Seven insurance leaders sat down with David Cameron last week to discuss lowering motor premiums in exchange for action on compensation fraud. It means risk for both sides, but can the prime minister bring about real change?

Insurance Summit

Click to jump to Insurance Times’s views on the summit.

As prime minister David Cameron sat down in the large Downing Street cabinet room for crunch talks over soaring motor premiums, insurance bosses sensed his anxiety.

Cameron had made a calculated gamble with his decision to play up the importance of bringing down motor premiums.

By allowing Downing Street spin doctors to brief the national press about the summit, he looked like a tough leader battling to bring down premiums for the man on the street, while also wrestling back the agenda from Jack Straw.

But Cameron knew he would also face accusations of restricting access to justice, as lawyers, robbed of their incentives, would presumably be less likely to take on ‘no win, no fee’ cases.

He needed something in return if he was to agree to bring down lawyers’ fees and make the approach to whiplash claims more stringent.

Could he trust the insurance industry to bring down premiums? For that matter, could insurers trust him to deliver reforms?

Calming Cameron’s fears

AXA chief executive Paul Evans says he sensed anxiety in the room, although it thawed as Cameron realised there was common ground.

“The only expectation on the government’s part was: ‘If we do this, you are going to reduce premiums, aren’t you?’ That was the only concern they had. They obviously don’t want to make a whole load of reform that one lobby group is going to say restricts access to justice. I’m absolutely certain that there will be
a very active legal lobby group. Cameron has to have certainty that premiums will fall.”

Cameron was keen to hear examples of the challenges insurers faced, especially on how claims costs have pushed up premiums.

Evans explained to him how premiums in Liverpool are higher than Edinburgh because of the greater prevalence for personal injury fraud.

“You can see how much we are charging in areas where we know personal injury fraud is the most prevalent. Therefore, we can give the government absolute certainty that in a very competitive marketplace premiums will fall if the personal injuries are removed,” Evans says he told the prime minister.

“He seemed to be enormously comforted by that, because he can’t afford the political risk of taking all this action and just seeing us make lots of money.”

Co-op director of general insurance David Neave agrees that Cameron was buoyed by examples from the industry. “The examples that the industry players gave and the unequivocal support from the consumer and business groups obviously resonated with the prime minister.”

His full attention

By all accounts, Cameron came across as impressive: quick, concise and with a keen grasp of the issues.

The industry chiefs attending were: AXA’s Paul Evans, Direct Line Group chief executive Paul Geddes; Aviva UK head Trevor Matthews; Zurich UK boss Stephen Lewis; Admiral chief operating officer David Stevens; Co-op’s head of general insurance, David Neave; and ABI director-general Otto Thoresen.

Some had doubts that Cameron could cover such a wide range of issues in an hour, but he rifled through the agenda with alacrity. Evans says: “I had thought: ‘Gosh, an hour is nothing.’ But after half an hour, we had covered nearly all the agenda. He was so focused.”

Neave was also impressed. “He was direct, challenging and focused on outcomes and solutions. I thought it was a positive, friendly and supportive discussion. There was a healthy dynamic.”

Tabled discussion at Downing Street


Compensation fraud

Besides the motor issue, easing the burden of red tape for businesses and tackling workplace compensation were also discussed.

Insurers are on their guard against rising fraud in employers’ liability and public liability claims.

The government recently agreed plans to extend employers’ liability and public liability claims through the road traffic accident portal. This is a user-friendly website where solicitors can put through personal injury claims for insurers to accept or reject liability.

McMillan says there was agreement that both the government and insurers would work to simplify health and safety for firms, but the courts needed to toughen up against vexatious claims.

“We have a view that one of the causes of red tape is European legislation and the way that has been interpreted in the courts. But there is no doubt if we can demystify it, between ourselves and the government, for SMEs in particular, I think that would be helpful. Both ourselves and the government are committed to doing that,” he says.

“If you look, the levels of repudiation are reasonably substantial in EL and PL. What we need, in reality, is a real change in the way the court views these claims. Certainly, what you see in other countries is that the burden of proof is on the claimant.”

Pushing through change

Cameron has promised big changes to whiplash, lawyers’ fees and the workplace regulation and compensation culture.

So will he deliver for insurers? Lawyers currently receive £1,200 fixed fees in RTA personal injury cases. Cameron should be able to lower that figure without legislation, although he will face fierce pressure from the legal lobby, and just how far he cuts the figure will be scrutinised heavily.

Then there’s whiplash reform. It is probably too late to tag it onto the Legal Aid Bill. Cameron may need to conjure up fresh legislation, and he faces a tough challenge in pushing it through before the next election, probably in 2014.

The hardest job will likely be to tackle health and safety in the workplace and vexatious claims. Cameron is unwilling to rock the applecart with the Liberal Democrats by clawing back health and safety regulation from Brussels in order to ease regulation and claims on businesses.

It’s not going to be easy, but there is a real sense that a promising pact was made at the Downing Street meeting to enact change.

McMillan says: “The feeling was that the prime minister has got the bit between his teeth and there was a real sense of purpose about it.

“I guess with these things, sometimes the devil is in the detail. The door is open on both sides, to get a good result for the customer and the industry.”

Reinsurers hit by PPOs

While insurers are getting to grips with rising bodily injury claims, they may face a new threat: rising prices and dwindling capacity for motor excess-
of-loss reinsurance.

Little fazes the multinational reinsurers, which have to pay out billions of pounds in claims. The world’s biggest reinsurer, Munich Re, has €23.3bn (£19.3bn) in shareholders’ equity and remained profitable in 2011, despite paying out €4.5bn in natural catastrophe claims.

But they are worried about the growing use of periodic payment orders (PPOs) to settle bodily injury claims. Munich Re told Insurance Times late last year that it was exercising more caution when writing UK motor business because of PPOs.

Reinsurers’ fears also have buyers concerned. In a recent interview with Insurance Times’s sister title Global Reinsurance, Esure chief executive Stuart Vann said his concern over reinsurance pricing was not the effect of nat cats but “the gradual creep of the effect of PPOs and costs of care that will begin to affect everyone in the motor market”.

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We say …

● The Downing Street agreement is an important landmark in controlling the cost of motor premiums. The UK is the whiplash capital of Europe and there is a huge amount of fraud. It needs to be brought under control.

● Insurers and brokers for their part need to start acting responsibly. A good start would be by not selling their claims databases to marketing and claims management firms to mine. Those that engage in it rightly risk damage to their reputations if and when they are exposed.

● The government faces a tough task in reforming the whiplash culture. A crucial element will be around fixed lawyers’ fees. The big question will be how far the fees come down.