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ABI Reveal Gaps in UK Consumer Insurance Knowledge

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.

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NHS Trying to Balance Costs and Care

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.

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UK Inflation to Hit Pensions

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.

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Whittington Sells UK Operations to Consortium

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.

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Aviva Reveals Large Payouts for Insurance Clients in 2011

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.

Globalsurance International Health Insurance - Expat Medical insurance products for you and your family no matter where in the world you live.

Insurance Industry Taxes Vital for UK Economy

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.

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London Riots Cost More Than £100m

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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Facebook Finds Insurance Fraudsters

In what could be the first fraud conviction of its kind in the UK, a Welsh man who made a false insurance claim has been found guilty of contempt and jailed for nine months after photos of him holidaying around Europe with his wife were found on social media website Facebook.

Graham Loveday, a former truck driver, claimed to be seriously disabled after being injured in an automobile accident in 2006. He sued for a six-figure sum in damages plus lost earnings of over £25,000 (US$40,000) a year from senior motorist Edward Nield, who was insured by Acromas (known as Saga at the time). Mr. Loveday claimed to be wheelchair dependent, unable to drive and phobic about travel and other activities.

The UK auto insurance industry is particularly sensitive towards egregious bodily injury claims. Acromas was given permission to pursue a legal case last year, and followed through with surveillance over the subject. While the insurer believed Loveday’s damage claims were exaggerated beyond his housebound statement, it did not contemplate the full scale of the deception. After the initial evidence was obtained last year, Acromas agreed to pay out over £3,000 (US$4,800), which would be offset against upcoming legal fees.

Upon discovery of Mr. Loveday’s Facebook profile and accompanying pictures, Acromas determined that the couple had been caravanning across Italy from May to July 2009, just a few weeks before the claimant had signed an insurance document claiming that he continued to be tormented by a ‘crippling’ fear of travel. The thorough evidence readily available on Mr. Loveday’s Facebook page documented him driving all the way from his home in Port Talbot, Wales, to the Italian lakes and back; a 2,000-mile road trip. The Lovedays had been the subject of a parallel investigation by the UK Department for Work and Pensions, who first uncovered the holiday photos.

After viewing the overwhelming evidence and sentencing the insurance fraudsters, High Court Judge Sir Anthony May, commented that the Loveday’s deceitful claim was a “public wrong, not just a private matter between you and an insurance company,” adding that “ telling deliberate lies in court proceedings undermines the fabric of justice which itself is part of the fabric of society.” It is hoped that this conviction will send out a strong deterrent against others who may act in bad faith.

Marcus Grant, legal counsel for Acromas, acknowledged that Loveday had suffered damages from his 2006 accident but was very far from the level of housebound disability he claimed for. His dishonest actions and statements since then have made matters worse and neither the insurance industry nor the UK judiciary will tolerate such behavior. Furthermore, Acromas’ counsel explained that if a user has an open profile on Facebook, and there exists reasonable grounds to suspect fraud, under current law there is nothing wrong with using your online material in relation to data privacy.

Facebook’s privacy policy affirms that the social networking site will comply with law enforcement and share proprietary digital information to prevent fraud or other illegal activity. “This may include sharing information with other companies, lawyers, courts or other government entities,” the policy. While insurance companies can’t view pages or photos you’ve made private, someone could still find your items through a friend’s public page. Furthermore if you become involved in a lawsuit with an insurer, your privacy may be revoked anyway. The courts have ruled that in some cases private social media postings are classified discoverable evidence.

Indeed, your friends and coworkers are not the only ones who are now interested in what you are sharing on social media sites like Facebook and Twitter. Insurance companies are looking to these online social networks to learn about and engage with their clients. These online resources have proven particularly valuable to insurers looking for potential evidence that certain claims are illegitimate.

While insurers don’t have the capacity to check everyone’s individual Facebook page, investigating suspicious and expensive claims on social media sites is becoming a common industry practice. This was evidenced in 2009 when Canadian insurance giant Manulife allegedly cut a depressed woman’s disability benefits after viewing photos on her Facebook profile page showing her as ‘happy.’

Technology companies have taken note and are developing tools that will enable insurers to better monitor social media data to improve marketing attempts and perhaps even adjudicate risk and pricing strategies. Insurers are demanding a more automated process for searching social media to improve their marketing and communication efforts. Drawing a large online audience and building a solid subscriber base on sites like Facebook, Twitter and LinkedIn has important value to many insurers. When a social media user ‘likes’ or ‘follows’ a brand’s content, it can further develop and build traffic among that user’s interconnected social group. These companies remain very interested in what consumers are saying about them online and want to use the same social networking tools to rapidly engage with them, address any grievances and hold onto their customers.

The rise of social media is an astounding modern phenomenon. In some developed nations, upwards of eighty percent of computer users are member of at least one online social media network and they are connected to these networks for nearly a quarter of their time online. This rise in inter-connectivity presents new opportunities for insurance companies to engage with and expand their customer base as well as enhance their ability to sniff out fraud and police their market more effectively.

Insurance Company Mentioned

Acromas

Acromas Holdings, through its subsidiaries, sells a variety of protection products in the United Kingdom and Ireland, including roadside assistance, motor insurance, home insurance, health insurance and travel insurance policies. The company was founded in 2007 and is based in Folkestone, the United Kingdom.

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UK Debating Updates to Social Care System

This week, the Commission on Funding of Care and Support presented its long-awaited findings to the British government in its landmark Fairer Care Funding Report. This commission, headed by economist Andrew Dilnot, was launched last year by the coalition government to present an independent review of the funding system for social support in Britain and to offer recommendations on how long-term care for the elderly and those on disability must be handled in the future.

The report first acknowledged widespread concerns surrounding the shortcomings of the current care system. At present, the British social care scheme provides support through a means-tested system, administered by local authorities. Under this system, council-funded in-house and nursing home services for the elderly and adults with disabilities are only offered to those who hold under £23,250 worth of assets. The social care system has been the only insurance system in the UK structured this way. In areas such as motor and housing coverage, Britons are encouraged to purchase private insurance to pool risks and cover themselves against potential exposure to high costs. In healthcare, the NHS pools risks through providing social insurance to everyone. For social care costs, however, the state does not provide a universal support system and thus people are unable to take out private protection. This has been the only major sector in Britain in which everyone still faces significant financial risk and yet no one has been able to protect themselves against it. This uncertainty manifests itself into a large national financial burden. The UK government currently spends £14.5 billion a year on adult social care in total, half of which is directed towards services for older citizens. A report from 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. This is indeed a national problem that needs to be confronted promptly.

The current social care framework, which has been in place for 70 years, has not properly taken into account the rise in living expenses, medical inflation and demand which has left many Britons exposed to potentially very high care costs without state support. Seniors with assets just above the value threshold are often unable to protect themselves without leveraging their income and estate – a situation the general public has widely viewed as unfair. The report calculates that a quarter of all UK residents aged 65 and over will need to spend relatively little on care for the rest of their lives. Half of UK residents could have long-term-care costs of up to £20,000, but over 10 percent will likely incur costs of over £100,000 and for some many times over. There is no true way of predicting in advance what the long-term-care costs might be for any one individual and the current system leaves too many households at risk.

To address this problem and protect people from extreme healthcare costs later in life, the commission has recommended capping the lifetime contribution to adult social care costs that any individual in Britain would need to make at around £35,000. Those with care costs exceeding the cap would become eligible for full financial support from the state. A cap on contributions is thought to benefit the struggling middle classes as they pay far more towards their social care than those on lower incomes. The report also maintains that the asset threshold for means-tested state support for those in residential care should increase from the paltry £23,250 up to £100,000. The commission believes broadening the requirements will allow greater access to the state support system and could bring greater peace of mind to pensioners and reduce anxiety for both individuals and care professionals in Britain.

The Fairer Care Funding report broadly believes that care costs should not consume more than one third of a person’s assets. In addition to raising the means-test threshold four times over and updating the funding system, the commission has looked into addressing many of the more pervasive administrative concerns that continue in the UK care system. There have been frequent complaints about the high variation in eligibility for care across the country and of poor integration between different services and individuals. The report calls for all eligibility criteria to be finally standardized nationally to end the “postcode lottery” and improve transparency during the assessment process. Portability of care across localities would also be instituted to prevent citizens from needing to reapply for care if they change localities. Finally, the study recommends a significant promotion strategy to build awareness about upcoming changes to the care system, as well as a nationwide campaign to encourage citizens to put more towards savings to prepare for retirement related care costs.

Going by the commission projections, lifting the asset cap to £35,000 would cost the national purse £1.7bn in the first year, equivalent to just 0.22 percent of the country’s GDP. The cost would then increase to £3.6bn at current rates by 2015. This is all on top of a projected £22bn increase in costs due to Britain’s ageing population in the coming decade. The commission concludes the report claiming these resources and more will be necessary to institute the vital systemic reforms to update the British social care service for the 21st century: “We believe that our proposals are fairer than the current system. There is a clear, national offer, which should be backed up by better information and advice. The system facilitates choice and puts people in control. By focusing resources on those with the greatest need, while enhancing the well-being of everyone, it offers value for money. It is sustainable and resilient in the longer term. It is a better deal – one fit for today and for tomorrow.”

The Fairer Care Funding Report envisions a more robust partnership between the state support services and individuals whereby individual costs are capped while substantial risks would be covered by the government. It is hoped however, that the private insurance industry would step in and develop solutions that will help individuals meet a greater share of their care obligations. Social care insurance has yet to take off in the UK market, but now by defining the amount people will have to pay, insurers could offer viable savings plans (equity release on property, life, pension etc.) that enable policyholders to pay up the full contribution. The lessons learned from any profound changes to the UK social care infrastructure will no doubt influence what other industrialized nations attempt to do themselves.

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Aviva: Half of UK Staff Want to Emigrate, Quarter Fear Worse Benefits When They Do

A new study conducted by Great Britain’s second largest insurer, Aviva PLC, reveals interesting developments on the changing attitudes of British workers when considering possible emigration from the UK.

The study, facilitated by market researchers OnePoll, surveyed 1,000 British employees nationwide aged 18 to 45 from 31 March to 5 April 2011, and found that over half (54%) of respondents would now contemplate leaving the United Kingdom and moving abroad.

While short respites outside of the UK have become more common, Aviva was surprised by the number of people contemplating better long-term prospects outside the country. Almost half (46%) of the respondents would consider a permanent move abroad compared to only 39 percent of those surveyed last year. One in five polled (21%) indicated however, that they would remain more cautious and only be prepared to move overseas for between one to three years.

The unconvincing forecast for the British economy has been the primary factor in the growth of these figures. Aviva’s survey discovered that 89 percent of respondents believed that the UK job market has been in perpetual decline for the last 3 years. More than half (54%) further admitted that government cuts have had a negative impact on their standard of living. Many of those surveyed claimed that the current culture of austerity and cost-cutting initiatives in Britain were now playing a key role in driving them to consider a move abroad.

More traditional reasons for emigration from Britain were also represented in the report. Almost half (45%) of respondents indicated that they were motivated to move abroad in pursuit of a better year-round climate. A further third of those polled (31%) believed that a move overseas could offer a healthier, less demanding and more varied lifestyle, with a better balance of work and family time available.

Aviva’s research showed that the same five countries first identified in the company’s 2010 study remained the principal re-location destinations of choice: Australia, Canada, Spain, New Zealand and the US. Other countries mentioned as popular destinations included: France, Germany, Italy, Switzerland and the UAE.

Addressing the UK study, Teresa Rogers, business lead for international private medical insurance at Aviva, said: “When times are tough, it might seem natural to set one’s sights on moving abroad. But our survey shows that there are certainly pros and cons to moving and people need to plan carefully if they are considering making their dream a reality.”

Indeed, the research highlighted that a quarter (25%) of British respondents worried that they might have worse benefits if they moved out of the country. More than a third (37%) acknowledged that they may have fewer state-funded privileges in their new foreign location.

Mrs. Rogers further highlighted that uncertainty regarding quality of medical service in a new country remained a chief going concern for expatriates. “Health is clearly a primary concern for people and whether you’re thinking of moving abroad for a short time or on a more permanent basis you need to take care to ensure you and your family are always properly protected,” she added.

Healthcare has been an increasing concern for Britons when considering a move abroad. Almost half (46%) of those polled believe the UK has superior health benefits to other countries worldwide. Over a third of respondents claimed the National Health Service (NHS) would be one of the British institutions they would miss the most if they left. This is an increase on last year’s results which indicated only a quarter (25%) felt the same way about the NHS.

Speaking for Aviva, Mrs. Rogers understood British concerns with regard to foreign healthcare services: “Healthcare provision varies greatly around the world and even routine medical care can prove costly in countries that don’t offer a similar service to the NHS.”

Anxiety about medical services overseas, prompted six in ten (59%) responders to declare that they would factor heath insurance into their travel planning. In contrast, 38 percent of those polled, claimed they would not arrange any sort of health insurance prior to moving.

Mrs. Rogers summarized Aviva’s assessment of these figures: “Although it’s very encouraging that over half of the people we spoke to would consider taking out international health insurance, over a third (39%) would sort their health insurance out only once they’ve arrived,” she said, adding, “this could leave them in a difficult position should the worst happen.”

To better meet the needs of their expanding base of globally mobile clients, Aviva has been upgrading its international private medical insurance products. These upgrades range from structural adjustments in the application and claims handling processes to minor changes in global group coverage policies.

Aviva has also been very proactive in expanding its operations to attract more potential clients worldwide. The company has established a presence in many of the increasingly lucrative Asian insurance markets through joint ventures with locally based insurance companies in order to capitalize on the rising demand for insurance products and services in the region.

In Asia, Aviva currently operates out of China, India, Malaysia, Sri Lanka, Singapore and Hong Kong, and recently agreed to acquire a 60 percentage stake in Asuransi Winterthur Life of Indonesia. Although Aviva has announced its intentions to pull out of its joint venture with First Financial in Taiwan, pending regulatory approval, the company remains otherwise committed to concentrating on both the Indian and Chinese key markets in the Asia-Pacific region and it’s well established client base in Western Europe and North America.

Insurance Company 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.