to turn the deficit around within a relatively short time.

So on the surface the move makes sense however there are a number of under currents to this deal that have got those in the insurance mergers and acquisitions sector and beyond questioning the wisdom of the move.  The biggest question marks are about Beat That Quotes existing ties with Google’s two biggest rivals Yahoo! and MSN.

One particularly interesting conflict is that Beat That Quote essentially engineered MSN Compare on a white label basis – whether maintenance and further development is part of the contract remains unclear but it will be interesting to see if Beat That Quote will continue its white label policies now they are under Google’s banner. It also seems that Beat That Quote already has agreements in place with both MSN and Yahoo! which provide a  big chunk of their existing traffic. Will these two major competitors of Google’s be so happy to continue to push traffic to their nemesis?

Of course this second issue is a lesser worry to Google and they will probably bring far more traffic to the table than Beat That Quote could lose from MSN and Yahoo! This is certainly more than feasible when given Google’s growing dominance of all things… well just all things.

Yet despite their omnipresent magnificence, it was just hours after the takeover that Google was having SEO issues with Beat That Quote. Embarrassingly Google were forced to remove all of Beat That Quotes SERPs (Search Engine Results Pages) due to certain alleged questionable SEO practices (Link buying etc – just the type of questionable practices that Google had recently made a big song and dance about clamping down on.

To be fair to Google they stood by their own rules in this case even though it was their new baby getting hit. However, the timing of removing the SERPs could be interpreted as a pretty slick PR move by the cynical amongst us. Their PR machine does seem to be currently entrenched in a full on battle to stem the growing tide of distrust amongst the masses of Google’s ever growing claim of total world dominance.

In fact in my humble opinion the Google PR team is only just about managing to stop the company overtaking Microsoft as the worlds most loathed organization – although on these shores the UK Government is having a fair crack at the title as well at the moment, but we’ll save that for another day.

For now however, Google have magnanimously allowed their own company back onto the SERPs (after what one assumes was some vigorous housekeeping) and have swiftly established a very firm footing in the financial services market.

What this means to the market remains to be seen, but it is clear that the fiercely competitive insurance aggregator sector now has a new contender with the technology, the audience and the financial backing to seriously shake things up. It’ll be an interesting ride that’s for sure.

Related posts:

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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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1. New Year Recession Fears
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3. UK Government CON DEM The FSA Insurance Regulator

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 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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By Dave Healey

Lloyd’s slips were originally pieces of paper containing all the details of a risk to be placed on the Lloyd’s of London insurance market, although today these are accepted electronically. Lloyd’s slips are documents in a standard format which are intended to assist not only the underwriter giving consideration to the risks presented to them but also the policy drafter and those responsible for checking and accounting for the premium. The slip has to be correctly compiled or it will be rejected.

The slip provides a precis of the risk, but an insurance broker passing the slip on a clients behalf needs to be well briefed with additional facts figures and to have available all relevant material such as survey reports, maps, plans, detailed claim records and any other documents or information which may have a bearing on the risk. The insurance broker when preparing the slip, is required to assemble a balanced and accurate representation of the risk and should anticipate as far as possible questions which are likely to arise and disclose this on the slip. If, however, a question is asked to which the broker does not know the answer, it is his duty to say so and refer back for further information. The need to disclose every material fact must always be borne in mind when completing a Lloyds slip.

Where it is necessary that a risk be spread among a number of syndicates, for a rate to be agreed that is likely to prove acceptable to other subscribing underwriters the lead underwriter, or ‘leader’, must have the confidence of other underwriters. To know which leader to approach first is an important part of the Lloyd’s insurance brokers expertise, though it does not follow that the first underwriter approached will necessarily lead the slip. If high amounts are required to be insured, and a large number of syndicates have to be involved, there is less opportunity for competition. For smaller risks the broker may find a keener rate or better terms by shopping around. The lead underwriter is not necessarily the one who can write the biggest line, though normally he will write a substantial line.

A good insurance broker needs to be a good negotiator. Tenacity is required but not to such a point as will prevent conclusion of the business. The aim is to bring the discussion to such a successful conclusion that both the underwriter and the broker together with his client are reasonably satisfied that the best possible arrangements have been made. There are times when a Lloyd’s broker needs to obtain almost unfairly competitive terms. A co-operative underwriter may provide these, so long as there is a bulk of business which has been concluded at sensible rates.

After obtaining a lead (which may be for only a small percentage), the broker needs to complete the placement. It may be that the risk can be placed using only Lloyd’s underwriters for which a slip will suffice, but sometimes the size of the exposure may necessitate the use of insurance companies in London or even overseas.

A binding authority or a ‘cover’ provides the cover holder with authority to accept risks within the limits and terms set out on the slip. The broking operation here is to negotiate the binding authority, the limits and the terms agreed. No reference is required to the underwriters once the arrangement has been set up though the binding authority will need to be renewed annually.

Line slips, on the other hand, do not give full authority to the cover holder. If a risk is to be placed under a line slip, it is normal that the two or three lead underwriters have to be seen, and they have to accept the risk and its terms and conditions. The remaining underwriters, however, abide by their agreement under the line slip for their stated proportion.

Once an underwriter has signed the slip as accepting the risk from a given date, then the insurance is effective from that date. As soon as the placement is completed, the client will be advised and the slip and its document will go through the policy issuing and accounting process.

The Lloyd’s broker who has placed the risk may sometimes be required to negotiate with the underwriter regarding a claim. However, except for the very smallest broking companies, it is more usual for a special claims broker to be appointed whose sole responsibility is to deal with these items. If loss adjusters or other assessing and negotiating parties are employed by the underwriter, then it may be the broker’s duty to negotiate with them as well. In the event of a claim the slip will be very carefully scrutinized.

In the recent past slips would have to be sent to the Lloyd’s underwriting room itself, but today this would be totally impractical for Lloyd’s to transact insurance business in this manner. Many car insurance syndicates at Lloyd’s have overcome this problem by allowing insurance broker firms to pass slips directly to them. Some of these motor syndicates have actually set up offices in towns around the country and the local motor insurance brokers deal direct with these offices, passing the slips to them to complete the deal. This method now enables Lloyd’s syndicates to easily compete with the large insurance companies on a national scale.

Dave Healey is a specialist car insurance underwriter who has been underwriting motor risks and accepting classic car insurance slips at Lloyd’s for over twenty years.

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