The year in which GoshawK crumpled under the burden of TAG, Direct Line swallowed Churchill and the developing FSA rulebook was a constant reminder of the work to be done
JanuaryPricewaterhouseCoopers' (PWC) legal onslaught to recover premium and commission from Independent Insurance brokers began. The provisional liquidator, Dan Schwarzmann of PWC was set to launch test cases against two Independent brokers who had failed to sign up to his deal on outstanding monies. Earlier in the year, Schwarzmann had offered brokers a tough choice: pay up all time-on-risk gross premiums and 100% of commissions of returned premiums in a lump sum, or face legal action. Eighty out of 800 brokers refused to sign up to the deal. Directors' and officers' (D&O) cover would become a standard part of the pay and conditions of every non-executive of a large listed company, said law firm Reynolds Porter Chamberlain following the Higgs report into the role and effectiveness of non-executive directors. Higgs called for changes to the Combined Code that would require boards to provide greater transparency and accountability and closer relationships between non-executive directors and shareholders. Insurers were hit with a list of 44 questions from the Office of Fair Trading as part of its liability review. The questions covered areas such as distribution, competition, rates and claims.The ABI was effectively sidelined, as according to insiders the detail required by the questions meant that a consolidated industry response was not possible.
FebruaryInsurance Times was the first to tell the world that Direct Line was in talks to buy Churchill. Meanwhile, the red telephone company announced that it was to re-tender its loss adjusting - no one knew that this would take more than a year.Preston Whiteside, the broker at the heart of grossing up claims, had been collecting premiums but not placing cover, according to sub-broker Stuart Laing. South Yorkshire Police investigated.Chris Blackham announced that Layton Blackham would launch a broker network based around the Acturis IT platform.Magian, the agency that specialises in PI for IFAs, was to close to new business after its Trenwick capacity ran out.Insurers and brokers quarrelled over risk transfer. Brokers argued that under new FSA rules insurers should guarantee premiums. While the FSA announced that regulation for brokers would start on 14 January 2005.
MarchThe directors and auditor of failed broker Ward Evans braced themselves for legal action after a damning report from administrator Ernst & Young. The dossier identified a net shortfall of £3.97m in Ward Evans' accounts, but of more concern to creditors was the news that the company's directors had no directors' and officers' (D&O) cover and its professional indemnity (PI) cover had lapsed in November 2002.It was claimed insurers would pull home insurance cover on flood-stricken Lewes, East Sussex. Sources said Norwich Union, Direct Line, Royal & SunAlliance and Lloyd's syndicates were responsible for pulling cover, a move denied by all. In its response to FSA consultation paper (CP160), Lloyd's said brokers should be forced to disclose commission. "It is utterly unacceptable that a policyholder should be denied knowledge of the cost of his policy," said a confidential Lloyd's document leaked to Insurance Times. Central Scotland police fraud unit raided broker Grant Scott. It is thought there may have been hundreds of instances involving brokers in Northern Ireland where Grant Scott accepted premiums without actually placing cover.
AprilAround 1,800 broker firms will disappear from the market by mid-2004, concluded a Biba survey. Regulation, retirement and high rates would drive them to consolidation, said the report.Brokers feared they could be hit with a £50m bill for using internet-based price comparison software after inventor Roderick Lawrie claimed he owned the patent for the technology. Lawrie demanded that any broker using his system should pay up or be shut down. RAC said it would wait for Lawrie's demand before consulting its lawyers.Insurers were warned that they would be hit with a one-off cost of £50m if the FSA's proposal to treat commercial clients with turnover of less than £1m as private customers was adopted. They were also told they would face ongoing costs of £18m to £20m a year.Independent financial advisers (IFAs) were thrown a lifeline with the announcement that PI underwriting agency Magian was to launch a commercial venture offering exclusive cover to the troubled sector. A total of 554 IFAs were unable to obtain PI cover, according to official statistics supplied by AIFA, the IFA's professional association.
MayThe ABI was considering setting up a body that would settle liability insurance claims without using the courts, Insurance Times revealed exclusively.Inspiration from Ireland's evolving Personal Injury Assessment Board had impressed the ABI's head of general insurance, John Parker.The plan included giving the body power to award damages and settle legal costs on a fixed-fee basis in a bid to beat inflating judicial costs.The ABI continued to work on existing plans to link an insured's health and safety record Benfield was set to launch its IPO, which was London's biggest.
JuneIt was a case of big names quitting, as Biba chief executive Mike Williams left after eight years at the association to set up Total Broker Solutions, and Andreas Loucaides, chief executive of professional indemnity insurer PRI, decided not to follow former colleagues to join their new employer BRIT. Both high-profile departures were revealed first by Insurance Times, as were the names of the arbitrators appointed to sorting out the £290m reinsurance wrangle between Lloyd's and Swiss Re.VV 'Johnny' Veeder QC, Bryan Kellett FCII and Kenneth Rokison QC were to pass a binding judgment on both sides after a dispute over a £500m policy bought by Lloyd's to protect its central fund.TAG went bust spectacularly. Employees were notfied by text and looted offices becasue wages had not been paid.
JulyFSA regulation continued to dominate the news agenda in July with the release of CP 187. Early concerns centred on the proposal to extend the Financial Ombudsman Service to cover intermediation. However, the decision not to classify businesses with turnover of less than £1m as private customers was welcomed by the industry.Early signs of trouble at NIG Special Risks with the news the company was to put all future legal expenses business under review. A TAG hangover was again to blame.TAG struck again within days when GoshawK, struggling under the double blow of exposure to The Accident Group and space shuttle Columbia, was put up for sale.Insurers looking to benefit from trading out of Gibraltar saw their window of opportunity closing in late July as Gibraltar regulators came under pressure to apply risk based capital analysis. As the story broke we also found out that Saga Services and Euclidian were to set up underwriting operations from the Rock.And the FSA rounded off the month with news that it was looking at backing down over who would take the risk for client monies.
AugustLie detectors hit the headlines in August with Halifax Bank of Scotland (HBOS) insurance arm becoming the first big household name to run with the new Digilog lie detector.The insurer announced a three-month trial programme using voice stress analysis technology to weed out motor fraud. The initiative precipitated a string of similar deals as insurers realised the level of savings to be made.Norwich Union set the clock ticking towards FSA compliance when it put a 31 December deadline for brokers to decide whether they would become regulated. Further evidence of the FSA-ruled future came when Insurance Times published a sneak preview of the draught forms brokers would have to fill in to gain regulation.Though the FSA complained the forms were just drafts and shouldn't be published they remained on the Insurance Times website and proved to be very similar to the final copy.Waters subsided on a row concerning flood maps when Norwich Union and the Environment Agency agreed to work from the same mapping information.And the eventual run-off of NIG's special risk division came a step closer when it became apparent a buyer could not be found for the business. The insurer's legal risk arm was set to be another victim of fallout from The Accident Group.
SeptemberThe FSA released its near-final rules for brokers in September, and in doing so ruled out the possibility of making the transfer of client money risk to insurers compulsory. Among the changes to the FSA's proposals was a relaxation of brokers' professional indemnity cover. September also saw some high-level broker departures with BDML Connect managing director Paul Cosh and Hill House Hammond managing director Eric Galbraith both leaving their posts. Embattled insurer Royal & SunAlliance launched a £960m rights issue and announced plans to pull out of the US. It also revealed that it would cut a further 1,000 jobs across the organisation. To top the month off, reinsurers gathered in Monte Carlo for the annual Rendez-Vous, where the talk was of the plunging credit ratings of reinsurers and the beginnings of a softening market.
OctoberNIG announced that it was to put its Special Risks division into run-off after failing to find a buyer. Later in the month the renewal rights to some of the division's business were sold to the Primary Group. It was pistols at dawn between Zurich and Royal & SunAlliance, with the former boldly announcing its intention to overtake the latter as the UK's third largest personal lines insurer. Other insurer news included the announcement that QBE was to drop the century-old Iron Trades brand for its major risks division. The division is now known as QBE Insurance.Marsh said that there were legal obstacles to Airmic's plan for a mutual providing directors' and officers' (D&O) cover. "Airmic's approach should be to lobby for amendments to Section 310 [of the Companies Act]", said Marsh. Section 310 prohibits a company from indemnifying their directors except when they have been acquitted.
NovemberTime was finally called on GoshawK's operations when its Syndicate 102 was put into run-off. The management team had been under the hard gaze of the franchise board since March. Sources said that there had been concerns over the "operational management" at the insurer. All files on the investigation were passed to the FSA to decide whether to take action against the directors. The FSA was described as "bullish" on the matter.With suggestions of a softening market beginning to take hold, the FSA warned insurers that they needed to hold their nerve and avoid succumbing to the temptation to lower rates. FSA insurance firms division director David Strachan said that it was up to underwriters to protect themselves from the financial stress of a soft market. He called on insurers to "maintain discipline" and impress upon their staff the need for this.
DecemberPlans for a major new Lloyd's insurer targeting professional indemnity (PI) and directors' and officers' (D&O) cover were revealed. The brainchild of former SVB senior figures, Rupert Villers and Philip Whittaker, SunRise was set to start business in April 2004. Villers was looking to raise between £100m and £150m in capital from either Bermuda or private equity finance. About 50% of the business would be written in the UK.Fears that the integration of Churchill and Direct Line would be more of a takeover than a merger looked set to be realised, following a wave of bloodletting within Churchill. Judith Pritchard, head of home underwriting, and Nigel Bruce, head of marketing, were among a number of senior and middle management personnel who fell victim to the cull. Sources pointed to the overall dominance of the Direct Line managers in the battle to secure the coveted group jobs. Further evidence of Churchill's weaker position was shown by its move to adopt Direct Line's IT system, even though it had been developing its own system at a cost of between £50m and £100m. Norwich Union general insurance announced that it would be creating 1,500 jobs in India, with the loss of up to 1,000 jobs in the UK. Financial services union Amicus warned that up to 50% of UK insurance jobs could eventually be lost abroad. Other insurers were set to follow the trend. Royal & SunAlliance concluded a deal with Accenture that could lead to 580 IT jobs going to India. AXA was expected to move hundreds of jobs to a new call centre in Pune. And Allianz Cornhill announced it would be cutting 10% off its workforce over the next two years through offshoring.
