BRITISH INSURANCE BROKERS’ ASSOCIATION (BIBA): BUDGET STATEMENT 2014 POLICY SUBMISSION
14th February 2014
The British Insurance Brokers' Association (BIBA) is the UK's leading general insurance intermediary organisation representing the interests of insurance brokers, intermediaries and their customers.
BIBA membership includes just under 2,000 regulated firms, who employ more than 100,000 staff. General insurance brokers contribute 1% of GDP to the UK economy, they arrange 53% of all general insurance and 81% of all commercial insurance business. Insurance brokers put the client’s interests first, providing advice, access to suitable insurance protection and risk management.
This letter sets out BIBA’s policy priorities for the forthcoming Budget Statement, with a particular focus on the ways in which our sector is proactively working to help consumers and their families, support businesses that provide vital employment and help the insurance industry– which plays such a critical role in driving growth. This is why our recently published 2014 Manifesto is built around a single message: ‘Delivering for Consumers, Business and our Industry’.
In our 2013 Autumn Statement submission we explained how BIBA was directly responding to Prime Minister David Cameron’s call, made at last’s year’s Conservative Party Conference, for a recovery based on business success. Since then, the signs of a strengthening economic recovery have continued to grow, but we know that more needs to be done to ensure this upturn is felt by everyone.
BIBA is also committed to helping the Government implement its UK Insurance Growth Action Plan, particularly in the key areas of expanding the UK industry in overseas markets and promoting the UK as a location for insurers. We will also work to ensure the Action Plan addresses the needs of customers and businesses in accessing suitable insurance products as an active member of HM Treasury’s Implementation Steering Group.
New BIBA-Acturis Insurance Price Index
BIBA was delighted to announce the launch of its new Insurance Price Index in partnership with Acturis earlier this year. This index will help us identify trends and movements over nine key insurance indicators in the market, allowing us to track price changes for over £4 billion worth of insurance premiums. Unlike other insurance price indexes, ours tracks written premium, rather than quotes, and crucially, includes small and mid-sized businesses.
Delivering for Consumers
In the inaugural index, launched at the House of Commons, our research showed that the consumer ‘shopping basket’ saw a 2% reduction in average premiums compared to 2012. Overall the average premium is 7% higher than 2010 but started to reduce in 2013 following peaks in 2011 and 2012.
Changes in the consumer ‘shopping basket’ reflect increases in motor premiums during recent years but also show that industry initiatives are having a positive impact on premiums. For example the industry’s commitment to reduce uninsured driving has enabled police seizures and other enforcement measures to bring about a near 50% reduction in uninsured drivers since 2005.
BIBA strongly believes that additional ‘signposting’ agreements will further help to reduce premiums. We welcomed the attendance of the Financial Secretary to the Treasury, Sajid Javid MP, to our 2014 Parliamentary Reception earlier this year. Mr Javid said:
“I’m excited to see that the signposting agreement the government helped to set up is going from strength to strength, helping thousands of older customers access vital insurance products We look forward to working with BIBA and the insurance industry to ensure that signposting continues to be successful and will seek opportunities for similar agreements for other types of cover.”
We therefore call on the Government to continue promoting and expanding signposting services so that more consumers can access appropriate – and affordable – protection. The signposting agreement we reached for older motorists and holiday makers, alongside our industry partners and the Government, has already helped more than 100,000 older people access insurance since April 2012.
BIBA also believes the Government and regulators need to do more to tackle the growing pressure which internet comparison sites are placing on UK insurance business models through their manipulation of behavioural economics. Such sites have led to firms competing and promoting policies on headline price alone and this situation has led to consumers finding that they are not covered as they expected when making a claim. BIBA welcomes the Financial Conduct Authority’s (FCA) review of comparison sites and wants to ensure it looks at the way such organisations use customer data as well as present the issue of price. Additionally, we note that the European Parliament has indicated that it has a concern with price comparison websites, by clearly bringing them into the scope of the draft revised Insurance Mediation Directive (a move that BIBA welcomes).
Delivering for Growth
BIBA’s members support small and large businesses across the UK – all of who will be integral to future British economic success. The Index showed that average premiums for an SME insurance ‘shopping basket’ have increased by 11.5% since 2010. This reflects the increasing premiums for commercial vehicle insurance which rose nearly 18% in 2011, then increased by 3.7% in 2012, and reduced by 2.3% in 2013 to bring commercial vehicle policies around 19% higher than 2010 levels. The Index also showed that average premiums for the larger commercial ‘shopping basket’ have been mostly flat since 2010 with a slight increase of around 1% over the three year period.
BIBA remains fully committed to helping SMEs to access suitable insurance. For instance, we recently launched a new members’ guide to help SME customers purchase suitable insurance protection based on their needs. BIBA is also leading an industry wide Claims Working Group to look to enhance the customer’s experience and understanding of the claims process and foster wider public understanding of the role of the insurance industry in meeting claims. The upshot of this initiative is that more customers should see their claim paid (rather than refused for a technical breach of contract terms), thus helping to sustain economic development.
We also believe this significant premium increase for SMEs further highlights the importance of business resilience for UK SMEs. BIBA continues to call on the Government to ensure further recognition of the significant benefits of business continuity plans, which help businesses to manage risk. We also reiterate our call for protection on the availability and affordability of flood insurance for small businesses to be place, particularly micro-businesses with less than ten staff. Federation of Small Business figures show that in 2012 alone, 1-in-5 small businesses were affected by floods an our members tell us that it is an increasingly difficult market to place affordable cover. We will also continue to work with the Home Office and the independent reviewers of the Riot Damages Act to ensure a suitable agreement is reached.
One issue we will be keen to discuss with HM Treasury as it seeks to implement the UK Insurance Growth Action Plan is the importance of London maintaining its position as a world leading insurance market – and not for firms to go elsewhere because of our tax system. We urge the government to ensure the UK’s competitive position is maintained alongside competitive business rates for UK companies.
Delivering for the Insurance Industry
New regulation research which BIBA revealed as part of our 2014 Manifesto launch demonstrated that insurance brokers in the UK have the most expensive regulatory regime in the world, with fees and levies costing more than five times that of those in New York, Japan, France and Germany. The research also showed that the cost of regulation for small brokers has increased from 3% three years ago to 4% of income now and that large brokers pay fourteen times the global average cost in comparison to other nations.
From April of this year, the UK market will see regulation of consumer credit move to the FCA. The FCA has stated it will be creating a two-tier regulatory approach which will, for example, place the sale of credit alongside the sale of a car (so credit potentially running into tens of thousands and over a period of several years) in the low-risk category and the sale of credit alongside an insurance products (so for a fraction of the sum in the car example and for a maximum period of one year) in the high risk category. This “logic” appears counter-intuitive and has the potential to see insurance customers disadvantaged, as insurance brokers may no longer feel able to offer this service to customer, owing to the excessive regulatory burden (when compared to the risk).
This is why BIBA strongly believes the Government and regulators must now have more regard to differing degrees of risk across the financial services industry – including recognition that insurance brokers pose a low risk to consumers and the economy. Following the findings from our regulatory research, we will work with the FCA in 2014 on its funding review to find a more equitable system – and one that is proportionate and cost effective for both insurance brokers and their customers.
Additional BIBA membership research recently revealed that the Financial Services Compensation Scheme’s fees are negatively impacting brokers, with 53% stating that they have either delayed or cut investment and 40% reporting a cut in expansion. BIBA fully supports the concept of fair compensation as this is important for both providing customer protection and increasing confidence in the insurance sector. However, BIBA brokers have seen a fifty-fold increase in their FSCS fees during the last few years. This is why we believe our members need to be better protected from bad practices that take place in other sectors within the financial services industry. Despite its status as an insurance product, the Government will be able to obtain evidence from the FCA, the Financial Ombudsman Service (FOS) and the Financial Services Compensation Scheme (FSCS), which will show a clear lack of involvement by insurance brokers in the PPI mis-selling debacle. Yet insurance brokers are “lumped” into a pot with and being made to contribute heavily to compensation costs for PPI. Our 2014 Manifesto therefore calls on the Government and Regulators to create a fairer separate sub-class within the Financial Services Compensation Scheme for pure insurance brokers.
BIBA commissioned Oxera – the same consultancy who designed the current compensation funding arrangements – to review the model to ensure an alternative, fairer and economically justified method.
Oxera proposed a split-pot which includes a separate sub-class for ‘pure’ insurance brokers, and retains insurers in the cross subsidy part of the model to ensure greater responsibility for their products and the way they are sold.
Ensuring a level playing field in Europe
BIBA feels that the UK should remain a member of the European Union and an active partner; however, Europe has also presented the UK insurance market with a number of issues. Under the Treaty of Rome, insurers from Member States are able to ‘passport’ in to the UK.
Our main concern lies with poorly capitalised passported insurers entering the UK market and then failing as we have seen with Balva, Lemma, Quinn and just this week, the Icelandic insurer ERIC. Passported, non-UK regulated overseas insurers have the potential to damage the UK insurance market. 548 insurers have so far exercised their right to passport into the UK under the 3rd Non-life Directive. BIBA members argue that a number of them may not always be well capitalised as they operate from a home states where insurer’s solvency (particularly in potentially stressed scenarios) is not as actively supervised as in the UK. They may also not offer adequate policyholder protection in the event of their failure. This goes against the fundamentals of creating a single market. A common market should be providing common standards of regulation and consumer protection.
Unfair competition damages the UK market. When passported insurers enter the UK market, it has ended with uninsured customers and reputational issues for the industry. BIBA does not wish to see competition in the interests of consumers being damaged, but we believe that this type of competition does not work in the interests of customers.
The UK must be able to raise this issue in Europe and the UK regulator must do more to work with passported insurers’ domestic regulators to better navigate the Treaty of Rome to prevent this damaging scenario. This issue is becoming a serious concern in our sector which is why BIBA wants to see greater protection of the UK insurance market. We have responded to the Government’s balance of competences review and believe that it is the ideal vehicle to take this issue forward.
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