The market experienced “greatly improved financial results in 2011 but need to do more to improve profitability”, said the firm after presenting its 22nd Annual Motor Insurance Seminar. “Despite seeing the biggest single-year improvement in profitability, the industry is still collectively declaring an underwriting loss,” the company said.

Insurers in 2011 posted a net combined ratio of 106%, a significant improvement on 2010 when the net combined ratio was 120%.  The market claim ratio was 79% and the market expense ratio was 27%*.

James Rakow, insurance partner at Deloitte, said: “At an industry level, the underwriting losses were close to £600 million in 2011 despite improvements in profitability over the year. Investment returns will have helped to alleviate underwriting losses. With total premiums now reaching £14 billion a year, the motor insurance market is still attractive for insurers who are successful at attracting and retaining profitable customers or selling add-ons to basic motor cover.

“The motor insurance market achieved a 10% increase in gross written premiums between 2010 and 2011.  This was not enough to return the market to underwriting profitability and many consumers are expected to face further increases in 2012 as insurers seek to improve their results.

“We expect improved results to be delivered by motor insurers in 2012 and we could see an underwriting profit for the industry. The last time this was seen was in 1994.”

highlights include:

-      Motor insurance market’s combined ratio in 2011 was 106%

-      Market size reached £14 billion as total premiums rose 10% between 2010 and 2011

-      Rate of premium rises expected to slow over next 12 months

In its review of the financial costs of last August’s riots, ‘£40 million a Day. Counting the Financial Cost of the August 2011 Riots’ published today (22 May), the ABI highlights that:

- Insurers reacted quickly to the riots and expect to pay out £200 million to customers in respect of damage to homes, businesses, vehicles and business interruption losses.
- Have fully settled or made interim payments on 95% of claims from householders; 92% of claims from small and medium businesses and 75% of large commercial claims. Complex cases from large companies, often involving multiple sites, is the main reason for the small number of claims awaiting final settlement.
- The Riot (Damages) Act 1886, which provides compensation to those without insurance or under-insured who suffer riot damage, must be updated to speed up and simplify the process of paying compensation.

Nick Starling, ABI’s Director of General Insurance, said:

“Insurers reacted quickly to help thousands of customers recover from last August’s devastating riots. The priority was ensuring that customers could get back in their homes and that businesses could resume trading as soon as possible. Insurers are doing everything possible to fully settle the handful of outstanding claims, including making interim payments to help customers recover”.

The ABI’s report also highlights that the Riot (Damages) Act 1886, which enables compensation to be paid by police authorities to victims who suffer loss or damage following a riot, needs to be reviewed and updated to reflect modern society.
While the intention of the 126 year-old act remains relevant, the current arrangements have led to delays in paying out some compensation to people without insurance, the ABI added in its statement.

Also, the lack of a uniform and consistent approach has led to victims in some areas affected being treated differently to those in another.

Insurers are also able to claim under the Act for payments they have made to policyholders. The existence of the Act ensures that insurance cover for riots remains widely available and affordable. However, recent Government figures suggest that over half of claims from insurers have been rejected under the Act.

The ABI wants to see:

• A uniform definition of what constitutes a ‘riot’ which is accepted by all police authorities.
• A streamlined and standardised claims process for police authorities. The lack of such an approach has led to delays and confusion for victims as to what information they need to provide.
• The time period for claims to be made should be extended from 14 to 90 days so that those who suffered property damage have enough time to claim, especially as in some cases there may be a delay in being able to access their property to assess the damage.

Nick Starling stressed that:

“The Government must review and update the Act to ensure it reflects the needs of today’s society. We need to make sure that compensating riot victims is the priority, but the out-dated Act means the process is too slow, too bureaucratic and leaves too many people unable to get on with their lives.”

The inventor of the World Wide Web made a plea to the industry at the British Insurance Brokers’s Association conference in Manchester yesterday, requesting that information we share about ourselves on line – particularly by young people through social networks – should not be gathered for the purposes of pricing risk or paying claims.

Sir Tim Berners-Lee explained that what we say and share about ourselves on line should not be fair game for the insurance industry

Sir Tim, who sits on the Transparency Board of Open Government at data.gov.uk is a staunch advocate of opening up publicly owned data, but he said the private sector has a major responsibility in how it uses the information available.  ”Insurance companies should come up with guidelines to reassure people about what information will be used,” he said “For example the industry could say ‘We will not use the information you share on social networks from when you are under 18. We would like this to be the case as childhood should be protected.”

The mechanics of how personal data can and should be used is a particular concern for Sir Tim and the Open Government organisation. For example he pointed out how even anonymised personal data such as medical records can, with the correct filtering be used to identify individuals: “Anonymised personal data might need licensing,” he said. “Rules on how terms can be violated need to be clear. Correlation of information that identifies individuals needs to be risk managed.”

At the heart of Sir Tim’s message was ‘Data Provenance’. He emphasised that users of data like insurance companies had an obligation to acknowledge where the information they are planning to use is coming from and how the data should be used when they get it. “Companies that deal with a lot of data need to track where the data came from; the appropriate use and destiny of that data is important.”

Fitch said it expects the economic development of emerging market economies to boost demand for insurance and reinsurance. Lloyd’s already writes 25% of its business outside of Europe and North America, with the growth of insurance premiums outpacing that of developed markets.

“The syndicated nature of Lloyd’s should work to its advantage in tapping new markets. The structure of the Lloyd’s market assists it in sourcing new capital and underwriting large complex risks, compared with an individual company,” the ratings agency said today.

“Adding to this flexibility is the presence of special purpose syndicates, which allow individuals to invest capital to support underwriting on a limited time basis.”

Nevertheless, the ratings agency warned that last year’s Asia-Pacific catastrophes – including locations traditionally viewed as non-peak – highlights the risks of writing insurance in less well-understood markets.

Thailand’s floods of 2011 exposed some of the market’s shortcomings

“These incidents led to significantly higher underwriting losses than reinsurance companies had forecast, due partly to the limited historical loss and exposure data compared with the US and western Europe. This shortcoming has been compounded by the insurance industry’s increasing reliance on catastrophe models to assess the risk contained within their portfolios.

“Asia-Pacific was a major contributor to catastrophes losses jumping to 24.8 percentage points of the sector’s 2011 calendar-year combined ratio from 11.7pp in 2010. Yet the region remains a relatively small proportion of reinsurance companies’ business. “

The BBC political commentator opened his speech to a packed Manchester Central Auditorium today with the suggestion that general insurers might have been unfairly lumped in with the life insurance market in gaining this poor reputation amongst the political class.

BBC Political Commentator Andrew Marr opened #BIBA2012 with the keynote speech

In a wide-ranging speech that touched on everything from the debt crisis in Europe to the implications of the ongoing Leveson Inquiry into press standards, Marr appeared keen to demonstrate that power and influence has often been wielded by a select few to the understandable chagrin of many.

However, immediately prior to Marr’s presentation, BIBA Chief Executive Eric Galbraith had delivered a tub-thumping address explaining how the trade body’s lobbying power and press exposure were scaling new heights.

He’s not wrong either: The insurance industry’s strength in successfully lobbying for full deployment of legal cost reform in the UK via the Jackson Recommendations within the Legal Aid, Sentencing and Punishment of Offenders Bill offers clear evidence in support of Mr Galbraith’s declaration. Similarly, the industry’s collective media management over the issue of rising motor insurance costs, offers ample evidence of its PR muscle where the blame for rising premiums has consistently been laid at the doors of claims management companies and lawyers alone; any mention of complicity by way of 3rd party capture and referral fees paid to and from insurers themselves has effectively watered down to a trickle of insignificant news.

Of course there are issues about which insurers remain frustrated from a lobbying perspective and Mr Galbraith highlighted these also in his speech; most notably a lack of continued investment in flood defences, but broadly speaking 2011 and 2012 has been a period of positive spin for the insurance industry. It has even been insulated from the worst aspects of the Payment Protection Miss-selling scandal, after the country’s largest high street banks donned flak jackets and paid billions in compensation.

And finally, the Prime Minister David Cameron was at Number 1 Lime Street this week to back Lloyd’s of London’s latest long term strategic growth plan ‘Vision 2025‘. Now he isn’t the first PM to ingratiate Downing Street to the City, but with comments like the one below, insurers can probably take continued comfort that their agenda will be given an audience around Whitehall for the time being at least.

Dav Cam: £10bn contribution #insurance industry makes to exchequer is “effectively educating one in six of all British children” #Lloyds2025

— Laura F. Molloy (@laurafmolloy) May 14, 2012

Eric Galbraith, BIBA Chief Executive, is set to warn brokers at BIBA’s 2012 conference that the text for the revised IMD, likely to be published by the European Commission in the coming weeks, could include a clause which means that commission disclosure could become mandatory.

BIBA CEO Eric Galbraith: “it is unlikely that any politician is going to call for less transparency in financial services following the financial crisis.”

Galbraith will warn brokers in Manchester next week that there is significant political pressure for mandatory disclosure and that political expediency in Europe may force the issue. Ahead of the conference, Galbraith said: “If the clause is published, this becomes real and it is unlikely that any politician is going to call for less transparency in financial services following the financial crisis.”

BIBA said that the publication of the clause could come despite an encouraging cost benefit analysis on the IMD from the European Commission in early 2012 which initially supported disclosure upon request. BIBA said it does not believe that a case to mandate disclosure had been proven but that political expediency could force the issue even though the BIBA-led industry guidance on transparency, disclosure and conflicts of interest has been championed at European level by Treasury, the Financial Services Authority and BIBA.

Steve White, the association’s Head of Training and Compliance, said: “We understand that the text circulating is not an official publication and therefore to comment in greater detail would be premature.  BIBA and BIPAR, the European intermediaries’ association, believe that commission disclosure upon request is the most appropriate solution for disclosure in the general insurance market and BIBA continues to lobby on this basis.”

Galbraith concluded: “This could be an example of a ‘one size fits all approach’ from Europe which could have a detrimental impact on our sector. We continue to make the case for the BIBA-led industry guidance on transparency, but political interference in the remuneration system could be a by product of the over zealous application of investment type rules into the insurance sector.”

Responding to the launch of a Department for Business, Innovation and Skills consultation on private actions in competition law., Matthew Fell, CBI Director for Competitive Markets, said:

“It’s absolutely right that the victims of competition law breaches receive proper compensation. We are pleased that the Government shares our view that redress should be delivered in a cost effective way, with litigation a last resort. This means promoting Alternative Dispute Resolution methods which are increasingly being used by business, and often result in a better outcome for both parties.

Fell: “extremely concerned by the Government’s preference towards ‘opt-out’ class actions”

“We are extremely concerned by the Government’s preference towards ‘opt-out’ class actions, which group potential claimants together without naming individuals. This will magnify the total amount of potential claims and fuel litigation.

“The introduction of ‘opt-out’ actions risks sowing the seeds of a class action beanstalk. In the US, they grew out of all proportion to the damage they were seeking to redress and had to be reined in by Congress.

“‘Opt-out’ actions will be inextricably linked with third-party investors and as a result are likely to create a new business in collective litigation, which is not the sort of industry we want to encourage in the UK.”

Research published today by Marsh reveals that the role of the risk manager in financial institutions has grown significantly in prominence since the financial crisis, with 68% of respondents stating they now have a higher status within their organisations. The maturation of risk management departments is impacting the level of risk organisations are prepared to take: 34% of survey respondents said board level risk appetites have increased over the last three years, compared to only 18% in 2009.

Marsh’s report also states that a large consensus of risk managers in financial institutions across EMEA (61%) feel new regulation has done little, or nothing at all, to reduce their operational risk exposure. Moreover, only 14% rated regulation as a top risk priority for the next 18 months.
Marsh’s report, New Risk Management Insights for Financial Institutions, details insight from chief risk officers, directors of risk and risk managers from over 120 leading financial institutions across EMEA.

The report also found that risk managers are today more concerned about the threats associated with credit and liquidity risk to their organisations than at any time since the height of the economic downturn. Over two-thirds of respondents (69%) identified credit risk and 56% listed liquidity risk as their top priority risks over the next 18 months, compared to 37% and 22% respectively from Marsh’s 2009 report.

Among the top risk priorities for financial institutions over the next 18 months are:

• Credit risk – 69%
• Counterparties – 15%
• Liquidity risk – 56%
• Market risk – 15%
• Operational risk – 25%
• Protectionism/regulation – 14%
• Interest rate – 24%
• Global economic conditions – 12%

Carrick Lambert, Industry Practice Leader of Marsh’s Financial Institutions Practice in EMEA, commented: “Three years ago, financial institutions were recognising their problems in the wake of the banking crisis and making the resolution of these problems a top priority. Today, our research reveals that boards increasingly recognise that risk management can provide a competitive advantage. With capital now no longer as cheap or as available as in the pre-credit crunch days, good risk management is an essential tool for securing new funds.

“There has been a significant swing towards a more centralised model for risk management, with 30% of respondents describing their risk management structure as managed by a central team, compared to only 17% in 2009. We expect this trend of centralisation to continue, and chief risk officers finally become permanent and influential fixtures on most boards.”

Marc Paasch, Head of Financial Institutions in Marsh Risk Consulting, added: “The financial crisis highlighted fundamental weaknesses in risk management and controls at financial institutions. As the industry strives to repair its battered reputation and restore shareholder confidence, the role of the risk manager cannot be underestimated. Acting as an economic and regulatory monitoring system, risk managers can ‘listen’ to the environment and help the boards of financial institutions identify emerging risks, reduce uncertainty, and therefore optimise their performance.”

Despite the absence of major natural catastrophes during the first three months of the year, rates rose for both catastrophe-exposed and non-catastrophe exposed risks in most geographies.

The leading driver of change in the property market is the insured catastrophe losses experienced in 2011, according to Marsh’s Global Insurance Market Quarterly Briefing: Q1 2012.

The effects of these losses are also being felt in key risk areas like contingent business interruption, where insurers globally are taking a more cautious approach and asking for detailed information before underwriting the risk. In addition, changes implemented in 2011 to the risk models used by insurers will likely add impetus for property rate increases in the first-half of 2012.

In the U.S., rates for catastrophe-exposed risks generally increased between 10 percent and 20 percent, while property accounts with no catastrophe exposure typically rose by up to 10 percent. Some risks experienced higher increases depending on account specifics, geography, and the amount of catastrophe cover required. In countries affected by losses, rates for catastrophe-exposed risks continued to increase at a higher rate than risks with no catastrophe exposures.

“The global commercial property insurance market is continuing to show signs of upwards rate trends, especially for catastrophe-exposed risks,” said Dean Klisura, U.S. Risk Practices Leader, Marsh. “In the U.S., the property market continues to be in a state of transition with insureds more likely to experience rate increases than those renewing with flat or modest rate decreases. We believe that this trend will continue in the short term, with the average rate of increase continuing to rise month over month.”

Other major trends identified in the first quarter included:

• An increased demand for trade credit insurance across all geographies due to continued unease over the creditworthiness of companies in the Eurozone. This trend was most notable in Asia, where demand for trade credit insurance increased by up to 60 percent in the quarter.
• A deterioration in the underlying trends for U.S. workers’ compensation insurance as the frequency and severity of claims continues to grow.
• A continuation of last year’s trend in China, where directors and officers insurance rates for companies with U.S. exposures typically saw significant increases. In the first quarter of 2012, rates rose on average between 20 percent to 50 percent.

Microinsurance aims to protect poor people against risks – such as accidents, illnesses, death in the family, natural disasters and property losses – in exchange for insurance premium payments tailored to their preferences and capacity to pay.

Micro insurance is designed to support developing countries, where perils like flooding can wipe out rural economies

The second volume of the “Microinsurance Compendium, Protecting the poor” just published by the two organisations says the number of people covered by microinsurance rose from 78 million in 2007 to 135 million in 2009, reaching nearly 500 million today.

“Since 2008, we have seen numerous innovations emerging to overcome the challenges of providing viable insurance services to more low-income people,” says Craig Churchill, Team Leader of the ILO’s Microinsurance Innovation Facility and Chair of the Microinsurance Network, which is a global multi-stakeholder platform that aims to pomote the development and delivery of effective insurance services for low-income people.

“Efforts now should focus on increasing effectiveness so that insurance products can successfully reduce their vulnerability. The Compendium comes at the right time to help insurers, delivery channels, donors and other stakeholders understand what it means to provide valuable risk-management services to the working poor,” Churchill adds.

The results show that Asia – with its two microinsurance powerhouses: China and India – is spearheading the trend, covering roughly 80 per cent of the market. It is estimated that 60 percent of people around the world who are covered by microinsurance live in India. Latin America accounts for 15 percent of the market and Africa 5 percent.

According to Munich Re and the ILO, there are many reasons why Asia is ahead of the game; large and dense populations, interest from public and private insurers, proper distribution channels and active government support, are some examples, the report says.

“Indeed, what the developed world took several hundred years to accomplish cannot be replicated within a decade in the developing world, even given all the new technology and knowledge that is now available. Providing microinsurance effectively requires the involvement of many stakeholders from both the public and private sector who are not used to working together and who often have very different objectives and operating systems. What matters now is the process of getting key stakeholders to work together effectively”, says Dirk Reinhard, Vice Chairman of the Munich Re Foundation.

According to the Compendium, there have been many innovations in the field of microinsurance over the past years. For example, new products covering a variety of risks have been piloted and distributed to poor households through an increasing diversity of channels (e.g., banks, retailers or cell phone companies). Commercial insurers have also entered the low-income market, creating significant capacity for scale. At least 33 of the 50 largest commercial insurance companies in the world now offer microinsurance, up from only seven in 2005.

The Microinsurance Compendium Volume II covers in 26 chapters a wide range of topics from sector trends, contribution of microinsurance to social protection and resilience building, health, life and agriculture insurance and their distribution to the business case and client value of microinsurance.

Microinsurance is unlikely to break the cycle of poverty by itself, but it is a valuable tool in the poverty alleviation toolkit. When coupled with social protection, risk prevention and mitigation, and supplemented by other risk-managing financial services such as savings and emergency loans, microinsurance can play a critical role at multiple levels to efficiently manage risks, reduce vulnerability and contribute to poverty alleviation.