2010 review: A year of living cautiously

The Jackson Report kicked off the year with the call for the ban of referral fees causing a harsh reaction from Paul Asplin, chief executive officer at DAS, who called Jackson's Review of civil litigation costs "muddled" and "contradictory".

Many insurers welcomed the proposals because it will take many costs out of the system for them. It remains to be seen what appetite the coalition has for introducing the measures; the government is waiting for the Legal Services Board to make a decision first. Lord Young's report on health and safety in October backed up Jackson's recommendations including the end to the recoverability of conditional fee agreement success fees and after the event insurance premiums. The consultation on proposals for reform of civil litigation funding and costs in England and Wales closes on 14 February 2011.

Economic ship
It appeared the policies of the Labour government helped steady the economy, before it lost the election. The lack of a Tory majority paved the way for the first coalition government since World War II. The Liberal Democrats' leader Nick Clegg became deputy Prime Minister and quickly changed his mind over the pace of public sector cuts, citing Greece as a warning.

Chancellor George Osborne promptly confirmed his plans to reduce the budget deficit with the Emergency Budget in June, and announced plans for VAT to increase to 20% in 2011 and for the main rate of insurance premium tax to increase to 6%. In the Spending Review, 500,000 public sector services were put at risk as Osborne set out plans to eliminate the structural deficit. Unfortunately, flood spending was cut by £150m over the next three years. The Chancellor also confirmed that the Financial Services Authority will be scrapped in 2012 (see p.14 and p.30).

Insurers and brokers have been helped by an increase in personal lines rates but as ever commercial rates have been stagnant and have failed to take off. RBS revealed some troublesome 2009 results with a large spike in claims' figures and its sister group NIG pulled out of personal lines altogether revealing a horrible COR number.

As Zurich lost volume by increasing motor rates by 20%, others increased their prices; LV increased prices but undercut many players, meaning it greatly expanded its premium and policy numbers.

Quinn went into administration in Ireland and pulled out of the commercial market in the UK, with the main effect being disappointed clients as they soon realised that they had been underpaying compared to the rest of the market.

Although the economy actually grew, many brokers are still feeling the effects of recession: when I ventured to Ipswich in September to meet Tim Ryan, managing director at Ryan Insurance, he revealed his largest client had gone into administration only a few weeks before.

Signs of life included a Q3 PricewaterhouseCoopers and CBI survey showing profitability, hiring and commissions had grown at their fastest rate since March 2009.

Although Mark Cliff, managing director, Ageas is rather downbeat. He told PB: "It is a big issue; nobody feels we are out of a recession. Brokers' clients' businesses are shrinking and the impact of the economic environment means there is less cashflow. Furthermore, the impact of the actions of the government are still coming through."

Unfortunately the commercial lines ratings environment is a continued hindrance to brokers.

The PB Sentiment Surveys showed a dip in brokers' belief that rates were going to move any time soon, with the October survey revealing growing frustration over price differentials between new and renewal business.

Nick Houghton, managing director, Broker Network, said: "Given the pressure on insurers' CORs you would expect rates to increase, but they have been unable to execute the strategies that could put their rates up. This has been the lowlight of the year." Houghton feels the economic environment has helped his business as more brokers seek the comfort and backing of a larger group.

Eric Galbraith, chief executive of the British Insurance Brokers' Association, told PB: "Brokers shouldn't get paranoid about the market. There appears to be plenty of capacity and it will be soft for some time." He also warned that a hardening rating environment would also prove challenging for brokers in such tough times.

He feels his organisation has managed to fight the regulatory corner, and says the controversy over fees to the Financial Services Compensation Scheme is at the top of his priorities but due to a delayed consultation period, brokers should be prepared for more short term pain in 2011.

The FSCS fees were extremely high this year, with some rising as much as eight fold compared to 2009. The bills were a result of several high profile companies going bust which had been caught mis-selling payment protection insurance; although they fell within the wide ranging intermediary category, most GI brokers do not sell the product.

As a result brokers have been writing to the FSA and FSCS in their droves, demanding GI brokers be given a separate grouping. A review is underway.

The consolidation train has been slowing down in recent years but NPA's purchase of Noyce Livett, Ageas's £215m outlay on Kwik Fit and the growing empire of Cullum Capital Ventures (now £300m gross written premium) shows there is still appetite out there.

As Allianz announced some mixed Q3 results, Andrew Torrance bemoaned some of his rivals, accusing them of being "naïve at the levels of profit they could derive from their growing portfolios" and calling for a commercial rates rise of 5% in 2011.

Meanwhile, enjoy Christmas and let us hope that the economy keeps growing in 2011 and that insurers can work out how they can move the market in the right direction so everybody in the sector can benefit. With the Irish economy on the brink, it could be the catalyst for some sanity to return to the commercial lines market.