Weekly briefing: 12-18 August - Keeping that competitive edge

Saxon East: UK tax haven

So there we have it. German chancellor Angela Merkel and French president Nicolas Sarkozy dodged the issue on a common debt union and instead floated plans for a corporate eurozone tax rate. Obviously this does not apply to the UK, which is outside the common currency. That could lead to the UK having a 'beggar thy neighbour' policy for corporate tax, by undercutting the eurozone. In turn, that could attract a range of companies, not least insurance firms, to these shores. After years of UK-based insurance companies leaving the UK to redomicile to lower corporate tax bases, the UK could reclaim back some ground. As the old saying goes, there’s no place like home.

David Blackman: Credit note

This week’s Insurance Times reports that Premium Credit is due to be snapped up by a private equity investor. The company, one of two dominant players in the premium finance market, is being sold as part of a wider offloading of non-core assets by Bank of America. The disposal itself looks like a bit of a fire-sale. However the sale, to an investor seeking to boost its footprint in the insurance market, is further proof that the sector remains on private equity’s radar.

Ben Dyson: Room for innovation

Despite tough market conditions, it’s good to see insurers and brokers can still find time to innovate. If the news from the Co-op and young driver insurer Young Marmalade are any indication, telematics is resulting in genuine savings for drivers. As well as being good news for the drivers, it demonstrates that good motor underwriting is not just about putting up prices, but charging the right price based on the data available.

Perhaps more interesting is the emergence of alternatives to traditional insurance in the UK commercial market. Reinsurance broker Aon Benfield, Swiss Re and weather risk management firm CelciusPro teamed up to offer the UK construction industry cover for those times when bad weather suspends work on site but workers still need to be paid. The product has already been launched in the Netherlands.

The solution is not, strictly speaking, an insurance product but a financial hedge. Its closest cousin is the weather derivative, an established product that allows corporations to, for example, hedge against an exceptionally cold winter raising its heating bill.

It is possible that insurers could feel threatened by this development. However, capital markets alternatives have co-existed peacefully with traditional coverage in the realm of catastrophe reinsurance for years, and it is unlikely such specialist solutions would ever replace the bread-and-butter business of the UK insurer.

Liz Bury: Corporate focus

Capacity has outpaced demand from the UK corporate sector since the mid-noughties. Making a decent return has therefore become a challenge, even more so since the New Zealand and Japan earthquakes hit global supply chains earlier this year.

Insurance Times’ latest edition of The Knowledge, on corporate risks, investigates the underlying factors driving market capacity, and why even catastrophic events might not change things.

The focus for insurers is to target the fastest growing and most profitable clients. Brokers that hold the key to these clients through their relationships have a strong negotiating hand.

Mid-corporate is still seen as a lucrative market, but it’s hard to get right. As premiums go up, underwriting and servicing requirements do too. The Knowledge gives clues about the size and nature of the UK mid-corp sector. Again, brokers play a central role.

IT Broker View, our broker sentiment survey, gets the lowdown from brokers about how they are finding the corporate risks market: the good news is that 42% reported getting a better deal from insurers.

Sam Barker: Damage limitation

LV= is referring some automatic quotes in riot-hit roads to commercial branches as a precautionary measure - one concern is that brokers could ask for quotes next to properties that have suffered structural damage from fires or vandalism in the riots.

A spokesman from LV= dismissed speculation that it was freezing new business in riot-hit areas, insisting the insurer was writing new business. Other insurers have also said they have no plans to change their approach to riot-hit areas, among them AXA Commercial, Aviva and RSA.

Meanwhile, the Solicitors Regulation Authority (SRA) has rewritten the rules on solicitors’ professional indemnity insurance again after concerns that some underwriters were exploiting loopholes to save money.

The SRA initially published a rewritten rule book – the Qualifying Insurers Agreement – in July to tackle complaints that some insurers were not paying their fair share of Assigned Risk Pool costs. But the SRA changed the document again this week after realising insurers have found another loophole to avoid some ARP payments.

The SRA acted after some insurers realised they could reduce ARP costs for 2011/12 by receiving premium for policies between 31 January and 30 September 2011. Under the old QIA wording, premiums received by insurers in this time would not need to be declared for ARP purposes. One industry source estimated £2m-£3m of business had already been written using this tactic.