Players in the uninsured loss recovery market are falling on hard times James Sullivan reports.
The once booming uninsured loss recovery (ULR) market appears to have taken a nasty downturn for many of its players. With claims frequency falling, solicitors taking a greater share of the market, and regulatory pressures, many of the traditional intermediaries are facing exceptionally tough times. Revenues are at their lowest levels for years.
David Haynes, underwriting and product development manager at DAS and former chairman of the Motoring Uninsured Loss Recoveries Association (MULRA), says: "It's very difficult to do well (in ULR) now. In the old days you could find a local lawyer and a car hire company, but it's less easy now because underwriters are less willing to put pen to paper. Insurers are asking for ever greater guarantees from companies."
He adds that there are fewer new suppliers around than there would have been previously: "You don't see as many new entrants as you used to because of the lack of underwriters. NIG used to write a lot of this but that part of the business has gone away."
Regulation burden
One of the key factors that could well be putting off intermediaries in this area is the prospect of forthcoming regulation by the FSA.
Haynes says:"MULRA was established ten years ago to clean up the market, and it has worked to a large extent. But uninsured loss recovery has moved on. Companies nowadays will need to be regulated and comply with various selling codes. There's less opportunity for people to set up companies from their back bedroom, which will make it difficult for the less professional player."
Steve Donovan, managing director of specialist provider of Uninsured Loss Recoveries, Knebworth, agrees that the FSA will be an important factor.
But he stresses that, regardless of regulation, market pressures make this a very difficult area.
"It's becoming even more competitive and downward prices are continuing," he comments, adding that the claims scenario doesn't help either: "Claims frequency is falling. And there have been a number of initiatives that have reduced the number of injuries in the UK, which impacts on the number of cases that solicitors see."
The drop in claims is an issue that has proved to be problematic for Universal Salvage, which manages accident-damaged vehicles on behalf of insurers and has been one of the key players in the uninsured loss recovery market. But hard times have also fallen upon the group. It recorded a loss of £9.6m last year and the reduction in income as a result of the loss of its biggest customer Direct Line is continuing to bite.
Dropping claims
"All the indicators show that claims are dropping," says a spokeswoman for Universal Salvage. "Claims are slightly down on last year, and this means that you maybe have to look at other areas to keep the volumes up. If volumes are dropping in insurance then maybe you should look outside the marketplace."
She says that salvage companies have also had to face a stricter regulatory burden, in particular adhering to the EU's End of Life Directive, which "has had the biggest impact on the salvage industry" and has considerably added to costs.
With so many companies facing difficulties, brokers need to tread very carefully, according to Richard Finan, a director of Arc Legal Assistance.
"Many organisations offer uninsured loss recovery cover for free or only 1p a policy," he says. "But brokers need to look beyond the immediate commercial advantage to what these policies bring."
As a partial response to what was perceived to be something of a problem in the market, last month Arc produced a guide for brokers, which set out the main questions they should ask when looking for their uninsured loss recovery provider. The questions include whether the underwriter is domiciled in the UK, who is running the claims service, and what levels of protection are afforded for the consumer. Finan says the problem in the past has often been that these issues have been misunderstood and the policy has then been mis-sold by the broker.
Experts predict that price pressures will continue given that car hire charges have now been set in stone by the ABI's GTA agreement, as well as the fact that personal injury costs for road traffic accidents below £10,000 have also been fixed.
And worse may be yet to come. Donovan says: "The market hasn't bottomed out. It has a long way to continue. I can't see any factors that will change that."
It appears that a market that was once relatively easy pickings for brokers has now become a horrendous area with many being taken out of the equation.
Diversifying strategy
The way forward for players in this sector may be to diversify into areas other than core uninsured loss recovery to ride the current rough wave.
Indeed this appears to be the strategy of some of the main players.
For example, with uninsured loss recovery premiums having dropped so much, Allianz Cornhill Legal Protection's stated strategy is to increase penetration into the household and commercial legal expenses market. Demand in commercial lines is currently being fuelled by development in EU and UK law.
DAS has also indicated that commercial legal protection remains a much better avenue for growth in the immediate future and hopes to take more business in this area from traditional directors' and officers' insurers.
In its annual report last year, DAS conceded that premiums were "at an all time low" for uninsured loss recovery business.
For the time being, uninsured loss recovery, once the doyen of brokers and underwriters alike, remains one of the most testing areas of the UK motor market. The only question now for those concerned is how long the current depression will last.
What is uninsured loss recovery?
Comprehensive cover will not cover all of a driver's costs. ULR cover enables drivers to recover their policy excess or replacement car hire charges from a liable third party. It also provides legal assistance to sue for compensation if an injury is sustained.
