ABI back in the good books

The ABI took a big step towards redeeming itself in the eyes of the UK general insurance industry today after it successfully overturned a key ruling that could have cost insurers millions.

The association took the Court of Appeal to task over its ruling in the Simmons v Castle case, which relates to the 10% uplift in general damages awards that will come in when the Aid, Sentencing and Punishment of Offenders Act (LASPO) comes into force in April 2013.

The issue was, at what point will the 10% damages uplift kick in. Under the original Court of Appeal ruling, it would have applied to all cases decided after 1 April 2013, regardless of any provisional agreements on damages awards that had been reached before that date.

Following the ABI’s victory, however, the 10% rise will not apply to cases where claimants had entered conditional fee arrangements before the 1 April go-live date.

This means that the 10% rule will initially apply to less cases than first thought, so insurers will have to pay out less and the transition will be less painful for them.

Result saves Direct Line millions

One insurer that will want to firmly congratulate the ABI for its efforts is Direct Line Group (DLG). It could have faced charges of between £30m and £45m to its 2012 pre-tax profit if the ABI failed in its plan to change the Court Of Appeal’s mind. Some observers predicted this could have knocked 3p off its flotation price.

The issue clearly goes far beyond DLG, however, as shown by the ABI’s involvement. The only reason DLG’s potential burden from the ruling was public knowledge was that the insurer is in the process of listing on the London Stock Exchange, and therefore had to disclose the detail to potential shareholders to avoid any nasty surprises.

It is unclear how this ruling would have affected other insurers, but it is likely to have run into the hundreds of millions. Not a huge deal for an industry capable of shouldering multi-billion-pound flood claims, but a nuisance at a bad time nonetheless.

The ABI has faced strong criticism, notably from outgoing Hiscox chairman Robert Hiscox, for being obsessed with life insurance and corporate governance. But the efforts it made in this case clearly show it is adept at fighting general insurers’ corner too.

It is a small victory, perhaps, in the scheme of the changes the UK general insurance industry faces, but a comforting one nonetheless.