Ripples of concern

As the days become shorter and the evenings grow darker, memories begin to fade of the wet summer and the sight of cars gracing parts of the Cornish scenery that even the most adventurous 4x4 driver would hesitate to visit.

It is rare indeed for water to overshadow events in the motor insurance market but it has been that sort of year.

Experienced journalists have found it difficult to whip up any media frenzy over the state of the market, finding little or no evidence of any significant rating action.

That is not to say that there has been no action. The motor rates roller coaster has been ever present, it has just been operating within much narrower confines than usual - there have certainly been no gravity-defying turns so far this year.

It is highly unusual for our market to display such levels of maturity at this stage in the cycle. It does seem that the market is holding its collective nerve and a more disciplined approach to underwriting may yet see the industry achieve the soft landing it desires.

Recent ripples of concern over motor-cycle rates have, hopefully, been a minor and brief blot on the landscape. Now is not the time for the market to lose its nerve.

The following quote encapsulates the dilemma: "The conventional view is that, in these circumstances, we will soon see a downturn in the insurance cycle - the good conditions encourage companies to cut prices to attract bigger market share. This leads to poor underwriting strategies, accumulation of losses, withdrawal from markets, a sharp increase in premiums and away we go again."

As familiar as these words sound, it may come as a surprise to know that they are, in fact, those of Mike Wilkins, president of the Insurance Council of Australia, speaking at the recent ICA Conference in Canberra.

It is hoped that the confidence in the UK market is not misplaced and that others remain mindful of the all-too-familiar scenario quoted.

I doubt that many of those who have tussled with compliance issues this year have realised as yet that the nights are drawing in - they must be used to going home in the dark by now.

The arrival of a minded-to-authorise letter was, I am sure, welcomed by many brokers up and down the country.

Cooling off

And the Financial Services Authority handbook Insurance: Conduct of Business has been essential reading for many of us. However, I am still not sure how 'cooling off' can be mixed with compulsory liability. It sounds like a great opportunity to obtain an insurance document that permits you to tax your vehicle, which you can then return and get most - if not all - of your money back for.

But, we have cooling off along with the need to ensure that policyholders are notified of renewal terms at least 21 days in advance of renewal date.

For some weeks the market waited in anticipation of the publication of the Greenaway Report on Uninsured Driving. The report makes for interesting reading and, undoubtedly, contains some very sensible and solid recommendations.

Having said that, it is all too clear that insurers cannot cure the ills by themselves and it is vital that government engages actively in the process to move the recommendations forward.

Motor Insurance Database

A big question mark hangs over the proposal that calls for real-time data transfer to the Motor Insurance Database. This has major implications for the market, particularly for those insurers trading in the broker market and, potentially, for brokers themselves.

Implementing the Greenaway recommendations should result in tangible and measurable benefits. In this respect the report is rather quiet.

Insurers seem to have been the perennial 'whipping boys' as far as uninsured motoring is concerned. The Greenaway Report offers the industry the opportunity to stand up and be counted on this subject but, as mentioned, there is little hope of it achieving everything the report calls for without assistance from other quarters.

Even before publication, insurers were grappling with the need to improve both the quality and timeliness of data being passed to the MID.

For many insurers, the tougher January 2005 MID requirements have proved challenging and it is clear that the market still has much to do here in the relatively short time period left before the requirements become reality.

It is probably fair to say that, if the MID was ever to fulfil its destiny as a reliable and up-to-date data bank of active insurance policies, data capture methods were going to have to change along with the processes that generate the data. It is for this reason that the motor insurance renewal process has been under the spotlight recently.

Over time, the renewal process has become cloudy and insurers have allowed the insurance-buying public to be far too casual about ensuring that continuous insurance cover is in force. I have no doubt that the existence of the now-famous 'days of grace' wording on renewal invitations has been a major influence here.

However, this is fraught as days of grace is not a particularly accurate description. There are no - and never have been - any days of grace at renewal. To bring greater clarity to this subject, more and more insurers are removing the misleading wording from their renewal invitations. There is an expectation that brokers will amend their own customer documentation and working practices to drive home the message to policyholders that the renewal premium must be tendered before the next period of cover is scheduled to commence.

Linked to this has been the move towards automating the renewal and lapsing processes on broker administration systems. Systems are now being changed to automatically generate an electronic lapsing message if there has been no renewal activity within a certain number of days after the renewal date.

I am sure that brokers will have found it both disappointing and confusing that there has been no uniform market view of how many days should pass before the lapsing message is triggered. Unfortunately, there appears to be a fine line between the adoption of common practices and breaching the Competition Act.

So what of the future as far as rates are concerned? As always, there appear to be some very solid reasons why they can be reasonably expected to go up.

Before the end of the year, both The Courts Act 2003 and the updated Ogden Tables Version 5 should have appeared.

The Courts Act does, of course, introduce the concept of periodical payments that will replace lump-sum settlements in cases where it is felt that payment by instalments is more appropriate. If the past is anything to go by, it would appear likely that both these developments will only serve to move claims settlements in an upwards direction.

Further down the line is the possible, and increasingly likely, disappearance of reinsurance cover for unlimited liability risks. As there is no sign of any desire on the part of government to redraft the Road Traffic Act, there is the clear potential for a significant gap opening up between the cover that an insurer has to provide and the cover it can obtain in the reinsurance market.

At the moment insurers are watching, with a significant degree of nervousness, developments in relation to the proposed EU Gender Directive, which has the potential to bar the use of gender as a rating factor. Despite the weight of evidence that exists to justify the use of gender in rating, it certainly looks as though the debate will go to the wire before the outcome is known.

As is always the case when rating activity is muted, the insurance-buying public becomes less inclined to shop around. This tends to lead to insurance providers dusting down their marketing plans and topping up their marketing budgets with the aim of encouraging telephone and internet enquiries.

It is inevitable that most of this increased marketing activity focuses on the premium aspect with the word 'cheaper' surely being the most used word in the motor insurance lexicon.

This year is no different than any other in that there has been the usual assortment of customer surveys, which point to service and product content being important factors that customers look for when making a motor insurance purchase. Sadly, when it comes to physically making the purchase, the emotion of the wallet appears to overwhelm that of the heart and head.

The year so far has also seen the traditional appearance of a number of new affinity and 'brand' motor insurance operations.

Most of these appear to have moved out of the starting blocks by using the pledge of premium savings. It is, however, fascinating that these new ventures can offer savings over other schemes that are already promising substantial savings themselves. This fascination is heightened when it emerges that it is the same insurer providing the underwriting capacity.

Despite this activity, it is pleasing to see many long-standing broking operations appearing in the various minded-to-authorise listings that are in circulation.

Strengthening broker market

The predicted demise of the broker market was clearly way off beam and will, hopefully, emerge ever stronger from the intense period of activity leading up to the start of the new FSA environment in mid January 2005.

That is not to say that that life has been easy and we all hope that calmer waters lie ahead. On the contrary; for certain parts of the broking sector, times have been very tough and conditions will remain stormy for some time yet.

This is particularly the case in the motor market but, even here, brokers have shown an incredible degree of resilience.

Despite the obvious emphasis on price that pervades motor insurance it is clear there is still a demand - hopefully, an increasing one - for local, expert and independent advice, particularly from that section of the buying public whose insurance needs do not fit snugly into the mass market offerings.

Surviving both General Insurance Standards Council and FSA regulatory processes must surely be a sign that brokers continue to mean business.

I certainly hope so.