Advisory board
John Parker, ABI Gavin Buckley, Aon Andy Cook, Insurance Times, chair Kerry Costello, Groupama Alison Douglas, Cox Insurance Julian Edwards, MCE Clair Hayward, Allianz Cornhill Simon Lockwood, Norwich Union David Curry, MillerJohn Parker:The insurance cycle has been very damaging for insurers, they haven't made a reasonable return on capital. It affects the image and the way that customers see the industry, because what they get can vary so much from year to year. It's quite hard to explain to people why they had an X premium last year and two or three times X this year. So I guess the key thing is: can the industry learn lessons from the past?If you talk to chief executives, they'll say that there are two things that are different, one is the risk-based regulations coming in from the FSA, which means that there's much more rigour about the amount of capital that is deployed to support certain lines of business. Some people think that's going to have quite a marked effect on pricing and at what benchmark price insurers are going to write risks. The other difference is the message being sent to shareholders about return on capital. Those may be factors that are changing things, but there do seem to be signs that in some areas rates are softening. The question is how much are they going to soften and are we going to get into the cut-throat competition we saw a few years ago. That's the single biggest challenge to the industry, because it has a direct knock-on effect on its image as well. Not only do customers see things changing over time, but if you haven't priced properly for risk, then there can be tendencies that when times get difficult, to say we're not going to provide cover any more. That's one of the things that the Treasury sees as characterising the industry - when times get tough the the industry folds up the umbrella.
David Curry: What steps can the ABI take to prevent the reoccurrence of an insurer collapse? Because there's nothing more damaging than that to the image of the industry.
Parker: We can't do anything. We're representing the interests of the industry. Insurer collapses are about how the system of regulation works. But you're right, things like the collapse of Independent, and not just the collapse but what Independent was doing in the market, had a huge impact. But if regulation is going to mean anything it will mean that failures like that should be minimised. The FSA is very clear, it says it's not about a 'no failure' regime. There has to be some risk there, but one would hope that the FSA regime would mean that you don't get things like Independent.
Andy Cook: As a follow up to that, the National Federation of Roofing Contractors is a trade body in the construction industry. It would have to prove certain competencies, which actually mean something if its logo is displayed on a van, for example. So perhaps being a member of the ABI should mean something about security and solidity. Do you have a kind of qualifying criteria?
Parker: You need to be an authorised insurer in the EU. That's the difference between insurance and, say, roofing contractors. Roofing contractors don't have to be regulated, whereas an insurer has be authorised by one of the national regulators, so the hurdle is pretty high. Certainly, if you talk to some of our smaller members and one of the reasons they join the ABI is because they think it gives them credibility.
Julian Edwards: Probably a decade ago, most of our policies used to leave our offices with a fact sheet about the ABI. We used to sell that as part of the security of the policy, an ABI insurer, member. But that seems to have lost its way, that's now not particularly important to members.
Parker: In the past, the ABI had a rather more quasi-regulatory role. For instance, until a few years ago you had the regime with the ABI selling code. It's right that trade associations shouldn't really have that regulatory role. We do put out codes of practices, but it's very difficult for a trade association to be regulated.
Cook: Just before we leave this subject. What's the ABI view on insurers writing business into the UK from other European countries?
Parker: Well our view is that things need to be on a level playing field and that the government has responsibility for the FSA and the Financial Services Commission in Gibraltar. There is a review under way at the moment of how they go about things. We've certainly fed stuff into them.
Clair Hayward: What does the ABI do to enhance the positive image of our industry?
Parker: Ten thousand claims were paid today. Isn't that great news? Who would bother reading that. It is only when things go wrong that naturally there tends to be media attention. I vividly remember having a session with ABI staff, when we invited three or four journalists in to talk about how they saw the industry. A Guardian journalist said: "You realise that we have a really important role in keeping everyone honest." I suddenly thought, yes, this is right. The industry, and even the ABI, reacts quite adversely to negative comment, but isn't it a good thing for us all because it does mean that there is a kind of informal scrutiny. If you can't do things that really stand up to public scrutiny, well then maybe you shouldn't be doing them.The classic incidence of this was employers' liability, where what we had to start with was a lot of comment, including some, for instance, from Biba, that firms couldn't get cover, that firms were going out of business, that this was all a horrendous mess. What we did was, over a period of several months, we just consistently talked to journalists. And providing you're talking sense and you're talking the truth - because if you're not talking the truth, you get found out - you do begin to change the media.And what was very noticeable was that over time the kind of coverage in the media switched from "This is all bloody insurers causing this problem" to "Well, this is about the cost of compensation in society, and actually that's the sort of thing that's been driving up premiums."And the other biggest issue we've had over the last few years was flooding. And again there, with sustained effort, what we said was actually "We want to play our part in this, but this is not just about insurers, this is about making sure that there's proper expenditure, that properties are defended" and we put a huge amount of effort in, both with the press, going down to places like Lewes. You have to be careful not to be some sort of ivory tower in London.
Cook: I'd just pick on one part of that, is that if you compare how the general insurance industry is treated compared to the life and pensions part of the industry, we're whiter than white. Things do flare up and it's then just how they're handled. And John's right, it's even on the government agenda now about compensation culture. So things have turned round. I suppose the thing is that in the national press it takes such a long time to turn around, whereas with us, as long as people are honest, I can phone John up and say "Hey, what's going on here?" and he can say to me "Well this is how it works". Because we've got the background knowledge, we can take that and use it and try and explain properly, but it just takes a while for the nationals to come round. Then it just becomes a matter of the ABI or whoever managing that relationship so that they're briefed, and getting the time of the national journalists is very precious. National journalists could be covering at least 150 different companies in over three sectors. So it is quite difficult.
Parker: There's uninsured driving, where we put a lot of effort into saying uninsured driving is a real problem. We did some research which showed that people who drive without insurance also tend to commit other motoring offences. This is something that is not just an insurance problem but a problem for society. And the press picked up on that. There was a real resonance with people saying: "Actually this is the insurance industry flagging up a problem and being seen to do something about it in a way which is responsible."
Kerry Costello: What became of the ABI's media research project last year?
Parker: We appointed some PR consultants to talk to people about the image of the industry. That showed that there are some issues about the image of the industry.What came out was that over the last few years there has been a tendency for the industry to pull cover when there are problems. The withdrawal of cover for airlines the week after 9/11 really annoyed the Treasury. Okay, the IUA and Lloyd's sorted something out with the government, but the thing that the Treasury hates more than anything else is suddenly for government to have to become an insurer. It doesn't see that as its role. So that coloured the view. Reinsurers have a tendency of not seeing how their exclusions play with customers, the image of the industry and with government. The other thing is communicating better some of the value that the industry brings. We've been a bit reticent and a bit introverted. This is an important industry and it underpins people's lives, it underpins the lives of businesses. So let's be a bit better at communicating the value that insurance brings in the UK.
Andy Cook: That's a perfect example of what happened in the recent factory fire in Glasgow. Marsh, GAB and your guys have been all over that site trying to sort the claims out, trying to make sure that the company survives and that injured people are looked after. But insurance companies and the loss adjusters and brokers never really shout about it. They don't want to be associated with disaster. But then again that's where they are doing some of their best work.
John Parker: One of the things that really stuck with me during last year's flooding was that Royal & SunAlliance invited a reporter to go round with one of their adjusters looking at how they were handling claims. It was such a good piece because it was saying things like: "Look, no bureaucracy. You need re-housing, we'll pick it up. Do you want a caravan?"
Edwards: Talking about the image of the industry and listening to what your objectives are, there's no doubt in my mind you do have an influence over the government. Are you interested in promoting a youthful vibrant image of that sector and what will you be doing about it?
John Parker: That sort of question really falls a bit between the CII and the ABI. I know it is something that CII rightly is concerned about. Is insurance seen as an attractive industry for graduates and so on? I would suspect it's not really.
Edwards: But do you see that as a responsibility of the CII?
Parker: Well, yes. We don't expressly get involved in issues to do with employment in the industry or professionally. Clearly we want to give the impression that the industry is a professional one.The range of things that trade associations do vary hugely. Insurance companies, by their nature, tend to be quite big institutions, so the kind of things that they need from their trade association are really quite different from other sectors,
Hayward: The next big thing is going to be about the softening of market, is there anything the ABI at the moment is doing to look at that?
Parker: Well in a sense softening of the market is good news at one level, but it's not good news for insurers' profitability. We're in a benign phase now, with rates gently tailing off, so for customers it's good news. But the last time the market hit the bottom there were insolvencies. So, again, you get another raft of bad news, but of a different kind. Because there isn't the heat around, we can put out messages about the good things the industry does. Now everyone here works in different parts of the industry, how do you feel about the industry image?
Edwards: It's professional. I thoroughly enjoy it. And with the FSA coming along to regulate us, it is going to give us the professionalism that many people want. Of course, there's the public perception, which is very different.
Curry: It's to do with education. If I say I'm an insurance broker, people start going into a tirade about life insurance, even though I'm a general insurance broker. The public's perception is that it is all one pot. It is a question of educating clients and members of the public about how the insurance cycle works, the soft market cycles, capacity problems and how things like 9/11 would affect someone who owns a shop in Bromley.
Parker: But is that shop-owner in Bromley actually interested?
Curry: Probably not.
Parker: That's a major problem. We can talk about educating people's perceptions, we can promote it as much as we want.
Costello:The ABI is very strong at lobbying the government, but it doesn't come out enough. It doesn't get seen even by people within our industry. So I think it is a bit of a hidden strength.
Parker: It's quite tricky that, because there are sometimes things we do that are quite big successes. But it's difficult to say: "We did this", because it can create difficulties for the government. For instance, in the case of employers' liability, the government has now picked up this idea that there needs to be a kind of national plan for vocational rehabilitation. This is great, because the industry's being saying we need to move forward on rehab for a long time. That basically came about because we sat down with some officials and said: "There needs to be a national plan." But you can't buoy that up too much because, from the government's point of view, it looks like they're influenced by the insurance industry.
Cook: David, what's your perception, when you see the name ABI, what sort of adjectives spring to mind?
Curry: Well very tight-lipped. I would say a silent giant. I don't hear enough. It could be more vocal in publications, in the press about all the good things that it is doing. Very strong organisation, but silent.
Hayward: I'd mirror what Dave said. What you've explained today is what I expected you would say about what the ABI did. It's what I thought the ABI did. I just don't see the evidence really. You've explained all the sort of circumstances around what you did with EL and what you've done with floods. If I look back I think well somebody must have got us to that process, but you just don't know who it is that's got you there. That would be my impression of the ABI.
Edwards: I spoke to a couple of colleagues, one of them is a senior team manager with us. He's 30 years old, has been with us for nine years, and his perception of the ABI is group rating for motorbikes - and that's his only perception of the ABI. My wife thought it had something to do with insurance, but that was about the extent of her knowledge.
Parker: That's one of the key difficulties with a trade association. Unless your members are signed up to something, there's nothing more damaging to credibility than saying: "Well of course the solution is this." All the chief executives then say: "What are you saying that for? We don't agree with that."I look at other organisations that have been quite public or always in the press, and one's the CBI, where Digby Jones has got a view on everything. But I don't think it has any credibility with the government. He's just a mouthpiece. Maybe we haven't got the balance completely right, but there is a trade-off between being a responsible commentator and being an irresponsible commentator.
