From motor to flooding, the OFT investigation to the fall-out from last summer’s riots, insurance doesn’t look like straying far from the headlines in 2012

Flooded road

The last 12 months has seen an intense political focus on insurance. It looks like 2012 will be no different as the controversy over motor insurance looks set to be spurred on by the Office of Fair Trading’s ongoing investigation (see below) into the topic.

But the focus of the debate is likely to shift to flooding over the next few months as the June 2013 expiry of the Statement of Principles agreement approaches. We look at the major policy challenges for the insurance industry over the next 12 months.


Just before Christmas, the government sneaked out a long-awaited announcement on how its plans to deal with insuring flood plain areas after next year when the Statement of Principles agreement expires.

Flood minister Richard Benyon told the House of Commons that the government’s focus was on preventing flood risks rather than subsidising premiums.

Given the wider constraints on government spending, ministers said they would continue talks with the industry on the issue, but a stand-off between the two becomes more likely the longer that the issue is unresolved.

Office of Fair Trading investigation

The Office of Fair Trading has instigated the second stage of its wide-ranging investigation into the motor insurance industry.

For the industry, the good news is that the watchdog will be focusing on its ‘ bête noire’ – credit hire companies and legal expenses providers. However the OFT’s decision to probe insurers’ third party vehicle repair arrangements could be an uncomfortable experience for the industry.

Health and safety  

One of prime minister David Cameron’s first acts in the New Year was to announce the latest stage in his drive to clamp down on the so-called “compensation culture”.

In a speech to small businesses in Berkshire, the prime minister said that he had summoned insurance bosses into No 10 Downing Street to ask them whether they are requiring businesses to exceed health and safety law requirements when securing insurance cover. For Cameron, tackling the health and safety issue is a good way of appeasing his hard-line backbenchers.

Jackson Review

The government’s Justice Bill, which implements the bulk of the 2009 Jackson Review, has reached the House of Lords, where it is expected to get a rougher ride than it did in the House of Commons.

A debate before Christmas gave the government a taste of the hostile reception that its proposals, including the mooted referral fee ban, are likely to encounter in the upper House. With the Lords generally in a mutinous mood, the legislation is unlikely to emerge unscathed.

The main issue for the industry is whether or not opponents of the bill will focus on the civil litigation cost elements of the legislation.

Financial services compensation scheme

The next few months will see the launch of the postponed review of the way the Financial Services Compensation Scheme is funded. The review will look at whether the scheme’s existing cross-subsidy of different types of financial services businesses by one another will continue.

Much will depend on the European Commission’s review of its Insurance Mediation Directive, which provides an umbrella for financial service compensation schemes across the EU, and whether it opts for post or pre-funding arrangements.


The insurance industry was harshly criticised, unjustly it felt, for its response to last August’s riots by the government panel set up to look into the disturbances. The panel has published its draft report and is due to produce its final report in the spring.

The industry is hoping that the group of the great and good will take a kinder approach when they do.