Growth from an untapped source

Commercial legal expenses (CLE) insurance has been heralded as a great untapped market. In recent times, providers and insurers including Composite Legal Expenses, DAS, Norwich Union, AXA and Zurich have been battling hard to grow their books of businesses, offering a range of add-on and stand alone policies.

And it seems that their efforts are paying off, with many claiming considerable growth in their portfolios.

Allianz Cornhill Legal Protection underwriting manager Peter Dobie says: "This time next year we would expect to have grown the commercial account by at least 50% in terms of units as well as premiums. There isn't any other area where you expand your portfolio by this amount."

The insurer has concentrated on selling add-on policies to its existing customer base and is looking at partnering other insurers that might want to offer an add-on CLE policy but do not have the knowledge to do it.

Dobie says the market has in the past struggled to gain momentum and with cheap premiums, the standard of service clients received in the event of a claim was not always good. Now, he says, brokers and clients are starting to see real value and benefits in CLE services and are becoming prepared to pay higher premiums. This should, in theory, result in better service in the event of a claim, he says.

Composite Legal Expenses managing director John Mullin is similarly buoyant about the CLE market's performance. He says the market has shown steady growth and has massive potential for the future.

"Over the past year, before-the-event policies have increased by 100%.

Some of the systems we devised four years ago have become a bit outdated and we have revamped them. We launched an online system at the beginning of October, which will help write significantly large volumes and open more CLE business, as well as providing bespoke solutions to individual brokers."

Market leader DAS has also seen steady growth of 12% in the past 12 months.

Insurers argue that the reason for this growth is that more companies are realising the need for this type of cover. Frank O'Malley, a director of legal expenses provider ARC Legal Assistance, highlights the growing burden on employers from changes in employment legislation as driving this increased demand.

The fact that newspapers are covering more and more high profile sex and race discrimination cases can only assist providers in making the sale.

But not everyone is enjoying the bonanaza that the likes of Allianz Cornhill and Composite Legal Expenses claim to be seeing. Temple Legal Expenses director Chris Wait says the company has not grown the business as much as it hoped, with the account growing by less than £1m in the past year.

He cites the "biggest killer" as too many cheap and cheerful products on the market.

He says: "Clients feel they have CLE but it is really only in a limited form, like third party motor insurance. Brokers are losing out as they could be selling more comprehensive policies."

Temple wants to improve its book in this area by developing good quality relationships with good quality brokers.

"I think the market will turn and people will want better quality cover and will be prepared to pay a higher premium for it. We need to move forward by training brokers and increasing their awareness," he says.

Broker Macbeth Scott & Co director Duncan Macbeth agrees in part, but disagrees that CLE products are too cheap. He says the cost of CLE insurance is in fact holding back the conversion of inquiries into new business "There's an increase in inquiries," he says, "but when they find out the cost they don't even want to pay £150 for it as they think they are immune to needing the services. It's taking a while to sink in."

Macbeth says brokers do not have enough knowledge of the different policies on the market. "It's not an easy sell but we try to bring the client's attention to things they are not insured for."

ARC's O'Malley agrees that the market has plenty of room for growth.

"A couple of years ago only 12% of companies had CLE, and although that will have increased, there is still definitely scope for growth," he says.

Mullin shares this view, saying that the market will not become saturated until "every SME in the country has legal expenses cover". Good brokers, he predicts, will be selling CLE as an add-on or as an inherent part of a complete package.

DAS is looking to focus on risk management as a way to promote CLE policies to business. Sales and marketing manager Ray Kneeshaw is aiming to transfer customers to its Employment Practice Protection policy, which offers CLE with an employment audit. This enables companies to see any weaknesses in the processes. "It's risk management rather than picking up the pieces after the event," he says.

Dobies says the growing complexity of employment legislation will provide brokers with new avenues.

He says a changing business environment with a range of complex new employment rights, health and safety legislation and new tax disputes will make CLE more attractive to companies. But he warns brokers need to find time to understand the market and what is on offer.