Last month, Victor Millwell published an article on the British Insurance Brokers Association’s (Biba) 2016 manifesto which outlined their areas of focus for the year. One of the most prominent points in Biba’s 2016 manifesto was “Regulation” as the association continues to work with the FCA to find a balance within the industry. Continue reading
With the coming of a new year it’s often common for respected companies and industry bodies to release their plans and predictions for the next twelve months. However, in the brokerage community there is one organisation whose manifesto we all take a keen interest in: BIBA. Continue reading
As a motorhome insurance broker, you will likely spend a large amount of your time keeping up to date with legislation and directives that are published on a regular basis. However, this is not always an easy job, which is why in this month’s article Victor Millwell investigates the new Insurance Distribution Directive (IDD). The IDD was adopted by the European Parliament on the 24th November 2015 and the Council of the EU on the 14th December 2015. The IDD has been altered so that it can replace the current Insurance Mediation Directive (IMD) which has been around since 2002. These new rules will regulate EU insurance brokers, agents and other intermediaries alike. These changes to the IMD were prompted by: • A larger focus on buyer protection across all financial sectors since the 2008 credit crunch. • The advance of the insurance market and product offerings since the IMD was first implemented. • Member states being inconsistent in the way in which the IMD regime had been actioned.
The IDD is a “minimum harmonization directive”, simply meaning that it sets a threshold in which national legislation must meet. Member states are allowed to maintain this or even introduce stricter requirements relating to selling insurance. As previously mentioned, the new IDD will apply to a wider regulation of insurance “distributors” including: • Every kind of insurance product seller, including anything that is sold directly to customers. • Anyone who is involved in assisting with administration or performance of insurance contracts. This includes someone acting on behalf of insurers e.g. claims management activities. • Supporting insurance intermediaries. Insurance expert Alexis Roberts of Pinsent Masons, said: “It is good to see that the IDD’s journey through the European legislative process is progressing at a steady pace. “The IDD has been on the radar for the UK insurance industry for some time and the UK has the advantage of having ‘gold-plated’ the current Insurance Mediation Directive, so requirements will not be felt as stringently as in other member states. It will be important, though, for relevant industry players to keep the new requirements of the directive and its implications for business, particularly for insurers’ direct sales processes, at the forefront of their minds in 2016.” Once implemented, the IDD will require a minimum of 15 hours each year for professional training and development for some involved in the distribution of insurance. This includes “relevant persons within the [distributor’s] management structure” and anyone “directly involved” in insurance distribution. All channels of insurance being distributed should have consistent information and buyer protection in place unless they are not liable due to meeting certain conditions. Insurance undertakings must implement, document and regularly review any internal policies. Furthermore, upon payment, clear information must be given regarding what the distributor will receive for selling an insurance product. The IDD will introduce a general rule that it is essential for distributors to “always act honestly, fairly and professionally in accordance with the best interests of its customers.”
Cross-selling and package products
Any time an insurance product is sold or offered along with another service or in a bundle, the insurer must inform the customer as to whether the different components are available to be brought separately. If they are able to do so then an adequate description of each component should be provided. The new IDD regulations include specific and tighter requirements regarding package retail insurance-based investment products (PRIIPs). The new IDD is very comprehensive so brokers should take time to read all the changes that have been made and start making small changes where they can. There is still plenty of time as the next step is for each member state to enact its own version of the law (i.e. an update of the Financial Services and Markets Act) and this means that it is likely to be at least 2 years before this become effective in UK law. However by starting now brokers can get a head start and be ahead of the game once the law is implemented.
A number of insurers and brokers have been re-evaluating their automatic policy renewals recently due to the amount of customer complaints rising dramatically. When it comes to insurance policies, most customers know when theirs is up for renewal and therefore begin looking for cheaper or more extensive policies during this time. However, there are those that claim that insurers are not always clear enough or do not inform their customers properly about their auto-renewals.
In certain circumstances, customers who are not aware of their auto-renewal policies can accidently end up purchasing a new policy and then find themselves paying for both. This could result in overdrawn bank accounts meaning a potential charge from the bank. This is why a number of insurers include information concerning policy auto-renewals within their Product Disclosure Statements which are usually sent to customers once they have purchased their initial policies.
In order to prevent such situations from occurring and to reduce the number of complaints made to insurers and brokers, a new industry code of conduct is being bought in to protect any “vulnerable” customers such as the recently bereaved and the elderly. This is particularly important due to the fact that Insurance Premium Tax (IPT) and therefore insurance premiums are rising, making the average cost of an auto renewal around £200 a year.
The new code will be put into place for the “vulnerable” which includes the elderly, bereaved and also those with low literacy and mental health issues. It is believed that people who fall into these categories are more likely to pay for an auto-renewal and it is likely that they wont realize that they are paying for it. Regardless of the auto-renewal, the average car insurance price has increased by £13 since quarter 3 of 2015. This means the vulnerable could unintentionally be paying a lot more than they need to be.
The Association of British Insurers (ABI) has stated that in order to protect their customers, brokers need to speak to their underwriters and ensure they are clear with any policy changes that could affect their customers’ fees for next year’s payments compared to the previous year. The ABI states that brokers should also ask for consent when it comes to renewing policies which could hopefully end up saving motorists over £100 a year.
They added: “People with low literacy or numeracy skills, mental health issues, old age or a recent bereavement” will pay extra money needlessly, without realizing.
Here at Victor Millwell we often discuss how insurance brokers can navigate complex regulations to ensure the success of their businesses as well as provide excellent customer service. This change is just another example of where the ABI and customers will be able to determine the good brokers from the bad, as those that already communicate well with their customers won’t have to change much in order to adhere to the new regulations.
In fact, these new regulations could increase the lifetime value of customers if brokers take this opportunity to build up trust with them. Conversely, brokers that aren’t completely transparent with customers could end up damaging their company’s trust and respect.
The new “vulnerable consumers’ code” is voluntary but will apply to policies sold by brokers belonging to the ABI or British Insurance Brokers Association (BIBA). The Chief Executive of BIBA, Steve White, said: “A published code will raise awareness. We are still working through the practicalities of how the code will operate, but we expect it will boost trust in the insurance sector.”
Brokers should also be sure that they are completely transparent about any premium increases when it comes to renewals, as in some cases price increases are not provided to customers either clearly or at all. If customers notice it will, once again, completely damage the trust they have for the broker. Most other companies (i.e. gas and electricity suppliers) are obliged to show broken down information on any price increases however motorhome insurers and brokers are currently not – something that will likely change in the future.
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Almost everyone these days knows the frustration when receiving a call from an ‘0800’ number or ‘no caller ID’ and it has even gone as far as receiving texts and WhatsApp messages from these nuisance companies. Whether it be a real person or a recorded message at the other end of the phone it normally starts with something along the lines of ‘have you been in an accident recently’? Most people will just hang up the phone however there are some that have actually been in an accident and are potentially owed some money.
An ABI commissioned survey has shown that 83% of people are contacted by claims management companies. These companies spend their time encouraging people to claim for compensation for most types of accidents. With 92% of people saying that the call was completely irrelevant to anything in their life and 83% feeling these calls are unacceptable and that something needs to be put into place to stop them.
James Dalton, the ABI’s Director of General Insurance Policy, said: “These shocking findings show that, despite recent reforms, the UK’s compensation culture is alive and well and continues to thrive. For too long, too many people have been plagued by these nuisance calls and action is needed to clamp down on them. The industry fully supports genuine claimants receiving compensation in a timely and proportionate manner, which is why we have campaigned for the changes to our civil litigation system.
“But the continued behavior of some claims management companies encourages fraudulent and frivolous claims that push up the costs of insurance for honest customers. We will be working with the Government in their review of the claims management sector to ensure that this day-to-day nuisance is tackled once and for all.”
False claims are not only harming the regular customer but also insurance brokers too. These companies are pushing people to claim which could eventually make the insurance industry more expensive. There is a vast amount of money being paid out that perhaps would not be if customers were not being pushed into claims they had not even considered previously.
Brokers are reminded to work closely with their underwriters to ensure that any claims being paid out are legitimate. The more people who claim means a bigger loss ratio which will inevitably lead to an increase in premiums and encourage customers to shop around when looking at policies.
Previously, the Government has cracked down on false whiplash claims in which apparent ‘tough new rules’ were set by the Claims Management Regulation to prevent regulation companies presenting poor quality claims. These claims cause delays to genuine applications which, in turn, slows down the whole process.
Therefore, tougher rules must be set for claims companies to ensure none of these issues occur. They should not be able to pester people about false claims and should not be allowed to offer “no win, no fee” bonuses.
Recently laws have been put in place for any claim companies that are breaking these rules. A director of a claims firm who are producing documentations that are not real could receive a 12-month jail sentence. Claims company The Hearing Clinic has been found to constantly pester people by calling them and encouraging them to make a claim and has been fined £220,000 after hundreds of complaints. These measures will hopefully be the stick companies need to prevent them behaving this way in future.
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