Gathering a head of steam

Imagine having to tell your motor insurance clients - fleet and personal - that the unlimited third-party personal injury cover they had always enjoyed was being taken away from them. You can imagine the reactions.

Plenty of comment along the lines of "how can you ask me to pay more for less". You could find yourself having these conversations as early as 2006.

There is a head of steam building among the major reinsurers to get the UK to place a cap on third-party liability after a series of massive claims in recent years. They argue that caps exist elsewhere in Europe, which is true. They also argue that unlimited liability cannot be accommodated by the Financial Services Authority's insistence that insurers manage their capital reserves more closely according to the risks they face.

The problem reinsurers face is that as logical as some of these arguments may appear in an insurance company boardroom they cut no ice elsewhere.

If unlimited liability is to be brought to an end, then the industry is going to have to win over government and MPs. This seems to be in the realms of wishful thinking, although the reinsurers have made a start by raising the issue with the All Party Parliamentary Insurance Group through the International Underwriting Association of London.

The big question for MPs, who would have to amend the Road Traffic Act to introduce a cap, is whether they should vote to dilute a consumer benefit that has existed for more than a century. Not a very attractive stance for a politician to take. The word from the Treasury, where reinsurers might expect to get a more sympathetic hearing to the financial case, is that they do not believe there is a problem. They want to see market failure before they will even contemplate this.

What we could see in the next couple of years is reinsurers refusing to reinsure on an unlimited liability basis, leaving the primary insurers with exposure to claims above £50m, for example. That would put the security of primary insurers into even sharper focus. Brokers would have to ask themselves the question every time they sell a motor policy - could this insurer afford to pay if there was another disaster on the scale of Selby?