The signs are that the market is moving towards the abolition of Article 75 of the Domestic Regulations.

For those of you who may not be aware of Article 75, it is the market agreement whereby insurers (formerly known as either "insurer concerned" or "domestic agreement insurer") would continue to deal with certain types of motor third-party claims where the policy was defective and where they had no contractual liability under the policy to deal with the third-party's claim.

This was an extension of the situation under the Road Traffic Act (RTA) 1988, which required insurers to deal with third-party claims under otherwise invalid policies in order to ensure that the victim did not lose out on compensation.

The other effect of this law and the Article 75 arrangement was that many "uninsured driver" claims remained with the insurer who had written the risk in the first place.

In this way, the Motor Insurers Bureau (MIB) fund was protected from the effects of irresponsible practices.

I am concerned at this latest development, and I urge all underwriters and pricing managers to look very closely at the proposition on the table. The effect of transferring this raft of claims from the insurers to MIB will result in an increase in the MIB claims spend, which is levied on all motor insurers and which is based on the size of their individual motor accounts.

From a claims handling point of view, it may seem like good sense to move Article 75 claims on to the MIB but, from a pricing angle, we will be looking at a situation where one insurer is subsidised by another.

The Greenaway report highlighted the fact that few insurers kept statistics on RTA and Article 75 claims and consequently, no one can be certain how much this move will cost the MIB (and therefore, the market, through an increased levy). It has been argued, however, by informed sources, that their cost is at least the amount of the current MIB levy.

The question, therefore, for pricing managers and underwriters is: can your account stand a doubling of its current contribution to the MIB?

I doubt if many will be prepared to answer in the affirmative.

If we look at typical reasons for insurers reverting to Article 75 status, eg fraud, backdating of cover and lies on proposal forms, many of these are preventable by careful and efficient methods, systems and training. On the other hand, insurers who may be less diligent or less committed to treating customers fairly will suffer the consequences in terms of seeing more of these claims.

If we now find that these claims are going to the MIB instead of remaining with the insurer, clearly, the efficient companies will see their share of the levy increased disproportionately compared with their "contribution" to the MIB claims workload.

It is vitally important that this move is not seen purely as a claims issue and those in charge of pricing and managing motor accounts need to study the consequences of any moves to abolish or even erode the provisions of Article 75.

Roy Rodger
Insurance Training & Consultancy

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