Airmic CEO says claims disputes are ‘market failure’

Taking part in our European Risk Frontiers survey, Mr Hurrell said the entire risk transfer community-insurers, brokers and buyers-needs to work harder to ensure that policies work, claims are paid and cover is issued from day one of inception. Richard Taylor, Managing Director UK and Ireland at European Risk Frontiers sponsor HDI-Gerling, said part of the problem is that broker and insurer margins are being squeezed in the long-running soft market. The majority of buyers are simply not paying sufficient premium to cover the costs of services, including claims, and, as a result, 'something has to give', he said. Mr Hurrell also used the platform to warn that the very measures designed to protect policyholders are stunting innovation in the insurance market.hide"A specific example of the service gap that I think our members talk about is efficacy-ie does the policy do what is was intended to do," explained Mr Hurrell. "The results of our member survey this year were the same as last year. In excess of 30% said they had had a major claim problem in the last two years. For professional buyers that understand what they are doing and the clout that our members have got and the quality of insurers and brokers that they are advised and insured by this is an unacceptable failure rate. Basically it is market failure," he said. Airmic has held discussions with loss adjusters that deal with claims problems to ascertain what percentage could have been avoided or resolved if the policy had been placed correctly in the first place. The answer is around 90%. "So a lot of what Airmic has been doing in terms of efficacy and renewal timeline has been around how do we reduce the failure rate in the market place. I think everyone needs to do more. Brokers need to do more. Our members need to do more. Insurers are probably the least guilty of the three groups involved in placement because they are under instructions from brokers. But I think the whole community needs to ensure that the policy works," explained Mr Hurrell. He said there is often disbelief at CFO level that claims problems arise because of something they have never heard of such as basis clauses or warranties. "The entire community, and brokers are at the top of the value chain in this regard, needs to do more to ensure policies work and that there is a physical policy issued on day one of cover," urged the Airmic CEO. HDI-Gerling's Mr Taylor said that insurers and brokers are working hard to provide services, including claims, and cover that clients need. However, he warned that currently they are under pressure to deliver on this front because they are unable to secure sufficient premium from most clients to cover these costs. "We are in a market with average price reductions year on year of circa 10%. Broking house fees have been cut to the bone. Secondly, our margins are being absolutely squeezed with increased claims costs. We don't expect to make huge margins in large corporate insurance business but if you squeeze profit out of the market something will have to give," he said. "So it is all about relationships, understanding the client and the client paying a reasonable price for our services and risk transfer. At the moment I would say that for the majority of clients we are not receiving sufficient premium to cover these costs," he added. Mr Hurrell is sympathetic to this argument. He pointed out that Airmic has said on the record that buyers should be prepared to pay more for better coverage and contract certainty for business critical insurance. "Buyers should be prepared to pay more for a more secure insurance programme with wider cover in key areas," he said. Joining in the debate during the UK roundtable that forms part of our European Risk Frontiers survey, John Ludlow, a risk consultant and first deputy chairman at Airmic, pointed out that buyers ideally want their general liability claims paid within five days. He said that risk managers would be prepared to pay more premium for that to occur. Mr Hurrell went on to explain that regulation introduced to protect policyholders is stifling much needed innovation amongst insurers. He cited Solvency II and competition rules as key examples. "The very things that have been set up to protect customers are some of the main things getting in the way of innovation, which to be successful, needs to be developed across the market. The security of insurers and competition rules, which are both supposed to be customer friendly, are getting in the way of innovation," said the Airmic CEO. Solvency II means that insurers need to put aside huge amounts of capital to take on new and emerging risks with no or little historical data. Competition rules restrict insurers' ability to work together to deliver the market-wide response that such risks demand. "We at Airmic had a discussion about developing some thoughts on business interruption and we had more than one insurer in the room. Every time we got to a point where it sounded like the market cooperating, which from a client point of view is exactly what we need, the insurers said they have competition issues. Insurers say ten or fifteen years ago they would have been very happy to have had this conversation and develop a market response, but today they can't over fears of being anti-competitive," explained Mr Hurrell. He noted that brokers don't have the same restrictions and 'live and die to a degree' by their ability to innovate. "But in the end risk transfer on a meaningful scale for our members has to be a market response as opposed to an individual product coming out from one insurer," he added.

Airmic CEO says claims disputes are ‘market failure’

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