Letters

Zurich, are you listening?
This is an open letter to Zurich Insurance (and, unfortunately, most other insurers).

Although I do not purport to speak on behalf of my broker colleagues, we must all be extremely tired of being fed a diet of sanctimonious, disingenuous claptrap by insurance companies.

Do you really expect professional people to be taken in by the usual patronising nonsense that is designed, in a rather transparent (to use one of your own words) way, to cover up your own shortcomings for which we are being asked to pay by means of reduced commissions.

Your letter of 23 January [Insurance Times reported on this story on 24 January] makes the same wearisome reading as always, but I would pick out a few specific points as follows.

The reasons given for pressure on employers' liability (EL) premiums is fair enough I suppose, although I do not see the need to automatically link that to commissions, which are already very low for this class of business. However, it is very difficult to understand how reducing my remuneration also has the effect of reducing my costs.

I would, of course, dearly love to reduce my costs, but I do not have a soft target like commissions to achieve this. The nearest equivalent in my office is staff salaries, but, fairly obviously, cutting salaries is not that conducive to a happy and productive working environment. Obvious perhaps, but strained relationships do not seem to be a factor as far as insurers are concerned.

I have realised that anything other than short term is an alien concept to insurance companies, but it must be blindingly apparent that reducing a broker's income while at the same time increasing the expense of servicing clients' business as a result of deteriorating service from the insurers is hardly likely to engender uncontrolled delirium.

Moving on, I am told the new minimum premiums `reflect the true cost of transaction for each product'. If this is actually true, I would like to apply for a job, as your salaries must be very high. You are right in saying that you need to be more transparent - by the way, how on earth can we be more transparent? - but how do you propose to explain away such high minimum premiums? Naturally, there is a transaction cost, but surely this can be reasonably clearly defined and is the cost of dealing with a policy covering EL (if such a thing now exists) any more than dealing with a public liability (PL) policy? We are not talking about claims here; if you need more money for the risk, rate accordingly and stand firm in the market.

It appears that the true cost of transacting a material damage policy is £1,000, but a commercial combined policy is £1,750 with the individual section minimums still applying. Is it the case that a multi-section policy is that much more to set up anyway, but if the cost of each section, which goes into most combined policies - material damage, business interruption, money, EL and PL - is added up it comes to £3,150. This therefore is the true minimum premium.

The truth is, and always has been, that insurance companies are inefficient organisations that do not bother to look far beyond commission when wishing to reduce overheads. Strangely, they also still persist in the belief that they know more about running our businesses than we do.

From a public relations perspective insurance companies are an unmitigated disaster, but, ironically, an opportunity presents itself to improve matters in this respect once the rate increases have been pushed through over the rest of the year and policyholders have reconciled themselves to the new premium levels. Hopefully we will then begin to see consistent and reasonable pricing, but for brokers to be able to provide a decent service with a high level of expertise and cope with the inevitable costs of regulation by the FSA it is essential that we are adequately remunerated. It will certainly not help the public's perception of us all if we are unable to give this service due to a lack of properly qualified staff. Sadly, I am sure that the opportunity will be missed and it will not be long before some underwriters will start to cut premiums again. Plus ça change...

I am now going to have a lie down, or I would if I could afford to.

Paul Penrose
Managing director
Abbey Associates

Lloyd's by any other Name
As a resigned (read trapped) Name at Lloyd's, former members' agent and now a director of a software company supplying software to the Lloyd's market, I feel able to comment on the Bain proposals.

Lloyd's exists to write insurance business and produce adequate returns to its capital providers. It needs to write profitable business over a long enough period to encourage the investors stay put.

Corporate capital at Lloyd's has been shown to be fickle and unreliable. Worse still, foreign corporate capital based syndicates at Lloyd's have been among the worst performers and have dragged down the whole market's performance as a result.

Many Names have stayed put, despite having been put through the most severe financial and emotional distress. The Names that are left behind are there with their eyes wide open to the dangers of unlimited liability and are advised by a much more professional, select number of members' agents, whose advice has consistently produced materially better returns for their members than the wholly-corporate backed syndicates.

A market of £12.2bn capacity can be a very profitable marketplace in which to invest, but only if the underwriting quality is sufficiently good. So why does Lloyd's feel it necessary to kick its most loyal backers (Names) in the teeth and appeal unreservedly to the fair-weather natured corporate capital providers?

Where, in my view, has Lloyd's gone wrong with the Bain proposals? It is clearly lobbying foreign corporate capital and undeniably forcing Names (and their members' agents) out.

By so doing, it is killing what Lloyd's is all about and making it just like any other Bermuda-based insurance company, but with a higher cost base. Nothing it is proposing raises underwriting standards and therefore profits.

It has taken no measures to cut costs and make the market more competitive - in fact the opposite will be true, at least in the next five years, with the costs of buying out Names and the costs of transition to the `new regime'.

Abolishing the annual venture and three-year accounting does nothing to increase underwriting profit - the cost of these structures is immaterial when compared with the impact of underwriting quality on profits.

It risks a very public row between Names and corporates.

The Council could face total humiliation if the vote goes against the Bain proposals.

I was hoping Lloyd's would propose measures that would increase profitability by encouraging higher underwriting quality and lower costs.

I see little of either in the Bain proposals as currently disclosed.

Jonathan R W Ling
Finance director
Whitespace Software

Letter of the week

Stormy weather
Given that there was plenty of warning given about the hostile weather of Monday 28 January, I wonder whether insurers feel happy about bailing out those lorry driving firms, who appear to have failed to take note of the warnings and subsequently ended up on their backsides. Just a point.

Jim Dale
Senior meteorologist
British Weather Services