Daily briefing: Wednesday - Insurers to the rescue

The government has run out of cash. And the end of this age of austerity has been postponed for another two years: that was the message from chancellor of the Exchequer George Osborne yesterday when he stood up to deliver the annual autumn spending statement.

But the UK still has pressing infrastructure needs, which will get worse the longer they are not attended to. The rub for Osborne and his governmental colleagues is that improved roads, railways and other infrastructure are a pre-condition for economic growth in an increasingly networked global economy.

So, step forward the insurance industry to deliver the capital investment that the nation needs so urgently. Yesterday, the government announced an Insurers’ Infrastructure Investment Forum to plot ways to develop investment products that can be used to finance infrastructure.

The government’s head has been turned by the activities of overseas pensions funds, which have been piling into UK infrastructure. Treasury chief secretary Danny Alexander has namechecked Birmingham International  Airport, the expansion of which is being bankrolled by a Canadian teachers’ pension fund. If one Canadian fund can do this, how much more could UK institutions deliver?

The infrastructure bonds that the government is pushing are likely to have the greatest appeal to pension funds and insurers’ life arms – the long-dated returns on infrastructure fit neatly with their liabilities. Nevertheless, creating another asset class has got to be attractive for general insurers, especially at a time when investment returns are so poor and there are such huge question marks over sovereign debt – the traditional safe haven for long-term investment.  

There is one question that ought to be on the table when the talks get under way: in return for the industry facilitating the delivery of the nation’s infrastructure needs, could the government boost its investment in flood defences?

Politicians on the industry’s side for a change

Motor insurers must now be getting used to scrutiny by Westminster politicians. Ex-justice secretary Jack Straw has been on his soapbox for months now about the escalating cost of car cover. He kicked off with a push to ban referral fees, which has been picked up by the government. Less welcome for the industry is his more recent crusade to tackle postcode pricing.

But the Labour grandee is not the only MP to be making a noise about the issue. Lincoln MP Karl McCartney’s focus on uninsured driving fines will be sweeter music for the industry than that offered by Straw.

In response to a question from the Tory MP McCartney, justice minister Crispin Blunt revealed that the average cost of a fine for driving without insurance is just £200. When the average motor premium is around £1,000, it is hardly surprising if motorists opt to take the risk of being caught.

As McCartney said in the House of Commons recently, the average young male driver in his constituency would have to be fined nearly 13 times before he is out of pocket. The Ministry of Justice needs to get the courts to take a hard look at the penalties they are imposing.