Lastword

Many pundits say the commercial sector has not embraced IT systems with the same enthusiasm as the personal lines sector. The blame for this is shifted between insurers and brokers. How can the sector move forward on the technology front?

It is true that the success of market-led initiatives has, to date, been limited. Commercial EDI, for example, was largely unsuccessful for many reasons, not least of which was the failure to deliver systems that brokers wanted. The dot.com technology fever of the early 2000s did little to instil confidence.

Ultimately, commercial insurers want to focus on delivering excellent underwriting and claims services to their customers supported by appropriate technologies.

At R&SA our enterprise SME business proposition is a great example of technology supporting a solid customer proposition. The broker can ring through to an enterprise underwriter and commercial quotations can be handled within five to ten minutes.

Undoubtedly, developments such as XML-based message exchange will allow trading partners greater flexibility and closer integration across all areas of the value chain, without demanding the one size fits all approach of the past. (R&SA is working closely with Polaris, brokers and software houses to progress work on standards within this area).

The lack of capacity in liability at present is well documented, with R&SA the only insurer still writing all-risks large construction policies. Is government intervention in employers' liability (EL) needed or will the cyclical nature of insurance ensure that more capacity will become available if companies can hang on?

I believe it is important to recognise that the liability market is facing much more than a short-term problem. The extensive soft market conditions did not help at all, but while insurers were competing with one another over price, all of the claims trends were going the other way.

Research undertaken on behalf of the Association of British Insurers (ABI) and International Underwriters' Association (IUA), based upon settled bodily injury claims, has shown that claims inflation is on average 12% per annum. On top of that, we have had an unprecedented amount of law reform that has a significant effect upon both the number and cost of claims.

Much of the law reform has had a retrospective effect. Additionally, the development of "no win no fee" cases and the level of success fees and ATE insurance premiums has had a major effect. This development alone has increased claims costs by 30% and produced many more claims.

Against this background, it is hardly surprising that the market has become highly selective over the risks that will be written. As EL is compulsory, the businesses that are unable to obtain insurance have to cease trading or trade illegally. The solution has to lie in fundamentally reforming the system of workplace compensation.

Upcoming Financial Services Authority (FSA) regulation is expected ignite broker discussion over transparency of commissions. Should brokers reveal their commission levels and are fees the future?

The government's decision to place general insurance regulation with the FSA should be seen as an opportunity by the insurance industry. I firmly believe that regulatory reform will enhance the credibility of the whole insurance industry. All involved can benefit by aiming for the highest standards of customer practice rather than settling for the lowest common denominator in terms of regulation.

It is probable that a code of business conduct (for instance, selling) for general insurance will be introduced which may lead to increased transparency of commissions for intermediaries. The industry must welcome moves such as these, which demonstrate that we take the protection of the customer seriously.

The past year has seen a significant rise in the popularity of broker networks. Will they ever replace the direct contact between broker and insurer?

The rising popularity of broker networks is due to the market forces driving consolidation in the broker market and the desire of provincial brokers to compete effectively with larger counterparts.

Broker networks must have a clear proposition that adds value, not only to their members but to insurers too. From an insurer's perspective, we would be looking for networks to reduce the cost of business acquisition.

However, as the insurance market becomes increasingly customer driven, direct contact between broker and insurer will continue to be an important ingredient.

The recent Association of Insurance Risk Managers (Airmic) conference saw Professor Frank Furedi accusing the insurance industry of becoming "risk averse" following 11 September and the changes in terrorism cover. Is this unreasonable or does he have a point?

The events of 11 September have reminded insurers of the need to adequately understand, assess, manage and price risk. I do accept that, from a customer perspective, it could be felt that we have become risk averse in the area of terrorist related cover. Tragically, 11 September demonstrated that the unthinkable can happen and such volatility and severity is impossible for insurers to underwrite and price. However, R&SA is working with Pool Re and others to find a solution to meet the new threats presented by today's terrorists.

Peter Webster is managing director of Royal & SunAlliance UK Commercial