Daily briefing: Wednesday – Post-coding warning is just the latest insult

Whatever the rights and wrongs of post-coding, insurers that continue with the practice should be concerned.
 
Jack Straw has warned that insurers caught post-coding – refusing to offer motor insurance or hiking premiums depending on where people live – could lose their ability to underwrite in motor.
 
The former justice secretary carries considerable weight in parliament. After all, the ban on referral fees was going nowhere until he stepped in.
 
More importantly, insurers must realise they’re an easy target in the political arena. People are outraged at their hiked premiums and all the sleaze surrounding no-win, no-fee cases.
 
Politicians can appeal to the mass electorate by clamping down on insurers. Post-coding is an especially easy vote winner.
 
Insurers can argue until they’re blue in the face about the risk associated with underwriting in fraud-ridden areas, but politicians will claim that some of the poorest areas are hit the hardest.
 
Government intervention is likely to appeal to the vast majority of politicians with social justice on their minds. Only traditional Conservative MPs would frown at the prospect of the state intervening heavily, and perhaps even taking over from the private sector.
 
The ABI needs to get on the front foot as soon as possible with post-coding. It has the potential to explode into the public spotlight, dragging the reputation of personal lines insurers further into the gutter.

Insurers won’t be short changed

Once upon a time, bankers sniffed at insurance as a second-class financial job. But in today’s climate of insecurity, it is the insurers who increasingly hold the cards.
 
That’s demonstrated by a warning from ABI chief executive Otto Thoresen for banks not to short change insurers over bond swaps.
 
It could lead to an insurance buyers’ strike on buying bank bonds. That would be damaging for banks for two reasons.
 
First, UK insurers have £1 trillion under asset management and also invest their own capital in bank bonds. A strike could be hugely damaging for banks.
 
Secondly, in September central banks in USA and Japan had to flood European capital markets with dollars after American money market institutions, scared by the Eurozone crisis, pulled their dollars out of the continent.
 
Those powerful American financial institutions are unlikely to come back anytime soon. The last thing they want to do is risk their clients’ capital by snapping up bonds of dodgy European banks.
 
That leaves UK and European insurers and pensions funds as one of the few remaining institutional investors in town still willing to buy corporate bank bonds.
 
Trying to short change insurers with dubious bond swaps is a very risky game. Banks should be very careful about biting one of the few hands that still feeds them.