David Vine says legal expenses insurers that fail to increase household commission levels are risking their future
A number of insurers within the legal expenses insurance market are walking a dangerous tightrope. They are in an unstable position and face both unprofitability and potentially being forced to exit the market.
Few could disagree that the prices being charged for household - also known as family legal expenses cover - are too low. This is a problem which has been around for years, but as claims start rising both in number and cost, it is starting to bite.
But, there is an ostrich-like attitude from too many other providers - while they may acknowledge that prices need to go up, they are afraid to take action.
They are too worried about losing market share and alienating the intermediaries who sell their policies.
In my view, the legal expenses market needs to address this issue urgently.
We need to recognise that this problem needs tackling on several fronts. Firstly, a relatively small rise from the more responsible providers would make a real difference.
Secondly, we must also do more to raise awareness of the value this cover provides - although claims are rising, there are still plenty of people who do not understand what they are buying or what they are covered for.
Household legal expenses is provided at a net rate - in a typical example, the net price is around £4. A broker will then usually sell a policy for up to £20.
Some will charge the customer more, but more often, they will try to buy the product at an even cheaper price from the insurer.
A few months ago, we sought to secure a small increase on a scheme which was losing money, but the broker went out to market and they eventually managed to place the risk for less than half of our technical rate.
We are in a competitive market, but pricing like this is frankly irresponsible. While we all know the insurance market is cyclical, legal expenses is stagnant when it comes to pricing and if insurers fail to take action we will either see casualties or sudden and extreme price hikes. The end result will be consumer detriment and a rash of bad publicity which will do us all harm.
There is no doubt that in the past, many bought a legal expenses policy, only to forget about it. Insurers did little to raise awareness because this would have increased the likelihood of claims. Times have changed and now many more people are aware they have cover.
As a result of the Sarwar v Alam case, lawyers are required to find out if the claimant has before-the-event cover in place first, before recommending an after-the-event policy which is far more costly.
The benefits of household legal expenses cover have also spread through word of mouth. Thousands of customers recommend the legal helplines to which they are given access. Anyone who has tried to see a volunteer or even make an appointment, at the over-stretched Citizens Advice Bureau network will know how great the pressure is for affordable advice.
But, a policyholder can pick up the phone to their legal expenses insurer's helpline free of charge, 24 hours a day, seven days a week. They know they will be speaking to someone qualified and often, if it is a specialist area, a professional will be sought who will call them back within the hour.
Even for the most straightforward advice, a high street solicitor may charge in the region of £150 an hour. If cover is in place, Allianz Cornhill Legal Protection grants access to an approved panel solicitor from day one of the claim being approved.
We need to look closely at what is pushing up the costs for insurers. It is easy to think that all too often, claims are silly disputes between neighbours over leylandii bushes.
Cover for wrangles over property and other disputes are included, but of real concern is the growing number of employment cases often resulting in tribunals.
Claiming for personal injury is increasingly common too - a typical policy will cover up to £50,000 in legal costs - and all for a premium of £20 or less. Let's not forget that the carrier can face personal injury claims on a policy that they potentially sold for less than £2 - surely anyone can see this is foolhardy.
The rise in clinical negligence claims is not only costing the NHS dear - these claims can also be funded by legal expenses insurers, where around £25,000 of legal fees will often be included in a policy.
Other elements of a policy will include cover for consumer contracts and within many policies, 24 hour helplines for matters such as stress or emergency help at home.
As far as consumers are concerned, we also need to get the message across that some policies - Allianz Cornhill Legal Protection has one - also offer cover for mediation.
This means disputes can often be sorted without recourse to litigation and that policyholders have access to highly experienced mediators.
Dealing with the soft market and improving risk management is the number one priority for many insurers at the moment. We are facing huge pressure on costs and yet across the market, we keep on seeing a downward spiral of legal expenses insurance pricing.
We can make sure that claims are managed as efficiently as possible. Our in-house teams need sound filtering mechanisms so that we can quickly turn away clients who bring vexatious or ineligible claims.
For genuine claimants, we must work with quality legal panels that have high levels of expertise and proven reputations for effective and prompt settlements.
But underlying all this is the need for sound and sustainable pricing - and this is no longer something that can just be talked about behind closed doors.
'David Vine is business development manager for Allianz Cornhill Legal Protection