The availability of mortgages at all levels is essential to kickstart the failing housing market and the industries that rely upon this, from construction to those selling white goods or home insurance. Without readily available and free flowing capital, the UK economy will self implode.
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.
Unemployment has risen to over 2.5 million in the UK and with the future of many public service workers jobs in doubt, is expected to rise to levels of over three million by Christmas.
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.
9/11 Remembered
Insurance Blog is remembering the hundreds of insurance workers and employees who perished in the WTC ten years ago.
By A Consumer – War Correspondent – Car Insurance War Front Line
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.
Most of us live our lives around our gadgets these days and whether its our 3g mobile, laptop or ipad – it is at risk!
What’s more, in many cases our lifestyles are also at risk as our gadgets carry so much personal and company information and are in effect, our the portals to our social and business lives.
Insurance Blog and if the claims figures are to be believed, half the country, know only too well the pain involved in lifestyle interruption caused by losing a gadget!
The cost of replacing the item can be covered by traditional gadget insurance polices, but insurance as yet does not compensate for lifestyle interruption. So it is good to see alternative methods to insurance being used to tackle this ever growing problem.
Catch That Thief!
The solution to replacing a gadget is to recover it and new security software is already showing some truly amazing results. After all I’d rather get my laptop or phone back than get a new model of market value, as it contains all my personal files and contact details.
One solution for PC and laptop theft or mislay is a piece of software called Prey. When you loose your laptop you simply login to your Prey account and activate the device as missing. Sit back and wait for your phone to text. (assuming you haven’t had that stolen as well) and you can login to the Prey website and see a map of just where the device is being used and if its got a webcam you can see who is using it! You’re nicked sonny!
Check out the Prey Software in action on the BBC Video as it catches a real life laptop thief. The video also contains invaluable information on services to protect your other gadgets as well.
Insurance Blog welcomes any measures that help reduce premiums, so we expect all the gadget insurance suppliers to radically slash their rates for those who have anti theft devices for their gadgets!
A Brief History of Insurance:
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.
Long term chronic or terminal illness is one of those risks than could afflict us all. It’s really an essential part of health insurance that is often overlooked or not covered, yet if it strikes critical illnesses are the most devastating to you and your family.
With this grim prospect in mind Insurance Blog gets you up to speed on this most essential of modern covers.
Understanding critical illness insurance
Critical illness is, by its very nature, no laughing matter. It might be advisable, therefore, to take critical illness insurance just as seriously.
What is critical illness insurance?
This cover is a form of protection that seeks to provide you with a lump sum payment should you be diagnosed with what is described by the policy as a critical illness.
Such a payment may come in very useful, as one of the consequences arising from a critical illness may be financial disruption to your normal routine. For example, you may not only lose your income (or find it significantly reduced) but at the same time, also find that you’re incurring additional costs for things such as medical aids or home help etc.
The very last thing anyone needs when they’re critically ill, is cause to start worrying about things such as bills and income.
That is why critical illness insurance exists.
What conditions are covered?
You will only be able to know this for sure, by looking at the detail contained within an individual policy or site (one such example may be found at criticalillnessinsurance.com).
As a general principle, a wide range of conditions may be covered including many of the major life-threatening conditions.
Remember though that the conditions covered may vary significantly between policies and providers – it may be advisable to look closely at the conditions covered to ensure that you’re happy that you have the cover you feel you need.
What about existing medical conditions?
Individual insurance providers may have different positions in this respect, however, typically they will exclude pre-existing conditions (or attach special conditions to them).
It is extremely important that any such conditions are openly and explicitly declared at the time you take out your policy or it may prejudice a future claim.
How many times will the policy pay out?
Typically once. This insurance is intended to cover a one-off diagnosis.
There is a form of cover called serious illness insurance that may pay out several times for different multiple conditions when diagnosed. Once again, sites such as criticalillnessinsurance.com may prove to be useful in outlining the differences.
Is such insurance cost-effective?
Both the cover provided and the prices of policies, will vary.
A sensible selection process would involve balancing the two against your requirements, however, in the case of any insurance, it may be difficult to define what cost-effective actually means.
You may sincerely hope that you never need to call upon your critical illness insurance but knowing it is there, may be prove to be priceless for your peace of mind.
For those UK underwriters and loss adjusters watching the scenes of devastation caused by hurricane Irene and particularly flooding in states like Vermont, they will be glad that their insurance company does not have to pick up the bill.
They needn’t have worried though because in the United States Flood Risk is considered fundamental and cannot be covevered under a normal home insurance policy as such…as yet!
In fact all home insurance flood risks are the responsibility of each State to provide under a national scheme. In the United States, uniquely in the developed world, insuring houses against flood damage is the sole province of the federal government.
The National Flood Insurance Program (NFIP), was created in 1968 by Congress and is administered by the Federal Emergency Management Agency, is virtually the only place to get protection against the ever increasing disasters of flood and storm surge.
From an insurance point of view the program is the same as any other private-sector insurance program.
You pay the government a certain amount and when a flood happens, receive coverage for repairs and losses.
As of June 30, the program had nearly 5.6 million policies in force with a total insured value of $1.246 trillion. But from a fiscal standpoint FEMA does not manage the NFIP like a traditional insurer.
Most insurers use a measure of solvency that looks at their capital and reserves and their ability to pay claims. In particular, regulators require insurance companies to keep a statutory reserve of liquid assets to cover potential future losses. FEMA, on the other hand, has said it manages the NFIP to generate enough premiums to cover expenses and losses for an average loss year, rather than keeping capital for the long term.
In other words it does not keep enough reserves! And guess what? It’s run out of money!
Apparantely former agency officials admit it charges rates that dramatically underprice the risks faced. That is all well and good in a normal year and when business is good, but when a worse-than-average loss year happens, the consequences are disastrous.
Folowing the disatrous hurricanes Katrina and Rita in 2005, the NFIP was more or less insolvent, without the capacity to pay the huge volume of claims those hurricanes created. Congress reacted by increasing the NFIP’s borrowing ability from the U.S. Treasury more than 13-fold, to a level of nearly $21 billion. That debt burden is, by all accounts, unsustainable.
While Irene was no Katrina, it comes on top of serious Midwestern flooding that the program has already had to deal with this year. Some people believe NFIP will stretch its debt boundaries and may well end up needing more assistance. “It may be a little bit too soon to tell but it’s certainly not going to be a very good year for the NFIP and we’ve not finished the year yet,” said Robert Hartwig, an economist and the president of the Insurance Information Institute (III).
Hartwig said a private insurance market for flood coverage is absolutely possible, with plenty of insurers and reinsurers willing to get into the business – but only if the NFIP raises its rates and if insurers get assurances from state regulators that they will be able to do the same.
Insurance Blog wonders if given all the recent flood claims in the UK due to climate change and the pressure to build houses on floodplains, whether Flood Insurance will at some point become a fundamental risk in the UK for some homes?
The UK Government would be well advised to consult with construction companies, environmental scientists, climatologists, pressure groups and Insurance companies before we reach the crisis about to hit the US Treasury.
The solution is simple – do not solve the UK housing problem by building on floodplains or areas of geographical risk.
The Association of British Insurance companies, the ABI, has issued a statement clarifying the position of Insurance and Claims for Riot Damage.
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.
The impact of riots on the community can have long-lasting and unforeseen effects.
Riots may not last very long, but the time to put a community back to where it was takes a lot longer.
For a business or property owner the work ahead can be daunting.
The actual damage to each premise needs to be accessed and repaired.
This can take time and may depend on whether adequate insurance was taken out to cover the damage.
If adequate insurance is in place insurance companies need to access the damage.
Putting Things Right
There maybe damage to the property, injury to staff, residents, tenants and owners.
Tenants maybe homeless. New temporary accommodation needs to be found.
Loss Adjusters need to be appointed to look and access the damage and give authority for repair work to commence. Quotations from repairers have to be given and of how long and when work can commence once agreed.
Immediate remedial damage may need to be repaired eg windows boarded up, broken glass cleared, any unstable structures removed .
Removal of goods not stolen need to be placed in a secure area to avoid further loss. Further accommodation and storage space may need to be found.
Vehicles may need to be hired if transport or commercial vehicles have been damaged. This can also delay work be carried out if contractors have damaged vehicles as well.
Evaluating Business Continuity and Business Interruption
Shop keepers and property owners have to decide if they can continue to trade and should ask themselves the following question:
Is the structure safe?
Do they have still have goods to sell?
Is there chance of further rioting?
If thieves have raided the shop will new stock have to be ordered?
How long will the stock take to deliver?
Are supplies of gas, water and electricity working ?
Have staff been injured or mugged?
Can staff get to and from work?
Are staff involved in the riots in any way?
Have they been arrested or injured?
Will they need time out because their homes have been damaged?
Are there any customers or are they too scared to enter the area or have police closed the area?
Claim
If you have been affected by the riots it is imperative that you contact your insurance company immediately to pursue a claim. If you do not have insurance but have been affected and have suffered loss, visit your local police station and report the incident and inform them you wish to make as claim under the Riot Damages Act of 1886.
For more information on the various types of business insurance and commercial property insurance available for riot and civil commotion cover, visit UK Commercial Insurance.
