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As the United Kingdom copes with an aging workforce, employers are becoming more aware of the needs of older workers – especially in terms of health and insurance. According to a 2012 Health of the Workplace report by insurance provider Aviva, 29 percent of UK employers have seen a rise in the average age of employees, and 37 percent expect this trend to continue. The report also found that employers are concerned about giving these older workers access to health care.

Although the United Kingdom has a free, universal health system for all citizens, some people choose to invest in private insurance. UK residents over 55, for example, often opt to purchase a separate health plan in order to cope with a chronic condition such as diabetes or heart disease. By using private insurance rather than relying on the National Health Service, a customer can enjoy shorter waiting times for treatments, schedule doctor appointments in a more timely fashion, and exercise more choice in finding a physician or hospital.

Some employers already offer workers private health insurance, as part of a workplace package to encourage higher caliber employees to join the company. A promise of private health insurance will be even more enticing to potential employees who bring much maturity, skills and experience, but due to their age, want a job that will provide a strong safety net in terms of health care benefits.

One reason for the increasingly older workforce in the UK has been the end of compulsory retirement. Before October 2011, employers could mandate that any workers 65 years of age or older leave the workplace. With the end of compulsory retirement, along with an unstable European economy, more and more employees in the UK are choosing to stay with their jobs past the age of sixty-five. These are exactly the workers to whom private medical insurance will often appeal.

Indeed, private insurance for employees can benefit their employers as well. The Aviva Health of the Workplace study found that 39 percent of employers surveyed had experienced workers unable to function at full capacity due to long waits for medical treatment. With private insurance, a shorter wait time to see a doctor or receive a treatment can mean a more functional employee. This situation is especially true for older workers. The chances of being diagnosed with a chronic disease increase with age, and the group UK Cancer Research has found that more than 50 percent of all cancers occur in people aged 50 to 70 years old.

In a report entitled, “An Aging Workforce: The Employer’s Perspective,” researchers from the Institute for Employment Studies also took a look at the issues surrounding an older workforce. The study points out that around one half of people who decide to retire early do so because of poor health. Many of these people may be managing a chronic illness or suffering from a musculoskeletal disorder; afflictions which can often be improved with access to better health care or a change in working conditions.

The Institute for Employment Studies also notes the need for better information about how employers can help their older employees deal with potential health issues. Older workers can often provide a valuable resource in terms of experience and tacit knowledge, but will often choose jobs that allow for more flexibility when a health problem arises. When employers are more aware of older workers’ needs, the company can run more smoothly.

The issue of an aging workforce in the United Kingdom is becoming especially pronounced thanks to a warning last year from Britain’s CIPD, also known as the world’s largest human resource association. CIPD (the Chartered Institute of Personnel and Development) has warned that although around 13.5 million jobs will be created during the next decade, a mere 7 million young people will be entering the workforce. What’s more, estimates from the UK government indicate that by 2020, 36 percent of workers in Great Britain will be 50 years of age or older. With a greater amount of older people in the workforce, and indeed a greater need for older people to stay in the workforce, the question of private medical insurance may become even more important to employers in the near future.

Classic television programs like Men Behaving Badly and Only Fools and Horses may give casual viewers the impression that British men do little more than drink beer, eat crisps and get into trouble with their girlfriends. Luckily, the state of manhood in the United Kingdom is not nearly so dire as all that. A recent study by UK Cancer Research, however, does indicate that when it comes to health, British men should not get too comfortable with their current lifestyle choices. Read more

Hong Kong’s economic development over the last few decades has led to improved measures for dealing with natural disasters. With the installation of the Hong Kong Observatory in 1883, early storm warnings and procedures were gradually established to handle the region’s seasonal typhoons. The numbered Signal System, ‘T1, T3, T8 & T10’, promoted public awareness of typhoons and arranged a platform to notify residents of each storm’s potential severity. (When T8 is hoisted workers are released and encouraged to go home.) Now Hong Kong residents handle five or six typhoons annually, but there are growing concerns that many of them are severely underinsured for the long term effects of a natural catastrophe.

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Last months’ 2012 Health Insurance Awards held in Glasglow, England, saw many companies recognized for their efforts in the health insurance industry both in the United Kingdom and internationally. Many of the health insurance companies that received awards and honors at the event, which is widely considered as one of the leading industry events in the UK that showcases professionalism and excellence in the medical insurance industry, work with Globalsurance.

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Following a tribute in the London 2012 Olympics that was broadcast to the world, the NHS is encouraging its member trusts to do the same and expand globally in a bid aimed at funding health services in the United Kingdom. The idea originated in the Labour Party and is now gaining speed to expand the National Health Service beyond the UK’s borders. However, will this idea affect the costs and quality of care for current residents of the UK?

The government is supporting a recommendation for large private hospitals, such as the Great Ormond Street, Royal Marsden, and Guy’s and St. Thomas’. Following the model set by Moorfields Eye Hospital in London which has set up shop in Dubai, the UK hopes to emulate the success which Moorfields’ Dubai branch has seen since its establishment overseas in 2007.

Governmental officials say that these large hospitals and entities should utilize their profits derived from their private practices and use them to develop healthcare assets overseas. After the overseas operations are established, profits from the entity should be rerouted back to the NHS to fund ongoing improvements to the UK healthcare system.

The NHS aims to make itself a global leader in providing healthcare by marketing itself as a recognizable name worldwide. By setting up hospitals overseas, it can market its services and create a demand for it.

“The NHS will be bringing together the Department of Health, the UK Trade, the National Commission Board, and form an organization that will help healthcare providers in [the UK] and develop those skills and sell them abroad for the benefit of the patients in [the UK],” says Health Minister Anne Milton, a Member of Parliament of Britain. Any kind of profits will have to be redirected back to the benefit of NHS patients, in a scheme which Ms. Milton says is a, “Win-win.”

The government is currently eyeing hospitals and institutions with great international reputations, allowing for an easier uptake of the program. Once the program becomes more successful, the government should open it up to smaller private healthcare providers.

What’s unclear at the moment is exactly where the doctors and medical practitioners will be sourced from. There are two possibilities: The NHS could source the staff from their own current employees – after all, they are the world’s fifth largest employer. Alternatively, the NHS could source the staff internationally, which could also be feasible because of the vast number of readily available professionals around the world. However, there are possible negative effects of both methods of sourcing which need to be taken into consideration.

First, if the NHS proceeds with sourcing from existing NHS staff, skilled workers in the UK may be less readily available. With workers being asked to work abroad, there could be a premium added to their salary, as well as other fringe benefits which compensate workers for their move. In addition, as these workers will be a direct foreign representation of the organization itself, there is a high chance that highly skilled workers will be recruited to move overseas first. More skilled workers may also be more adept at adapting to challenging situations, further making them a target for recruitment overseas. However, this will draw the UK’s more skilled healthcare workers away from the UK system, potentially lowering the standard of care in the country. This also represents a costlier decision because of the need to incentivize doctors to go abroad by adding benefits to their compensation packages.

What if the NHS decides to hire internationally? The goal of the NHS is to export the “brand names” of the NHS that have international and esteemed reputations. As such, it could be contradictory to start a new branch with staff who do not previous history with the NHS in essential, and especially management, roles. It would make most sense for the NHS to at least fill higher level roles with skilled medical practitioners from the NHS in order to preserve the level of service. Moreover, an international hire may not inspire as much confidence in local patients who are seeking high quality international care based on the NHS brand name. Why would they need to go to the potentially more expensive NHS which features a local hire if they can receive the same type of treatment at a potentially lower cost? Furthermore, hiring the best doctors available locally in the oversea hospital’s area might cause issues for the local healthcare system, especially if there is already an ongoing shortage of doctors in the region. If the NHS doesn’t hire in the target area but still recruits internationally, it may still represent a higher cost because of relocation packages and expatriate salaries that they may need to attract international hires.

Will the costs of healthcare increase because of the expansion? As mentioned earlier, highly skilled workers may be incentivized to take up positions in the new hospital developments overseas. As such the ability to properly provision healthcare for the nation may be reduced if the NHS does not replenish or properly account for the departure of some of its staff. Moreover, the NHS has been widely reported to be experiencing a significant shortage of workers, despite being the world’s 5^th largest employer. Shortages of nurses and doctors are, in some cases, extreme, as data from the Department of Health indicates that some family doctors may be responsible for as many as 9000 patients. A new development requiring skilled practice may hinder the system, preventing patients in the UK from having adequate access to much needed healthcare services.

The demand for medical practitioners is high in the UK. There is a general shortage for the medical field, vastly due to the amount of doctors leaving the UK for better packages worldwide. In a recent report by the Policy Research Programme in the Department of Health, UK doctors are being offered attractive benefits packages, better living standards, higher control of their work, and in places with better living conditions than the UK. This incentivizes many highly trained doctors to move abroad, resulting in a shortage of doctors able to provide important healthcare services. Some of the doctors surveyed also indicated that they were disillusioned by the NHS, stating that it was bureaucratic and limiting.

This expansion overseas will not affect the highly specialized private hospitals which have a well-recognized name brand – in fact it may be quite easy bring in profits as foreigners may be attracted to these brand names. However, whether smaller hospitals will be capable of following suit or willing to remains to be seen. Many hospitals in the UK are currently designed to be providing an essential service to the community and gearing them towards acting as for-profit multinational companies may cause them to lose focus on providing quality care within the UK. If managed poorly, the implementation of this program could cause shortages and cuts to existing services as hospitals direct their attentions and funds overseas. This could affect prices negatively for the patients they service locally in the UK. With the significant burden that many general practitioners already face – upwards of 3,000 patients per doctor, some even 9,000 – and in the middle of a large scale reorganization of the NHS, the main focus should be improving these services and ensuring that the new system provides the benefits its supposed to.

This leads to a discussion about the focus of the NHS – should this really be what they are redirecting resources towards? The NHS is asking for their hospitals and entities to redirect profits from private health practice to fund their international developments. While the NHS does provide quality services to UK citizens, waiting times for both scheduled treatment and A&E care are a serious problem due to a lack of beds and medical professionals.

Could this expansion affect healthcare costs and insurance premiums? There is a possibility this could happen if the private hospitals which are establishing hospitals overseas increase charges on private care in order to raise funds to start the overseas ventures. Similarly, if the overseas private hospital programs lead to increased brain-drain on UK doctors, it could drive up the costs of private care further. Both of these possibilities could have knock on effects on the private health insurance system in the UK, which is already trying to avoid large premium rises to avoid off putting customers.

Given the NHS budget freezes and cost savings put in place as part of QIPP (Quality, Innovation, Productivity and Prevention) policies in the UK, it is understandable that new sources of income are being investigated and considered. However, it is of the utmost importance that these efforts do not come at the expense of local capabilities, especially during the largest reorganization of the NHS system in years.

In this article we will first present our findings of the premium increases and premium inflation rates in each region and country we studied, with specific insurance findings to be presented at the end. Overall our findings were that International Private Medical Insurance (iPMI) premium inflation was very high, at roughly 10.8 percent per year over a 5 year average. While variations exist between countries, the reality is that iPMI inflation rates were extremely consistent throughout the world. However, it is important to note that this is medical insurance premium inflation at the high end of the sector, and not necessarily with regards to the mass market.

Even presenting the argument that premium increases are fairly consistent on a global basis, there are some immediate outliers – Hong Kong, for example, runs at an iPMI premium inflation rate of roughly 13 percent per year, while Kenya’s premium inflation rate is approximately 9 percent per year. Although there is a difference in premium inflation rates between Hong Kong and Kenya, the difference is not overly substantial – as will be seen inside this report.

Globalsurance is pleased to reveal the results of our latest study on the international health insurance industry and rates of international medical insurance inflation around the world as of August 1^st 2012.

Using 7,916 data points from 8 different International Private Medical Insurance providers in 10 different countries, Globalsurance has been able to successfully identify a number of trends within Global Medical Inflation for individual International Private Medical Insurance (iPMI) plans during the time period from 2008 to 2012. iPMI is a subsector of the greater health insurance industry which services the global population of expatriates and international High Net-Worth individuals.

The companies sampled in the studies use Age and Geographical Area of Coverage as the main variables in their premium calculations. By selecting a sample which is community rated Globalsurance has been able to efficiently identify the actual rates for premium increases in different parts of the world. Our measure of inflation is based on a sample of policies, ages, and published rates for each insurer included in the study. Globalsurance selected the most common age groups and most common policy types for our data points to achieve realistic measurements in relation to medical insurance premium inflation around the world.

While individual insurance providers and underwriters may disagree with our findings, the figures represented in this report are based on our sample and present baseline figures for all of the regions and companies we chose to consider.

It is important to note that, unlike the recent Towers Watson Report on Medical Trends, the data contained in the Globalsurance insurance review is not survey based. Rather than looking at individual responses and feelings in reference to levels of health insurance premium inflation, which may have some inherent bias dependent on the respondent, Globalsurance is analyzing the actual premium data from insurance companies with exposure to the world at large, over locally based providers operating in a single country.

Additionally, we have analyzed premium data, and not healthcare pricing data. Consequently the figures represented in this report are indicative of the levels of healthcare cost inflation which insurance perceive to be in place in the locations we sampled; profit and operating costs of the individual insurers are assumed to be unchanged. While the increase or decrease in premium values may point to actual rates of medical inflation in the countries which were included in the study they do, in fact, represent the increased costs placed on policyholders.

However, it should be noted that, while the figures contained in this report are the actual rates of iPMI premium increases for the duration of the study, the removal of Age and Policy type means that the figures presented in this study of International Medical Insurance premium inflation can be used as a suitable proxy for rates of actual medical inflation in relation to healthcare costs around the world. It should be noted that the proxy does not represent medical inflation across the entire healthcare sector within a country or region; for example, NHS cost increases in the United Kingdom are not evident in our findings. The rates of iPMI premium inflation are only a proxy for healthcare costs in High-End, private medical facilities in the countries which we considered, due to the basic nature of the international medical insurance products we are studying.

So, without any further ado, here is the Globalsurance International Insurance Review:

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Price Reduction With Insurance Competition

As a direct result of competition and strategic partnerships, prices for insurance in multiple areas are decreasing throughout the world. Originating out of public outcry for lower prices, or companies aiming to provide better services to their clients, insurance seekers are experiencing lower prices and are contributing to increased profits for companies.

In New Zealand, two insurance companies have engaged into a partnership which will lower insurance costs in the building trade industries. The companies under discussion are HazardCo, a provider of health and safety insurance in the construction industry, and Plus4 Insurance Solutions (Plus4), an insurance brokerage and financial advisory group, who are working together to lower the costs of accidental insurance and to provide protection of income for self-employed workers in the building trade.

HazardCo has been in operation since 2006 and operates out of New Zealand and it boasts over 7,500 construction business clients. Plus4 has been established since 2008 and now operates out from 10 different locations and has over 25 advisors. Both have expanded significantly over the recent years, bringing innovation to the industry, such as HazardCo’s online training system, Learner Management System.

Utilizing the expertise of both of these companies, building trade workers are able to reduce the average cost of their premiums. Premiums in this industry are required under regulation and can be a significant cost to workers.

Due to Plus4′s knowledge in financial advisory, this agreement allows the insured to have direct access to Plus4′s financial advisors to review compensations and insurance coverage levels. As a result, insurees have experienced substantial savings and increased coverage. Workers in the building trade are required to have insurance, protecting workers from illness or when accidents strike.

Some workers are eligible for a 10% discount on their ACC Work Place Cover Levy with HazardCo, which represents significant costs savings. Under the partnership with Plus4, HazardCo’s clients are able to restructure their insurance coverage, tailoring it to their specific needs which suit their current situation and requirements.

HazardCo’s Mark Potter states that “The partnership with Plus4 has meant that many of our clients have made substantial savings on the cost of their ACC and, as a result, now have in place more comprehensive and appropriate insurance cover.”

In a separate case of lower insurance costs, competition is the main driver of lowering car insurance for residents of the United Kingdom, with price reductions in almost £100 (US$100) on average.

Utilizing the Confused.com and Towers Watson car insurance index, it is shown that prices are decreasing as a result of competition within the industry. A reduction of 7.1% is reflected within the index between Q2 of 2011 and Q2 of 2012.

The car insurance index receives a substantial amount of quotes, allowing for an accurate depiction of the market’s current condition. The index is comprised of over four million quotes, making it one of the most comprehensive indicies in the world for car insurance.

Due to historical statistics, car insurance companies have been offering asymmetries in insurance premiums. However, the European Union have decided that this type of price discrimination is not desirable and have decided to ban this practice. This order is to be enacted later this year and will see that women pay more for their premiums and men will see their premiums reduced.

Despite the EU gender directive soon to be enacted, United Kingdom is still seeing a disparity between price quotes, with men paying on average £110 (US$171) more than women.

Part of the outcry from the gender discriminatory prices had contributed to lower prices. However, sites like Confused.com have also contributed significantly to the lowering of insurance premiums. These sites amalgamate prices from various insurers, allowing competition to force prices lower. Customers have access to various providers, causing no one provider to have a domineering selling power.

In addition to lower prices, online insurance comparison sites have witnessed increase in profits due to higher competition. With higher prices, consumers look elsewhere to find alternatives that suit their budgetary needs, and they find their solutions online. As a result, online comparison sites such as GoCompare have seen double digit profit increases because of their wide array of offerings from various companies. This level of competition has allowed both companies and consumers to benefit, as well as allowed the insurers to service consumers they would have lost without pricing changes.

Both GoCompare and Confused.com offer quotes and showcase insurance policies to consumers from various insurance providers. Like many comparison sites, GoCompare and Confused.com are able to offer lower, on average, insurance premiums because of direct competition that is clearly visible to the seeker.

Consumers will experience progressively lower prices as competition continues to emphasize the need for companies lower their prices as a response.

Insurance Companies Mentioned

HazardCo

HazardCo provides health and safety resources, in addition to systems and support to the New Zealand residential construction trade. HazardCo has expanded significantly since it’s creation in 2006, with over 7,500 construction business clients. Many of HazardCo’s clients are top performing housing companies. HazardCo also provides online training for heath, safety and compliance related subjects.

Plus4

Plus4 Insurance Solutions operates on a national level in New Zealand as an insurance brokerage and a financial advisory group. Since 2008, Plus4 have grown to 10 locations throughout New Zealand and has over 25 professionals servicing top clients. Plus4 offers an unbiased consultation to small and medium sized enterprises, as well as individual and small business clients.

Today, fraudulent claims pose greater costs to the insurance industry than ever before. Unfortunately, these costs will only continue to rise unless the sector begins to utilize the mountains of data within its access to curb consumer fraud. After all, it is the policyholders who pay through hikes in premium prices. As a result, retaining loyal customers while managing unnecessary costs remains the most difficult challenge for insurers.

In the United Kingdom alone, consumer fraud costs the insurance industry EURO2 billion (USD3.13 billion) annually, which roughly amounts to EURO44 (USD 55) added to each policyholder’s annual bill.

The extra premium costs originate primarily from the motor sector, and continue to increase despite insurers attempts to regulate them amidst modern compensation culture, according to a report by the financial services and investment media company Clear Path Analysis.

Clear Path Analysis’ report also placed stress upon EU insurers to maintain clientele confidence, and to solve the issues of “reducing operational overheads” and “instigating smarter technologies to identify and reduce risk.” Failure to address these problems, coupled with poor customer focus due to disjointed resource and information databases could very well compel clients to change insurers.

The Association of British Insurers (ABI) revealed that within the motor sector, roughly 1,200 whiplash claims are fabricated daily, constituting the largest proportion of excess payment, leading to increased premiums and reducing consumer confidence.

Now, EU insurers are attempting to develop ways to both reduce the amount of fake claims and comply with Solvency II requirements. Nevertheless, fake claimant methods are becoming increasingly effective, forcing claims-management departments to respond quicker to address customer concerns.

Jamie Hutton, Head of Insurance Practice at Detica NetReveal, a world renowned financial loss and crime prevention solution, shared her advice on the path insurers should take to curb fraud. Hutton noted that insurers need to tap into the vast amounts of data its businesses keep, and turn that information into “actionable intelligence”. Next, they need to shift focus from simply detecting fraud to also preventing it. Through analysis of the data held, insurers would be able to piece together patterns and better calculate risk for claims and policies, and therefore learn more about the clients they serve, while distinguishing the loyal customer base from the frauds.

In a recent example, the Supreme Court dismissed an appeal by insurer Zurich UK to discard a claim in its entirety because parts of it were fraudulent. Shaun Summers, the claimant, sustained significant injuries while working on a forklift truck for Fairclough Homes, and exaggerated a claim to ‘entitle’ himself to EURO838,000 (USD1.05 million) compensation from Zurich.

Although multiple components of Summers’ claim were false and “guilty of a serious abuse of process”, the Supreme Court could not deny his entire request because it declared such an action not “proportional or just” to the injuries he did receive, dismissing Zurich’s appeal.

If the opposite occurred and Zurich’s appeal was passed, it would have set a positive beginning for future insurers to reject liability claims on the basis that parts of the claims are false. The court’s verdict was no reason for despair, however, as the Supreme Court unanimously confirmed its power to dismiss fraudulent claims in exceptional situations, but declined to do so in this case.

More importantly, Summers ended up receving only EURO88,716.76 in damages once it was revealed that his claim was blown out of proportion, most of which would pay for his multiple legal fees.

Regarding the ruling, Zurich UK Chief Claims Officer Tony Emms, shared that his firm was disappointed with the final verdict of the case, yet content that the Supreme Court at least, sided with his legal perspective. Emms went on to affirm that Zurich will not rest in the battle against insurance fraud, and that fraudsters should now think twice before trying to scam insurers after the Court advocated its support for sending those convicted to jail.

As is evident, insurers are beginning to get a grip on the resources available to them, and take stronger stances to curb the plague that is insurance fraud. With more innovative security measures to be taken, and more insurance companies to join the effort, fraudsters are sure to be deterred from fabricating liability claims in the near future.

Insurance Companies Mentioned

Zurich Insurance Group

Zurich is a leading global insurance group, with 60,000 employees in over 170 countries. Its goal is to help its customers, ranging from individuals to international corporations, understand and protect themselves from risk. Zurich offers a wide range of insurance products, solutions and advisory services.

The recent annual conference of the UK risk-management association, Airmic, released news of a “10 fold” increase in enquiries regarding cyber insurance products, but trends in take-ups didn’t follow suit. The disparity between enquiries and the take-up of “cyber” products left many wondering when the cyber insurance market will go ‘boom’.

Though market practictioners hold that we will see such promising growth in two years, insurance for digital property is not a new phenomenon. We have already witnessed popular developments in this sector with regards to online gaming in some countries in Asia, such as China, among others. However absurd it may seem, there have been ambitious attempts by some to insure players of Blizzard’s massive multiplayer online role-playing game (MMORPG), World of Warcraft (WoW), when they experience laggy gameplay, long queues, or system downtime. Additionally, we have seen Beijing based Sunshine Insurance Group Corporation, in cooperation with the online game operator Gamebar, offer WoW players monetary compensation for loss or theft of virtual property in the game.

Apart from the realm of digital gaming, there have yet to be big strides in the commercial and strictly business areas of cyber insurance. Due to the ambiguity of such a market, risk factors have made investing in protection of cyber-information a very expensive gamble.

This week a survey was released which indicated that many potential policyholders, who would otherwise have an interest in various cyber-protection products, displayed a lack of knowledge in regard to digital coverage options. The results of this survey have prompted Airmic to begin encouraging communication between brokers, insurers, risk managers, and IT specialists to develop a comprehensive understanding of cyber products with consumers.

Airmic also released detailed research tracking the progression of the international cyber-risk market, during its annual conference in Liverpool this week.

The research revealed that every year, cyber-crime costs the UK economy EURO20 billion (USD31.09 billion), listing intellectual property theft, industrial espionage, extortion costs, and direct online theft as the causes of loss in a decreasing order of cost.

Regardless, Airmic’s technical director, Paul Hopkin, said that the association is happy with the direction of the cyber-risk insurance sector.

“When we took stock of how the market has changed, it was very reassuring to find the cyber-risk market has changed quite considerably and is now much more aligned with what we are looking for,” he said, “The communication issue is one we are focusing on and, hopefully, the market will continue to respond favourably.”

Additionally, Ben Beeson, executive director of global technology and privacy practice at Lockton Companies LLP, said European cyber-risk cover is growing, due to a number of factors beginning to drive the market forward.

Beeson noted that these factors include “legal and regulatory change in the EU and technology and business model change, with cloud computing and outsourcing risks.” He said that intellectual property theft from cyber-espionage, and losses from cyber-warfare are two particularly difficult aspects of the cyber insurance market.

Furthermore, one company to recently jump on the cyber-insurance train is the Bermudian insurer Argo, with a new cyber-liability insurance product. Argo believes that its product will mirror the extent to which businesses depend on information techonology.

The product’s launching tails the newly released data security disclosure obligations from the US Securities and Exchange Commission (SEC), which are expected to initiate expansion in the US cyber-liability insurance sector.

Distributed through Argo Pro, its latest product attempts to appeal to a variety of sectors, such as insurance brokers, motor dealers, retail businesses, and many more.

Argo also plans to combine NetDiligence, a data breach services and cyber risk-assessment company, to allow policyholders to access information regarding cyber losses prevention and support.

Senior vice-president of Argo Pro, Michael Carr, said that “Advances in information technology have revolutionised the ways businesses attract, retain, and interact with customers. Along with benefits in speed and efficiency, these changes have created a variety of new exposures to loss – from liability for content on corporate Facebook pages or YouTube channels to privacy fines to business interruption from systems compromises.”

The recently released information from the SEC targets public companies and their responsibility to inform investors of cyber-risks.

Some speculate that the SEC changes are promoting interest in US cyber-liability insurance, but as with the current UK situation, it is not known whether the changes are effective in actually selling cyber related products.

In support, QBE Australian insurance disclosed data that showed UK companies to be unequipped to deal with cyber-crime. QBE’s survey results indicated that 46 percent of UK companies don’t even have a documented procedure in the event of a security breach.

While the cyber-insurance market is still young and emerging, clients and insurance companies have begun to recognize the importance of such a sector in a world where information technology is one of the fastest growing industries. In the near future, we are bound to see global insurers invent and innovate in the cyber-risk sector, to better provide customers and businesses with truly comprehensive security.

Insurance Companies Mentioned

Argo Insurance Group

Argo Group International Holdings provides specialty insurance and reinsurance products within the property and casualty line on an international scale. All of Argo Group’s insurance subsidiaries maintain an A.M. Best’s “A” rating, and an Standard & Poor’s “A-” rating, both with stable outlooks.

QBE Insurance Group

Sydney, Australia QBE Insurance Group is in the top 20 global insurers and reinsurers by net earned premiums. QBE provides general insurance cover for personal and commercial risks, with offices in 52 different countries.

French insurance company Groupama recently endured a downgrade in ratings by S&P from a BBB to a BB-. Its new rating is considered sub-investment, and is commonly referred to as ‘junk’ status. Such a rating could potentially harm existing business relations with insurance brokers.

Groupama is a mutual insurance, banking and financial services group with over 38,000 employees and 16 million customers and members. It was founded over one century ago, and suffered some of the largest setbacks from Greek soverign debt and stock market investments, with a EURO1.8 billion (USD2.25 billion) net loss in 2011. These losses caused Groupama to lose its position as France’s 5^th largest insurer and Europe’s 15^th largest by premiums. As a whole, Groupama has EURO5.3 billion (USD 6.62 billion) in net assets, and EURO17.2 billion (USD21.5 billion) in revenues.

The French company maintains a leading presence in France within a number of insurance lines ranging from agriculture, personal health, and home, to motor. It also has a strong international footing in 14 countries in Europe and Asia, including: China, Vietnam, Greece, Turkey, Hungary, Romania, Slovakia, Bulgaria, Poland, Great Britain, Portugal, Italy, and Spain.

Currently, Groupama’s ratings are on on negative outlook, meaning that unless the company’s conditions improve in the coming year, further cuts to ratings are possible.

S&P stated that management actions taken towards asset sales were “unlikely to restore Groupama’s capital adequacy to levels supportive of an investment-grade rating over the coming year, in our view.”

Some of the actions taken include the sales its Spanish operations to Grupo Catalana Occidente for EURO405.5 million (USD 506.7 million). Groupama Espana generates 38 percent of it’s total premiums, EURO904 million (USD1.13 billion) annually, from motor insurance.

Groupama has also sold the property and casualty assets of its Gan Eurocourtage brokerage business to Allianz’s French unit, and is considering the sale of its UK assets. Though Groupama UK’s capital is separate from its parent company, with twice the recommended solvency margin at 218 percent, its rating is not. It’s UK assets include the insurance company, as well as insurance brokers Bollington, Lark, and Carol Nas.

Francois-Xavier Boisseau, the Groupama UK chief executive also added his opinion on the matter. Boisseau emphasized possible misconceptions that may arise from the UK subsidiary’s rating in association with it’s parent, Groupama.

“This is important to understand because based on our current performance, prospects and asset base, it is very clear that the Group’s rating does not offer an accurate reflcetion of our excellent trading position in the UK nor of the level of security we offer to our broker partners and their clients,” he said, “In 2011 we delivered record profits and despite fierce competition our 2012 reveneues remain broadly in line with expectations. Our profitability also remains very impressive. Profit before tax exceed EURO16 million (USD20 million) at the end of May and our combined ratio improved to 97.9 percent.”

On the other hand, Chief executive Ashwin Mistry of Brokerbility, a group of high quality independent brokers, said that Groupama’s downgrading will initiate a complete review of the “whole relationship” between the two.

Insurance broker Seventeen Group has also taken the matter very seriously, and for them, Groupama is already beyond reliability. Paul Anscombe, managing director of SG, said “If an insurer’s rating is below BBB+ from Standard & Poor’s we will not deal with them going forward.”

From a lighter perspective, Bluefin chief executive Stuart Reid said that “Groupama has been a good business to us and a good friend.” The drop in ratings is definitely an issue to look into and consider with utmost importance, but Reid affirmed that his firm will continue to support Groupama.

Overall reactions to Groupama’s predicament are mixed, but nevertheless, all groups affiliated with them are taking the necessary precautions to ensure that Groupama does not pose unnecessary risk in the near future.

Insurance Companies Mentioned

Groupama

Groupama is a mutual insurance, banking, and financial services group. Over 100 years ago, Groupama began as an agricultural mutual insurer, and has grown and adapted to emerging economic challenges, as well as to the needs of its members.

European insurance markets are looking increasingly bleak amid news of UK health insurance premiums climbing by 10 percent, and fears of expat health insurance premiums doubling in Greece. The bad news in the Euro Zone’s health insurance market comes at the same time European life insurers are nervously awaiting the outcome of the Solvency II proposal’s passage through the European Parliament. The proposal, which has been ten years in the making, has been designed to ensure insurers have capital reserves proportional to the risks underwritten.

The unprecedented rise in health insurance premiums, specifically in the UK, has left both insurers and their customers worried. In an effort to stop the 10 percent price increases that have been seen in the past couple of years, international health insurers have been trying to reduce costs by pinpointing where they’ve been going wrong. William Russell, an international insurance firm based in the UK, has pointed the finger at surgeons who it claims have radically varying surgical prices.

The firm mentioned an example where a surgeon in Hong Kong requested US$42,000 to perform a knee replacement operation. According to Nichola Duncan, the company’s international claims manager, “We contacted three other well-known surgeons locally and the average fee was US$24,000.” In light of the hike in prices, a number of insurance firms, including William Russell have implored their customers to contact their insurer prior to treatment to ensure that the client will not have to personally foot the bill. Other reasons that have been stated for the increasing cost of premiums has been fraud, over diagnosis and unnecessary medical treatment.

The bad news in the UK comes at time where British nationals living in Spain and Greece are returning home due to the huge economic problems in both Euro Zone stragglers. One of the biggest potential problems that expats are facing is the prospect of their health insurance doubling if Greece decides to leave the Euro Zone. Their worries are centered around the possibility that if a Greek exit, or Grexit , occurs, hospitals may not reduce their prices. Despite their fears, prominent insurance firms such as AXA are confident that if Greece ditches the Euro for the Drachma, hospitals will reduce their costs. Kevin Melton, AXA international’s sales and marketing director admitted that “Premiums will be expensive” but “the cost of claims should be lower because hospitals services will be cheaper.” However, even if hospitals cut their prices, it is very likely that premium rates will still rise, as expats with international cover would rack up claims beyond the Greek border.

The economic problems in Greece are not only proving harmful to expatriates living in the country, but also to visitors holding the European Health Insurance Card (EHIC). The premise of the EHIC is that an individual holding the card has access to the same amount of public health care than a citizen of the EU country the person is visiting. In the past, many have used the EHIC as their main source of travel insurance while traveling in and around Europe. Due to the immense problems that the public hospitals are having in Greece, they no longer have the resources to deal with foreigners holding an EHIC. This means that even if one has an EHIC card, they are no longer guaranteed healthcare and may end up having to pay for expensive private care out of their own pocket. With the EHIC proving to be ineffective in many cases, the need for proper travel insurance has become greater.

The new ineffectiveness of the EHIC in Greece is part of a growing trend of European countries becoming increasingly cagey about other European nationals using their public health services for nothing. The first country that clamped down on this was France. In 2008, former President Nicholas Sarkozy enacted a law where by non-French non-working individuals under retirement age were made to buy private medical insurance and were no longer allowed to use France’s public health system for ‘free’.

As more and more European countries lose money it seems that they are becoming increasingly stingy about their own healthcare systems and following suit. Soon after France enacted their laws, Spain created similar ones, and while the Greeks didn’t exactly intend to cut expatriates out of their public healthcare system they too have effectively done the same. Those who support these moves argue that it was wrong that expats were getting the benefits of a system that they had not contributed to and that cards such as the EHIC were being abused.

The British have now caught on to the general trend and are pressing their government to make it compulsory for foreign nationals to have health insurance to ensure that the NHS doesn’t become a free treatment ticket and that Briton’s have first priority.

While the health and travel insurance markets ride waves of uncertainty, European life insurance firms are keeping their eyes firmly focused on the outcome of the Solvency II proposal. The proposal is intended to protect insurance companies in case of another crippling financial crisis. As the proposal progresses through the European Parliament in Brussels, German insurance companies such as Allianz and Munich Re, as well as many others, have all expressed an interest in implementing a phase-in process for Solvency II as it is claimed that 40 percent of German companies would have problems complying with the new regulations. They claim an immediate introduction of the Solvency II legislation would be detrimental as they would not have enough time to adjust to the stricter measures and a sudden hike in capital reserves.

Most companies use discount rates based on asset yield to calculate technical provision, and according to Karen van Hulle, the European Commission’s Head of Pension and Insurance, the phase in would allow companies to gradually move towards the risk free discount rate that Solvency II requires.

Insurance Companies Mentioned

William Russell

British firm, William Russell, was founded in 1992 and is an international insurance provider that specializes in health, life and disability insurance.

Axa

AXA is a French insurance firm based in Paris, France. Ranking in as the ninth largest company in the world, AXA specializes in life, health and other forms of insurance.

Allianz

German company, Allianz are the world’s 12^th largest financial services group in the world. Formed in 1891 it specializes in insurance but also deals with other financial services.

London based insurance company Aviva is now the sixth largest insurance group worldwide and the largest provider of life and general insurance in the United Kingdom.

Despite having a strong start to the year so far, Aviva will be undertaking a much needed strategic review of its businesses to aid the company in its recovery after the departure of Chief Executive Officer Andrew Moss.
Moss, having held his position since 2007 stepped down on the 8^th of May after the shareholder’s unhappiness at his pay and performance was making it too difficult for him to continue in a successful manner.

Now in charge, executive deputy chairman John McFarlane has been set with a number of tasks with priority residing in acquiring a new CEO. McFarlane reports this could take the rest of the year as it is paramount that an excellent candidate is selected so as previous events are not repeated. However, with Aviva share prices already down 10% since the departure of Andrew Moss, it would seem McFarlane needs to act with greater urgency.
In addition, McFarlane has been developing strategies to improve Aviva’s current condition which he hopes will be put in motion by July. The acting CEO plans to have Aviva reconsider its investments in 45 business units so as to ensure the company can improve performance in businesses that offer sufficient promise for the future and rid themselves of those that do not. He hopes this will enable Aviva to strengthen its capital base and boost share prices, especially as recent reports are reflecting the increasingly tough conditions the euro crisis is bringing about for the company.

Continuing with the trend of the last 5 years, Aviva has underperformed rivals Prudential and L&G with stocks decreasing by 8% since the beginning of the year. The Euro zone crisis has of course taken its toll on their rival companies as well but as Aviva generated 40% of its operating profit last year in Europe alone, it appears to be feeling more of an impact and has already seen a 5% drop in its life insurance sales so far this year.
Spain and Italy in particular, have been hit hard by the recession where reports in Life and Pension sales reflected an overall 23% decrease.
Worldwide, Aviva’s total sales, which include general insurance premiums, were down 3% at a total of 15.3 billion US Dollars but on a positive note, the company’s asset management funds have seen a healthy inflow of 1.6 billion US dollars in the first quarter alone.

The recession is making life difficult for all European citizens, including Aviva’s own employees. Aviva Ireland mentioned last week that between 500 to 540 redundancies will unfortunately be enforced due to the current economic climate in the Euro Zone.

Like other companies involved with Europe, It appears that the Aviva group will continue to struggle in certain areas until the business landscape becomes more stable. In the mean time, it is clear the company requires a positive management situation to assist them in moving forward and overcoming whichever obstacles the recession will undoubtedly create.

Prudential PLC, Britain’s largest insurer by market value, has hinted that they may move headquarters from London to Hong Kong in order to escape Europe’s upcoming Solvency II capital requirements and focus more on Asian business development.

The UK media was abuzz over the weekend on news that Tidjane Thiam, Prudential Chief Executive, had ordered a review of the company’s domicile situation, with the possibility of moving to Hong Kong or another Asian location very much on the table. The Times on Sunday first reported that Thiam asked Prudential executives to pursue relocation options in response to the tougher solvency rules being introduced in Europe next January. These new regulations will force European insurers to increase their capital levels and could leave Prudential holding billions of extra pounds in reserve.

Prudential, founded in London in 1848, is expected to admit to the domicile review when its annual report is released next week. In a separate company statement posted on Sunday, Prudential confirmed that management regularly reviews a wide range of options designed to better optimize the company’s strategic flexibility going forward. “This includes consideration of optimizing the Group’s domicile, including as a possible response to an adverse outcome on Solvency II. There continues to be uncertainty in relation to the implementation of Solvency II and implications for the Group’s businesses. Clarity on this issue is not expected in the near term,” Prudential claimed. The company had previously disavowed any talk of a break-up of its operations as an unnecessary business move that would hurt it’s credit rating.

The European Union’s new collective insurance industry regime, known as the Solvency II Directive, requires that insurance companies hold capital reserves with stricter proportion to their underwritten risks in order to reduce the threat of insolvency and further limit market-wide bankruptcy contagion. This new directive is expected to lead to an increase in capital requirements for many of Europe’s largest insurers as it will force these firms to increase their cash holdings against their divisions operating in markets that do not currently have the same rigorous capital standards. Short-term concerns persist amongst industry analysts that the new EU regime might cause insurers to increase their capital position at the expense of tackling new business ventures, which would damage their competitiveness, and indeed Europe’s, in the overall international insurance marketplace. The slow-moving implementation of Solvency II, which could be further delayed to 2014, has already proven costly and could also further strain insurers with potentially stricter risk-based capital requirements going forward. The overall cost of introducing Solvency II across Europe is already thought to have exceeded the European Union’s initial €3 billion (US$4.75 billion) forecast.

Thiam has long been critical of Solvency II and the negative impact it could have on Europe’s most prominent insurance companies. At the World Economic Forum in Davos last month, Thiam reportedly asserted that the EU’s new capital requirements would force Prudential to dispose of £11 billion (US$17 billion) worth of investments in UK infrastructure projects and would significantly reduce the amount the insurer could lend to banks as well. The rules have also been criticized for the extra costs they will likely impose on European pension annuities.

Solvency II poses a significant interruption to Prudential’s operations in particular. No decision has been made by EU regulators yet as to whether the United States’ capital rules are compatible with Solvency II. A failure to resolve this conflict between US and Euro regulators would force Prudential to significantly increase their reserves, much more so than their UK rivals, and hold billions in excess capital to protect its American life insurance unit Jackson National Life. If however, Prudential decided to instead move its chief headquarters to Hong Kong or elsewhere outside of Europe, only the company’s British business arm would be subject to the new Solvency II regulations.

The loss of Prudential, a well-regarded 163 year old company with £349.5 billion (US$552.25 billion) of assets under management, would be a symbolic blow to the City of London and its heralded status as the financial center of the international insurance industry. Prudential’s shareholders may not share the same sentiment about moving away from home however. Asia has fast become the company’s most important geographic market and relocating to Hong Kong would certainly be recognition of the region’s large and growing contribution to Prudential’s ongoing success.

Prudential has been using the cash generated from its legacy UK business to fund expansion efforts in booming Southeast Asian economies over the past decade. The region now accounts for nearly half of Prudential’s overall sales, and the company now has secondary stock market listings in both Singapore and Hong Kong. According to Prudential’s 2011 1H interim statement, between 60 to 65 percent of profits in the Asia region are coming from the sale of protection products. The bancassurance channel meanwhile accounts for 30 percent of Prudential’s combined annual premium across the Asia-Pacific, excluding India. With profits up 17 percent year-on-year to £465 million (US$72.2 million) across the region, Prudential now look forward to doubling their earnings in Asia over the next few years in an attempt to capitalize on the growing demand for insurance and financial service products among the expanding middle class populations in fast-moving Asian economies such as China, Indonesia and Malaysia. Prudential are now confident that the strength of their Asian insurance operations could protect them against the threat of another potential financial crisis in the West.

Prudential’s decision to review the location of their company headquarters follows similar warnings made by AXA, HSBC and Standard Chartered in the past year. These companies all look to Asia for a significant share of their overall business. The decision to leave the once warm confines of London for the promising Far East now warrants serious consideration.

Insurance Company Mentioned

Prudential

Prudential has been in the insurance and financial services business since 1848. Today they operate throughout the UK, US and Asia offering international health insurance and retirement planning services, supported by 27,000 employees worldwide.

The United Kingdom is one of the world’s leading insurance markets, but how well do their own citizens really understand the intricacies of the trade? A new study released this week by the Association of British Insurers (ABI) finds out which protection products have proven to be the hardest to understand by the general public, how this affects the savings culture, and what perhaps UK insurers can do to address these shortcomings.

The ABI conducts a survey of average UK consumer behaviour and insurance product knowledge ever quarter, with each poll based on a representative sample of at least 2,500 unique respondents. Statistics for the fourth quarter 2011 were released this past week and offer an interesting insight into how consumer attitudes towards savings and insurance have changed over the past year as well as what challenges and opportunities face the UK insurance industry going into 2012.

The ABI found that general savings behaviour in the UK has continued to adapt to the country’s ongoing economic malaise. With living standards under increased pressure and short-term prospects relatively dim, an increasing number of survey respondents now recognize the need to save. When prompted by the ABI, 57 percent of survey respondents classified themselves as a ‘saver’, while 64 percent of those polled admitted that the need to save had increased over the past 12 months and 81 percent indicated they would like to save more each month. Of those savers, the ABI noted that bank savings accounts (66 percent), insured savings accounts (64 percent) and pension plans (32 percent) remain the most popular savings tools used.

Despite this apparent interest in financial planning however, when asked whether the benefits of saving in the UK had changed over the last 12 months, 64 percent of respondents claimed that the benefits had in fact gone down during 2011. The ABI’s findings were reinforced by the fact that 28 percent of respondents reported having no disposable income at the end of the month to save, while 48 percent admitted to having less than £100 available. Looking forward, survey participants were asked how they might vary their non-pension savings behaviour in the next year; 47 percent believed their level of savings would not likely change, 23 percent said they would reduce their level of saving, while the remaining 21 percent indicated that they would increase the amount they save. The majority of respondents overall felt that having more disposable income, better returns on saving and increased government pension stimulus would encourage them to save more, with 67 percent, 49 percent, and 21 percent of respondents respectively. The ABI noted that given the country’s precarious economic situation, saving for the future, and in particular planning for retirement, will remain a very important issue for Britons going forward. Nearly half of all respondents admitted that they were not saving or under-saving for their retirement at present.

A key factor contributing to the UK’s poor savings preparation has been the general public’s lack of knowledge about mainstream financial services products. The ABI asked the q4 2011 survey participants to rate a variety of insurance and savings products on a scale of 1 to 10, both in terms of how well they understood how the products work, and how confident they were in purchasing and using said products when they needed to. Private insurance, in particular, confuses the majority of consumers. According to the ABI study, payment protection insurance (PPI), critical illness (CI) cover, and mortgage payment protection insurance ranked the lowest in terms of general understanding. Amongst the survey’s 2,500 respondents, 52 percent rated their understanding of PPI at five out of ten or below, with 36 percent rating similarly on knowledge of CI policies. Private medical insurance (PMI) and life insurance fared a little better with around half of those polled (52 and 48 percent respectively) describing the products as very well understood. It is perhaps no coincidence then that these products were amongst the least owned by survey participants. The most well understood financial products overall were savings and loans, with 67 per cent and 62 percent of respondents scoring them between seven to ten in terms of understanding. Amongst insurance lines, automobile products were the most easily understood in the UK.

Respondents were then also asked how difficult they find it on average to compare the benefits and features of each type of financial or insurance product. On this question, PPI and CI policies once again finished towards the bottom, with 55 and 45 percent of respondents indicating considerable difficulty in judging these products’ merits versus competitors. Pensions and annuities followed suit with 45 percent of respondents rating their ability to compare these products at five out of ten or below. Private health and life insurance also suffered in terms of product comparability, with around a third of respondents claiming difficulty while shopping for policies. Automobile insurance once again finished towards the top of average consumer understanding. Overall however, the ABI observed that the UK consumer’s base understanding of financial and insurance products surpasses their ability to shop for them in confidence.

The ABI survey tracked several other common misconceptions UK consumers were having in relation to insurance and financial service products. In travel insurance, the study found several instances wherein respondents misunderstood basic tenets of policies. When asked what situations were covered by a standard travel insurance policy, a third of respondents believed exotic claims like airline failure delay and sports injuries would be covered. While additional waivers can certainly be purchased for these risks, one should not expect to claim them retroactively. Meanwhile, of the scenarios that are actually covered by a standard travel insurance policy, the least selected option was ‘loss of earnings if injury/illness delays return’ with 24 percent of respondents. The ABI noted that those that did not select this option could be at risk of not claiming for this scenario should it occur. In addition, respondents were asked what scenarios should be covered by a standard policy, with airline failure delay (68 percent response) and cover for pre-existing medical conditions (54 percent) proving the most popular. Expatriate medical insurers take note.

In motor insurance, a field fraught with heavy claims and soaring premiums, respondents were asked what the industry could do to drive costs down on both sides. ‘More responsible driving behaviour’ and ‘improved car security’ were the most popular selections. Following these responses, the next highest-rated categories were ‘reduction in lawyer fees’ with 65 percent of respondents rating this at 7 or above out of 10, and better whiplash prevention mechanisms (a key contributor to increasing premiums), which was rated at 7 or above by 57 percent of respondents.

British consumers clearly find protection amongst the hardest products to understand and this affects their ability to save intelligently and prepare for their future. The ABI’s latest survey should serve as a warning to the UK insurance industry about its difficulties in relating to consumers. Simplifying product terminology and further adjusting to the UK’s economic reality may prove to be necessary steps for British insurers if they wish to thrive and attract more clients in 2012 and beyond.

Groups Mentioned

Association of British Insurers

The ABI (Association of British Insurers) represents the collective interests of the UK’s insurance industry. The Association speaks out on issues of common interest; helps to inform and participate in debates on public policy issues; and also acts as an advocate for high standards of customer service in the insurance industry. Every day, ABI members pay out an estimated £155 million in benefits to pensioners and around £58 million in general insurance claims.

In the midst of enacting QIPP (Quality, Innovation, Productivity and Prevention) policies, Britain’s National Health Service is en route to save £5.9 billion (US$ 9.23 billion) for the 2011-2012 financial year at the same time as some are protesting the effects that the cost-cutting measures will have on vulnerable members of society, and their levels of healthcare.

Britain’s government has been analyzing and implementing a number of ways to shave costs or reshape health services in efforts to streamline the NHS. QIPP efforts are intended to create £20 billion worth of savings, largely through efficiency measures, by 2015. The NHS has already saved some £2.5 billion (US$ 3.9 billion) between April and September 2011, putting them on track for their full yearly savings of £5.9 billion (US$ 9.23 billion) which mostly derives from reduced hospital care expenditure, but does include large savings on community services, mental health services and prescription drugs.

With medical care arising from hospitals services being one of the most expensive items on the healthcare budget and many hospitals facing dire financial straits, the government is attempting to retool the system through the Health Bill so that hospitals are not so heavily relied upon to provide treatment which they may be ill equipped to provide. Intentions are to place General Practitioners at the center of the system and place them in charge of purchasing healthcare services for patients.

However, as belts begin to tighten and proposals to redesign facets of the healthcare system begin to filter through, there are growing concerns from some quarters that the drive to cut costs and the plans to reorganize the health system may result in increased inequalities in the system, with some worried that vulnerable members of society may face great difficulties in procuring care.

One concern raised recently by some public health experts is that the increasing marketisation of the NHS will result in widely varied care throughout the country, resulting in health outcome disparities, especially for vulnerable socio-economic demographics and regions. This may be further exacerbated through pressures to cut costs and save money.

Others are more concerned with the growing need for extensive long term care for the elderly and disabled. At least half of the 2009-2010 healthcare budget was devoted to caring for older UK citizens, however this number is going to grow as the population continues to age. An earlier proposal, spearheaded by economist Andrew Dilnot, indicated that it was more effective and efficient, in terms of both cost and health outcomes, to treat older people through social care rather than acute healthcare in hospitals.

However, the proposed change would require greater funding for social care and financial assistance for older age patients. Dilnot’s proposal suggested raising the level of means-tested support and the introduction of a lifetime cap on how much money each individual would have to spend on adult social care, with the government picking up any extra costs over £35,000 (US$ 54,801); this would prevent the elderly from having to sell most of their possessions to pay for ongoing social care. However, while this proposal does dovetail nicely with the plan to reduce hospital services and spending, it does require a potentially greater outlay from the government on social care which may garner a more tepid response from politicians and treasury officials focused on austerity measures.

With a diverse group of parties touting the benefits of different courses of action, the issue may become increasingly contentious as the Health Bill comes closer to being fully enacted. However, with an increasingly sizable healthcare budget and growing economic uncertainties, it seems like not committing to some type of reform is one of the only unavailable options.

New research published by savings, investment and insurance specialist Standard Life warns that a substantial increase in inflation could cut the average spending power of a pensioner in the United Kingdom by over 60 percent when as they enter retirement,

The UK Office for National Statistics (ONS) reported on Tuesday that inflation had spiked to 5.2 percent in September, a 20 year high, and well above an economists’ consensus forecast of 4.9 percent. According to these statistics, the cost of living in Great Britain is rising faster now than in any other country in the European Union, barring Estonia. The ONS attributed the rise in inflation primarily to skyrocketing gas, electricity and fuel prices although food and transport costs were also considerably higher that last year as well. Overall, prices in the UK economy rose by 0.6 percent from August to September, with utility bills leading the way. The average UK gas bill went up by 13 percent while electricity rose 7.5 percent during the month. These price increases not only draw the immediate ire of households, politicians and consumer groups, but also affect UK savings and budgeting strategy going forward. By law, the government is forced to evaluate next year’s state pension payments in conjunction with the previous September’s inflation figures. With a 5.2 percent inflation rate, the UK treasury could incur a £3.4billion bill for benefits starting in April next year.

The record rise in inflation is particularly troublesome for pensioners and those that are entering the final years of their working lives because they must increasingly live off savings, devote more of their budget towards energy and utilities, and of course cannot work harder or hope for salary bonuses to offset reductions in the real value of currency. In fact, because more of their spending is tied to fast-rising energy bills, the real-term effect of inflation on those aged over 75 in Britain has been 20.2 percent over the past four years, compared with just 4.4 percent for the whole population. All told, as energy bills and food prices increase, pensioners remain considerably more vulnerable, particularly those on low incomes who rely on greater state support.

To make matters worse, a majority of UK pensioners have been lured by greater immediate benefits to opt for a level ‘inflation-proof’ annuity when they cash out their policy. As a result, many pensioners are seeing their monthly income gradually decline as the value of the pound wavers. What many have failed to understand is that ultimately the value of one’s pension could plummet if they live long enough and inflation stays high, and both events are considerably more probable nowadays than just a decade or so ago.

New data released by Standard Life this week works to confirm long-term pension fears and warn of the effects inflation could have on retirement wealth. According to Standard Life, a 90-year-old British man who retired at age 60 in 1981 with a level pension of £10,000 (US$15,800) a year would have the equivalent purchasing power of just £3,207 (US$5,067) a year today, a drastic 68 percent decline in 30 years.

Standard Life Head of Pensions Policy John Lawson wrote in the report that inflation would continue to have a considerable impact on the spending ability of pensioners in the UK. Vital utilities such as petrol, for example, now cost about £1.34 (US$2.12) a litre, compared with just 35p (US$0.54) a litre 30 years ago. These cost increases come as the average life span continues to lengthen, with a 60 year man retiring in the UK today expected to live for another 26 years on average. As people live longer, retirement incomes will need to stretch farther and more innovative and efficient savings plans will need to be utilized to guarantee elderly Britons a stable quality of life.

Standard Life’s research found that 57 percent of people somewhat understood the threat of inflation to their pension and would find a retirement income scheme that could better keep pace with the cost of living in the UK particularly attractive. However, of those surveyed only 3 percent had purchased an inflation-linked annuity in 2010. The majority of respondents indicated that they had chosen a flat-rate annuity because of the higher starting income available when compared with inflation-linked alternatives. Despite lower annuity rates, Standard Life advises people approaching retirement age to consider the full spectrum of impending cost considerations and that their own personal inflation rate will be considerably higher in the future compared to the average person in the UK due to the types of products and services they will consume. “10 years in retirement, a 60-year-old man who had purchased a RPI linked annuity with a fund of £100,000 (US$158,000) could achieve a higher annual income than someone who had purchased a level annuity,” John Lawson commented.

While the UK has experienced low inflation over the past decade, there has never been any guarantee that it could continue. The rising global demand for food and fuel, driven by emerging Asian powers like India and China, has come without a corresponding surge in supply and thus prices for the basic necessities across all markets have soared. A report issued by the OECD issued earlier this year confirmed that aging populations will cause global spending on long-term care to double or even triple by 2050. Those planning for their retirement today will need to save early and often to ensure they can afford food, fuel and other essential goods for a long time into the future. The cost of these basic items will likely grow as we approach a global population of 7 billion. Standard life concludes that while pension deficit spending is indeed a national problem that needs to be confronted promptly, individuals should take action into their own hands to prepare for the future.

“There are many options to consider at retirement which could minimize the impact of inflation on your income, so seeking financial advice is vital,” Lawson concluded.

Insurance Companies Mentioned

Standard Life

Standard Life was founded in 1825 and is headquartered today in Edinburgh, Scotland. The Standard Life group encompasses savings and investments businesses, which operate across its UK, Canadian and European markets. Through Standard Life Investments, the company manages assets of over £157 billion globally, including its Chinese and Indian Joint Venture businesses. At of April 2011 the Group had total assets under administration of £198.4billion and over 6.5 million customers around the globe.

Whittington Group, the Singapore-based international insurance investment conglomerate, announced today that it had reached a definitive agreement to sell off its British businesses to an international consortium of specialist insurers. The move follows similar actions taken by other players in the United Kingdom insurance market, as firms look to divest stagnant business lines to finance expansion in other parts of the world.

The announcement of a definitive sale agreement has ended a long-running evaluation process that had seen more than a dozen potential suitors assessed by Whittington Group over the past year. The consortium that was finally agreed upon by Whittington has been lead by London-based specialist insurer Tawa PLC, and also includes Norwegian marine insurer Skuld as well as Bermuda-domiciled insurance and reinsurance holding company Paraline Group PLC. The terms of the deal have not yet been disclosed, but are not thought to be far off Whittington’s initial £37 million (US$60 million) appraisal of its businesses. The transaction is now pending the approval of Lloyd’s and the UK Financial Services Authority (FSA) and would be expected to close before the end of 2011.

The deal will see the consortium acquire Whittington Insurance Markets Limited (WIM) and its UK subsidiaries, including Whittington Capital Management Limited, an important provider of turnkey managing agency services to new and existing syndicates at Lloyd’s of London. Upon completion of the transaction, a new management team, led by current Whittington chief executive Stephen Cane, will become equity investors in the acquired company.

In a statement Cane welcomed his new business partners and heralded their investment as an important step in the further development of the company: “We are extremely pleased with the acquisition by the consortium and also with the opportunity to participate in the ownership of our company. Each of the partners will provide strength and stability to our business. With the support of our new ownership group, we will also now have the ability to provide capital to selected new entrants to Lloyd’s.”

The chief executive for Tawa, Gilles Erulin meanwhile described the acquisition of WIM as a coup. Having an established presence in Lloyd’s turnkey system could prove to be an effective and cost efficient way to bolster their services in the company insurance market. “This transaction provides us with a platform through which to expand our range of services to the Lloyd’s community. Whittington is the leading franchise in the Lloyd’s agency management market and provides us with real scale as a provider of live insurance services. This is highly complementary with the range of consulting and outsourcing services currently provided through Pro, and we look forward to developing these businesses in tandem with one another,” Mr. Erulin commented.

Turnkey syndicates are managed by third parties on behalf of capacity providers and are integral in providing cover for large companies as well as small and medium enterprises. Whittington currently manages six key syndicates at Lloyd’s: WR Berkley, Channel Syndicate 1915, the Goldman Sachs-backed Arrow Syndicate, Sirius Syndicate 1945, and two recent transfers from Alterra Capital; Syndicates 2525 and 2526. The combined capacity of these syndicates totaled approximately £500 million (US$785 million) for the 2011 year of account. At the end of 2010 WIM’s consolidated profits before tax were £4.6 million (US$ 7.2 million) with net assets worth £3.5 million (US$5.5 million).

The addition of Whittington’s Lloyd’s platforms has come during a busy period of acquisition for Tawa, which has seen it buy up run-off insurers like Oslo Reinsurance and Bermuda’s Island Capital, as well as the £38 million purchase of Swiss Re’s P&C legacy business Pro in 2009. Tawa, long focused on run-off management, has been looking to expand and diversify its services portfolio, targeting higher margins over increased volume, and becoming a more traditional insurance business with recurring and reliable revenue streams. The company has become a service provider with developed platforms in the United States, Europe and now the Lloyd’s and company market in London.

For the Whittington Group, CEO Anthony Holbrow explained in a statement that the deal would enable their firm to focus on developing its core business in Asia. “Our group’s focus has, for some time, been on developing our businesses in Asia and the sale of WIM in London will enable us to accelerate our ambitions in the region and focus our energies on the Asian insurance markets. This marks the end of 18 years in the London Market for Whittington Group and we thank our dedicated people and loyal clients for making WIM the attractive business that has it has become.”

Whittington moved their headquarters to Singapore in 2006 and has been selling off their assorted turnkey operations to free up capital for further activity in the Asia Pacific region. The Group’s largest project to date is a direct online motor business in Singapore called DirectAsia.com, which they purchased in June 2010. This growing internet business combined with a rising regional middle class and motor pool presents an opportunity for a higher rate of return on capital. The emerging insurance markets in Asia are now widely expected to outperform that of other more mature Western markets, with India and China leading the way. Hobrow concludes that the Whittington Group is aware of this trend and is acting accordingly to shift their global focus and seize the opportunities a rising Asian middle class can provide. “There are plans to expand the DirectAsia.com brand into other markets in the region and the sale of our London business will certainly give our Asia operations an added impetus.”

Insurance Companies Mentioned

Whittington Group

The Whittington Group offers global capital and consultancy services to non-life insurance businesses, in the areas of start-up, growth, exit, outsource, run-off administration, and office accommodation and infrastructure. The company was founded in 2005 and is based in Singapore.

Tawa

Tawa PLC specializes in acquiring and developing the run-off portfolios of insurance and reinsurance companies, as well as introducing its own products to serve the international insurance market. Tawa was founded in 2001 and is a United Kingdom-based company.

Aviva PLC, the United Kingdom’s largest insurer with over 19 million customers, reported this week that it had so far paid out £212 million (US$ 341.28 million) on its critical illness and life insurance policies in the first half of 2011. This equates to a settlement on 98 percent of all claims made during that period.

Many British insurance providers are now publishing half year, as well as annual, claims statistics for their customers. Being able to report a high claims ratio can be seen as a valuable promotion tool for a company, demonstrating an ability to consistently meet obligations to clients. Both increased transparency and payouts will also work to improve the image of the insurance industry as a whole in the UK. So far this year, Bright Grey, Scottish Provident and Zurich have published their claims statistics. Zurich have so far paid out 89 percent of critical illness claims (for a total of £43.7 million (US$67 million)) while Scottish Provident paid 91 percent and Bright Grey settled 90 percent of claims.

On critical illness policies, Aviva paid out £62 million (US$99.8 million) during the first six months of 2011, a 21 percent increase over last year’s corresponding first half totals. The company disclosed that 755 customers had made claims on critical illness cover between January and June and that they received an average payment of around £81,000 each (US$130,000). The typical critical illness claimant was described as a 44 year-old women or a 45 and three months old man and the most commonly claimed-for diseases were cancer (accounting for 65.9 percent of all claims), followed at a distance by heart attack (11.3 percent) and stroke (7.9 percent).

Aviva reported that 92.5 percent of all critical illness claims were settled during the first half of the year, lifting the insurer’s claims paid percentage over the past 12 months to a high of 94.3 percent. Of the remaining unsettled claims, Aviva’s statistics show that around 6 percent were denied for failing meeting policy criteria. Meanwhile, the number of critical illness claims rejected for reasons of non-disclosure during the January-June period fell to 1.5 percent, a result the insurer described as significant.

With regards their life insurance policies, the first six months of 2011 saw Aviva pay out £150 million (US$241 million) worth of claims to the beneficiaries of policyholders who had died or had become diagnosed with a terminal condition. The company was able to settle 99.7 percent of all claims resulting from death, a stat Aviva understood to be “unsurpassed within the industry.”

Robert Morrison, Chief Underwriter for Aviva, suggested that these claims totals should restore confidence amongst customers, assuring them that the company will continue to support them through difficult periods of their lives. The evidence shows that in fact the vast majority of claims are settled quickly and only a few turned down for reasons of non-disclosure or from not meeting with certain policy criteria. “At Aviva we believe it is crucial we pay every claim we can. While unfortunately across the industry there are a small number of claims insurers are unable to pay…these latest figures should help to reassure customers that we are there to help them when it matters most.”

Mr. Morrison added that Aviva would remain committed to improving and developing new mechanisms to address critical illness claims. This month, the insurer introduced a new electronic group risk claims process designed to make it easier and more efficient for group risk customers to submit claims in the immediate aftermath of a policyholder death. Aviva also plan to add coverage extensions to its international private medical insurance products to better meet the needs of their expanding base of international clients. The additions come as a result of a recent research paper, conducted by Aviva, that revealed that over a third of all UK businesses worry about how they would manage if an employee was involved in an unforeseen accident while traveling abroad. “We would like to see critical illness claims figures rise even higher across the industry and at Aviva we are constantly reviewing how we work with our customers and advisers to assist them from the point of purchase. This way they can be confident that should the unexpected happen and they need to make a claim, we can help provide the financial support they require so they can concentrate on more important matters”, Mr. Morrison concluded.

The number of successful critical illness claims in the United Kingdom is increasing as insurers succumb to increased public and regulatory pressure to settle as many policies as possible. New data published by the Association of British Insurers (ABI) this month has shown that £1.9 billion (US$3.06 billion) was paid out in 2010 by insurance companies to claimants, up from £1.8 billion (US$2.9 billion) the previous year, with £1.14 billion (US$1.84 billion) coming through life insurance and £776 million (US$1.2 billion) spent on critical illness claims. According to the ABI, More than 40,000 British families and individuals received a claim payment last year, with an average settlement of £47,166 (US$75,533)(almost double the average UK salary).

The British insurance industry has taken action to better inform and educate customers about the details of their policies so that fewer claims are turned down in the aftermath of a critical illness or bereavement. In 2008, the ABI issued a public guidance on insurance claims, which increased transparency and ensured customers who applied for life insurance would not be penalized for accidental non-disclosure of medical information. This occurred amid a public backlash after the proportion of rejected claims reached a high of 16 percent in 2007. The ABI soon began introducing standard definitions for many of the more common conditions on contentious critical illness policies. Since the guidelines have been implemented, customers have developed a deeper understanding of their policies, reducing the number of claims turned down, and thus the number of complaints leveled at long-term insurers in the UK has reportedly fallen by over 50 percent. Both the insurance companies and clients have realized the importance of improved transparency and efficient payouts when settling critical illness and life insurance policies.

Organizations Mentioned

Aviva

Europe’s fourth largest insurance company, with more than 300 years of experience in the global insurance industry, Aviva is committed to the safety and satisfaction of its customers. They sell a broad range of insurance products including motor and property insurance, protection and health insurance, business insurance, life insurance and pensions.

Association of British Insurers

The ABI (Association of British Insurers) represents the collective interests of the UK’s insurance industry. The Association speaks out on issues of common interest; helps to inform and participate in debates on public policy issues; and also acts as an advocate for high standards of customer service in the insurance industry. Every day, ABI members pay out an estimated £155 million in benefits to pensioners and around £58 million in general insurance claims.

A new tax report released this week from the Association of British Insurers (ABI) and PricewaterhouseCoopers demonstrates the important role that the domestic insurance industry continues to play in driving the United Kingdom’s economy forward.

The ABI asked 28 of its members to participate in the 2011 study and to provide data on their tax payments for their accounting year ended to 31 March 2011. The 28 members taking part in the study represent roughly 80 percent of all premiums written by the entire ABI membership for the year. The UK trade body asserts that these results can then be held representative for the sector as a whole. The ABI have conducted similar studies in 2007 and 2009 to see how insurance companies have reacted to a difficult period for the UK economy and to provide evidence that contributes to public policy debate.

According to the August 22nd filing, the British insurance sector has now paid a total of £10.4 billion (US$17.21 billion) in tax to the UK Treasury over the past year. The total tax contribution for the industry equates to £4.6 billion (US$7.6 billion) in taxes borne and £5.8 billion (US$9.6 billion) worth of taxes collected on behalf of government, this is inclusive of Insurance Premium Taxes. This overall tax contribution is larger than the entire £10.2 billion (US$16.9 billion) Home Office budget, with over £200 million (US$330 million) to spare.

The ABI noted that insurers who provided data for both the 2009 and 2011 studies had seen their Total Tax Contribution rise by an average of 19 percent. This has been expected because the low corporate profits and transaction activity experienced in the immediate aftermath of the financial crisis and recession necessitated reduced corporate tax and stamp duty levels in 2009. What perhaps wasn’t expected would be that tax contributions from insurers are now exceeding pre-recession era amounts.

Insurance companies are distributing more of their revenue to the government than towards their shareholders, staff or lenders. The ABI survey data showed that 50.9 percent of members’ expenditure went to the UK government (through taxes borne and collected) compared to just 26.2 percent spent on employee wages and salaries, 19.6 percent released in dividends to shareholders, and 3.3 percent in interest payments to financiers. Corporation tax was the largest tax type borne, accounting for 59.6 percent of total taxes borne, followed by VAT.

The UK insurance sector has traditionally been a large corporation tax payer. PricewaterhouseCoopers was able to determine that corporation tax paid by insurance companies totaled £2.7 billion (US$4.46 billion), equal to 6.4 percent of total government corporation tax receipts in 2010. This represented a 50 percent jump paid out by members of the Association of British Insurers since 2009. Insurers in the Hundred Group, a compendium of the UK’s largest companies, contributed the third highest corporation tax of any sector. ABI noted that the insurance sector’s corporation tax contribution was now returning to near the level it was at before the financial crisis.

ABI Director General Otto Thoresen commented in a press briefing that said these figures demonstrated the important contribution insurers were making to the UK tax revenues and the economy at large. “The tax paid by the UK insurance industry could pay for the whole of the Home Office budget, or fund the budgets of the Departments for Transport, Communities and the Foreign Office put together. Insurers are crucial to the economy. Our total tax contribution is now higher than it was before the recession showing the important role the insurance industry is playing in the recovery and how resilient the industry is during tough times,” he said.

The insurance industry has remained one of the biggest private employers in the UK, with over 275,000 people working in the sector. ABI member companies account for 152,000 of these employees and had employment taxes borne and collected worth £2.64 billion (US$4.3 billion). Despite the recession, employment rates have not notably dipped in this sector. The insurance companies surveyed as part of ABI’s 2011 study paid an average of £21,793 (US$35,984) into the UK public finances per employee in employment taxes alone, 15.3 percent higher than previous studies. The median salary for an insurance worker in the UK is £42,100 (US$69,515) and compares favorably to the £25,900 (US$42,765) national median wage.

Thoresen concluded the report, saying that further revisions and improvements towards the tax code would improve the business environment in the country and ultimately generate greater returns for the Exchequer. “These figures highlight the importance of consistent, competitive tax rules which could help the industry to grow further so that it can continue to make an important contribution to the UK coffers. We are talking to the government about how to make the UK tax system an asset for the UK when it comes to retaining and attracting insurers to the UK. It is important we encourage our good, successful UK businesses to expand and grow rather than having rules which make the UK a less attractive place to base a business.”

Thoresen’s concerns about the viability of the UK insurance market might be well founded. According to the latest ICAEW/Grant Thornton UK Business Confidence Monitor (BCM), confidence in the country’s banking, finance and insurance companies have all slipped in the past three months to the end of June.

The BCM fell by two-thirds in the last quarter and is now at its lowest level since the middle of 2009, when the UK was still in a recession. For the insurance industry in particular, this downgrade has been largely due to a year of unprecedented catastrophe losses and the continued inability of the pricing market to adjust and harden to enable insurers to recoup expenses. Peter Allen, the head of financial services at Grant Thornton, summarized the index’s findings: “For the insurance industry, 2011 so far has been characterized by a series of expensive catastrophes which have hit profitability – but not sufficiently to create a turn in the pricing cycle.”

The continued uncertainty over the start date and stipulations for Solvency II’s euro-wide capital requirements and other regulatory issues has also hit industry confidence hard. “Solvency II has required a significant investment of both time and money by re/insurers, as they put in place the wide ranging changes to capital and reporting requirements,” said Allen, adding, “The fact that there is still debate as to whether the implementation date will be January 2013, or the start of 2014, is not helping the industry to feel that it can prepare with confidence.”

Confidence in insurance companies may be tested but their services are more greatly required in the UK today than perhaps ever before. In the aftermath of one of the country’s worst riots in decades, insurers are working hard to settle numerous complex claims that will help rebuild battered communities around England. In addition to their work and contribution to the home economy, the UK insurance industry is also one of the country’s main exports, with around a fifth of its net premium income being generated by overseas business. Closing the trillion dollar gap in coverage between the Western and Eastern hemispheres could eventually yield significant dividends for the UK treasury as well.

Groups Mentioned

Association of British Insurers

The ABI (Association of British Insurers) represents the collective interests of the UK’s insurance industry. The Association speaks out on issues of common interest; helps to inform and participate in debates on public policy issues; and also acts as an advocate for high standards of customer service in the insurance industry. Every day, ABI members pay out an estimated £155 million in benefits to pensioners and around £58 million in general insurance claims.

England’s insurance companies and loss adjusters have begun the difficult task of calculating damage estimates in the aftermath of the country’s worst riot in decades. The three consecutive nights of anarchic rioting and looting conducted by violent youths have left scores of vehicles, houses and businesses destroyed in at least six London boroughs, and as the violence now spreads to other British cities, police are bracing for further unrest.

The trouble first began on Saturday night, August 6th, after a protest was held in the Tottenham area of North London over the fatal police shooting of local resident Mark Duggan, 29. Observing a subdued police presence, hooligans then apparently saw an opportunity for widespread criminal behavior and, by using mobile technology to orchestrate attacks, civil unrest was able to spread quickly across London through Peckham, Croydon, Enfield and Hackney, and then to parts of the rest of the country, with subsequent riots now occurring in Birmingham, Bristol, Liverpool, Manchester and Nottingham.

The Metropolitan Police Service claim that at least 560 people have been arrested in connection with the violence, arson and looting so far, as “unprecedented violence” continues to be directed at officers and others that stand in the way of the mob. Both UK Prime Minister David Cameron and London Mayor Boris Johnson have cut short their respective summer vacations and returned to the capitol to hold an emergency response meeting. Parliament has also been recalled from its summer recess and will assemble on Thursday to address their embattled constituents.

The estimated cost of the riot damages continues to escalate. The Association of British Insurers (ABI) judged the insured losses for the first three nights of rioting in London alone at “well over” £100 million (US$163 million). The London-based trade body, which represents the British insurance industry, had initially estimated the cost of the riots to insurers would reach “at least tens of millions” of pounds, but after another day of riots and subsequent claims calls into its member companies, the ABI had to raise the overall total insured losses tenfold.

Nick Starling, Director of General Insurance and Health for the ABI, released a statement urging those affected by the riots to contact their insurance broker as soon as possible and check what they are covered for and arrange for immediate help if necessary. “We have every sympathy for residents and business owners who have suffered damage to their properties,” he stated. “This is a time of enormous stress for them and their insurers will be on hand to answer any questions that they may have.”

The ABI has been quick to reassure customers that they should be compensated for fire, looting, loss of business or damage caused by the riots under their existing home and business insurance policies. “Insurers are working as quickly as they can to deal with claims. However, access to dangerous buildings which are also crime scenes is a serious issue,” Starling added.“It is too early for us to have an accurate picture of total costs, especially business interruption costs, but insurers are expecting significant losses, of over £100m.”

Individual insurance companies have not yet released their own damage estimates. According to the ABI, the five largest commercial property insurers in the UK are Aviva, Allianz, Axa, RSA and Zurich. These large commercial insurers are likely to face a large number of claims from home and shop owners in the coming weeks. RSA is already on the line for a £10 million claim after an arsonist completely destroyed a Sony warehouse in Enfield.

Jason Harris, Senior Claims Manager for Aviva, confirmed in a statement that the insurer could not determine its losses from the riots yet, but that it would work hard to contact its policyholders and brokers to determine the damage: “So far we have seen a low volume of claims calls, but of course it is early days. Many of the areas affected were still closed off as crime scenes, meaning that many of those affected will not have been able to assess the damage,” he said.

A Zurich spokesman added that the insurer would do everything it could for customers to help them get back up and running as soon as possible: “Our claims teams have been liaising with our commercial and local authority customers across north, east and south east London both yesterday and this morning to ensure we are aware of any losses incurred, and to start the claims process. Zurich’s loss adjusters and major incident teams are on site where possible and they have been assisting on the ground where it is safe for them to do so.”

Businesses and homeowners who have remained without property insurance may also be eligible for compensation under an obscure 125-year old British law. According to the Riot (Damages) Act of 1886, the local police service, ergo the taxpayer, can be made liable for all property damage caused in the event of a riot, regardless of whether or not the victim is insured. Private insurers themselves would also be able to use this scheme to claim for the amount paid to policyholders who suffered riot-related losses and damages. The Riot (Damages) Act defines any riot as an assembly of more than 12 people whose behavior would cause people to fear for their safety, and would be clearly applicable in this case. Such a claim would need to be filed within 14 days of the event and could only cover physical damage, not the business interruption losses, which often exceed the actual property damage costs for insurance companies.

With the riots still ongoing and claims rolling in, market analysts are debating how these violent events in London, and now the rest of England, could change the insurance industry in the country. Insurers are on point now to prove their worth and settle claims as efficiently as possible. Many of these brutalized small businesses will not have the cash flow to survive without a quick settlement . Premium increases on policyholders in the worst affected areas could be incoming and insurers may soon require businesses to add additional defenses to their property. The ultimate price of all this destructive behavior is not just the insurance deductibles. The real estate market and even London’s status as a global tourist destination and upcoming host of the Olympic Games may be effected. While we often associate such scenes of civil unrest and violence with more politically tenuous areas of the world, the impact such events can have on the global insurance market remain just as significant.

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