BIBA response to the HM Treasury consultation on Test Achats
1st March 2012
The British Insurance Brokers' Association (BIBA) is the UK's leading general insurance organisation representing the interests of insurance brokers, intermediaries and their customers.
BIBA membership includes just over 2,000 regulated firms having merged with the Institute of Insurance Brokers (IIB) in November 2011.
General insurance brokers contribute 1% of GDP to the UK economy and BIBA brokers employ more than 100,000 staff.
BIBA helps more than 400,000 people a year to access insurance protection through it’s Find a Broker service, both online and via the telephone.
Brokers provide professional advice to businesses and individuals, playing a key role in the identification, measurement, management, control and transfer of risk. They negotiate appropriate insurance protection tailored to individual needs.
BIBA is the voice of the industry advising members, the regulators, consumer bodies and other stakeholders on key insurance issues. BIBA provides unique schemes and facilities, technical advice, guidance on regulation and business support and is helping to raise, and maintain, industry standards.
In large part, this is an issue and cost for insurers, not brokers – as we set out below. However, we do believe that it is paramount that the UK insurance market agree a uniform transition so as to ensure that any transitional impact is minimised. If different insurers respond in different ways (following their own legal advice) this could cause confusion for customers, software houses and insurance intermediaries. We would suggest HMT/FSA confirm an agreed way forward to avoid any detriment.
Please find below our answers to the following 6 questions:
Question 1: As part of this consultation process, the Government would welcome views on whether the impacts set out in the impact assessment, and the underlying assumptions, are reasonable. The Government would welcome any data that would help us get a better understanding of whether our assumed market impact is correct.
We agree with the impact assessment calculations, resulting in a potential net increase in cost to motorists of £300m. In our opinion female drivers aged under 30 will be the hardest hit.
We are, in particular, seeking data on two key areas:
a) the number of term life policyholders and annuitants, and the gender mix, to
allow extrapolation to estimated aggregate impact;
We do not have this information.
b) industry implementation costs.
The majority of implementation costs are likely to fall to insurers who have to revise their rating.
Software houses who have to adapt their systems will incur costs, they will pass on much of these costs to insurers and a proportion to insurance brokers.
For the insurance broking sector there should not be any significant direct cost. However, the outcome of the re-rating exercises which insurers must undertake cannot be accurately predicted.
Brokers are unable to gauge at this stage the precise effect of new rating strategies on their individual clients or on their marketing and placing approach. Some brokers, particularly those most active in the motor insurance market, will incur costs in revising their plans and procedures as the effects of the ruling become clearer. Costs could include:
- Increased re-broking costs as more customers who are dissatisfied with their increase in premiums may chose to move from their previously preferred market.
- Costs from software houses, required to make the changes to accommodate the new rating model. Insurance brokers pay a significant sum to their software house and although much of this cost will fall on the insurers there will still be costs applying to brokers, particularly with bespoke systems.
- Brokers with delegated authority schemes will have to spend resource remodeling their current schemes.
- A small increase in training costs
Question 2: Do you agree that the scope of the regulations should be restricted to repealing paragraph 22 of Schedule 3 to the Equality Act?
Question 3: Do you have any comments, in relation to these draft regulations, on the scope of indirect discrimination in insurance and related financial services?
We do not believe the scope of the regulations should affect occupation as a rating factor. BIBA believe occupations to be a relevant risk factor and many occupations e.g. civil service/teacher etc. have specific schemes and receive discounts based on the collective improved loss ratios.
Question 4: Neither the collection of data on sex nor the use of sex for the purposes of assessing overall risk are prohibited by the Directive or the Equality Act 2010. No provision is therefore needed in the Regulations. Do you agree?
Question 5: Do you have any comments on the definition of a new contract in the context of implementation of the Test Achats judgement?
BIBA believe an annual contract is created at inception or renewal therefore a mid term adjustment (MTA) is exactly that – purely just an adjustment to an existing contract. If it was interpreted that a MTA created a new contract this would cause considerable complications to the insurance market, particularly to those policies that straddle the 21/12/12 implementation date and require re-rating mid term.
This would be a significant problem for the software houses (with a very difficult requirement for dual rating systems), intermediaries, (required to use multiple rating facilities for each product) and their customers (who could find themselves facing a massive mid term change to their premium even if they are only making a very minor adjustment like removing a named driver).
We strongly urge government guidelines to be worded in a suitable way to avoid these potential problems and ensure a uniform transition.
Question 6: Do you agree that no amendment is needed to paragraph 20 of Schedule 3 to the Equality Act 2010 as a result of the Test Achats judgment?
Thank you for taking the time to consider our response. If you require any further discussion please feel free to contact myself on 0207 397 0218 or Steve Foulsham on 0207 397 0234.
Graeme Trudgill ACII
Head of Corporate Affairs
0207 397 0218