BRisk Autumn 2019

BRisk

Issue 3 Autumn 2019

Silent alarm Are traditional policies prepared for cyber losses?

Hitting the target Is insurance premium finance the answer to rising premiums?

Hot topic Managing risks with changing fire regulations Next steps What SM&CR will mean for firms in 2020

INTRODUCTION

2

FORWARD THINKING

W

e recently marked the first anniversary of the Society of Insurance Broking (SIB). It has been a delight to see how it has grown from an idea on how to better support members, to a growing resource of information.

As well as continuing our range of good practice guides, we also held a successful fringe session at the BIBA Conference in May. In our second year we hope to expand and diversify further into areas that continue to be important to brokers, as well as highlighting some of the great work being done across the sector.

the customer. With several Financial Conduct Authority consultations on fair treatment currently ongoing, this will sit well with the CII’s very own Code of Ethics. There will be lots of opportunities to explore with SIB looking at how members can get more involved.

But before any of that happens, we may finally see the UK depart from the European Union. With a lot of uncertainty at the time of writing, we are all still waiting to see how or if this will affect us. A lot of preparations are still underway, so we must continue to be thorough and reassure customers that all eventualities are being considered.

2020 looks set to be a challenging yet exciting year that will keep us very busy! But whether that is ‘good’ busy or ‘bad’ busy depends on how we approach it.

SIB will continue to look ahead at the issues most important to brokers as well as highlighting those that might get lost in all the upcoming activity. ●

Liz Foster reflects on a successful first year for SIB and shares plans for the beginning of 2020

LOOKING AHEAD This year also marks the implementation date of the Senior Managers and Certification Regime. With a lot of work focusing on getting this right, we must also look ahead to see what’s next. If 2019 was the year of responsibility, then 2020 looks set to be the year of

Liz Foster is non-executive director of the Society of Insurance Broking

sib.org.uk / Society of Insurance Broking / Autumn 2019

BRISK

T

elematics – or using black boxes to record driving and accident data – has been in use in the insurance industry for years. It originally targeted younger drivers to lower their premiums, by determining the safety of individuals’ driving and adjusting prices accordingly. Now, it is increasing in popularity among middleaged and older road users, as more people are becoming aware of the positives around using a black box to not only reduce insurance costs but also to protect a vehicle from theft, help support in the event of an accident and improve driving habits.

As the demand for black box insurance increases, it is becoming crucial for insurance providers to have a solution available to offer. However, having worked in the insurance profession for many years, I am aware that when it comes to brokers, it is all about two things – time and resource.

96%

IN THE US, ALL NEW CARS AND SOME 96% OF ALL CARS HAVE A BLACK BOX FITTED Source: USA Today

When speaking to brokers about ITS’ core proposition – collecting driver data to help understand the driver and the risk they present – I have seen that the interest is certainly there. Our innovative crash algorithm and incident report features, which determine the exact cause and force of a crash, offer huge advantages.

However, the same issue would always arise. Brokers were concerned they would not have the time to onboard the telematics solution and that fitting it in with their current processes would be cumbersome, complex and hugely time-consuming.

NEW SOLUTION However, this doesn’t have to be the case. We have recently launched our ‘ITS Hub’. Built specifically for people like insurance brokers in mind, it can now provide both end-to-end telematics solutions and also an agnostic device management data service - enhancing current telematics

propositions or helping to facilitate brand new ones.

By using artificial intelligence and machine learning technology, there is now a market-leading solution available that streamlines the insurance claims processes with detailed on-demand incident reports, true incident detection and advanced driver intervention solutions.

This allows two specific things that will appeal to insurance brokers.

Firstly, it has been developed to allow integration to be quick and simple, meaning that onboarding can be done seamlessly.

We were recently chosen by the insurance firm, XS Direct, to launch its first black box insurance policy, as they were keen to have a black box solution to offer their broker distribution partners.

It is easy to understand and sympathise with insurance broker’s concerns surrounding setting up a black box solution. However, it has never been easier thanks to breakthroughs in the sector and, as the car continues to become a device in itself, managing telematics data is only going to increase in importance. ● Adam Gooch is commercial director of ITS – Telematics Solutions

BOX CLEVER

ISTOCK

Adam Gooch highlights how new advances in technology can make motor telematics an easy solution for brokers

sib.org.uk / Society of Insurance Broking / Autumn 2019

3

CYBER

A 4

silent menace is stalking the halls of underwriters – that of silent cyber.

But what does that mean?

Sarah Stephens, a partner at JLT Specialty, summed it up: “Silent cyber refers to potential cyber exposures contained within traditional property and liability insurance policies, which may not implicitly include or exclude cyber risks,” she said.

“Unlike specialist standalone cyber insurance, which clearly defines the parameters of cyber cover, traditional insurance policies were not designed with cyber exposures in mind. In many cases, traditional policies will not specifically refer to cyber and could theoretically pay claims for cyber losses in certain circumstances.”

For brokers, this issue puts them plumb in the middle of the debate.

Insureds routinely report they would prefer to have cyber insurance sitting within their existing bundle of

THE SILENT THREAT

Silent cyber has become a term of some menace as insurers wake up to the accumulated risks sitting on their books from a cyber crime claim on a policy other than a bespoke cyber one, as we report

sib.org.uk / Society of Insurance Broking / Autumn 2019

CYBER

insurances – at worst as an extension of existing policies. Insurers say they would like more bespoke policies – the argument being that, say, a property underwriter cannot be expected to be a cyber expert as well and that this cover is best in the hands of the experts.

However, now it seems insurers are slightly less concerned than before as the coverage matures and the market has better assessments of the risks.

According to the 2019 Silent Cyber Risk Outlook report from Willis Re, the insurance sector is considerably less concerned about silent cyber exposures than it was in 2018.

The survey measured the expectation of more than 600 insurance professionals (including a cross section from claims, underwriting, legal, broking, and analytics) that cyber exposures will increase the likelihood of a covered claim in the next 12 months under insurance policies not specifically designed to cover cyber risk.

IMAGE: ISTOCK

ONE SOLUTION This autumn, broker Aon has launched a silent cyber solution to protect insurance carriers from silent cyber exposures through reinsurance to mitigate the risk in a carrier’s portfolio.

Aon stressed that carriers are now under increased pressure to identify, analyse and mitigate their exposures. The new solution should help insurers obtain more clarity on their cyber exposures with the option to exclude or recognise the exposure in each portfolio and evolve its reinsurance protections for cyber accordingly.

Luke Foord-Kelcey, global head of cyber innovation for its reinsurance solutions business, said: “Most importantly, it is about how we end the ‘silence’, strengthen the cyber re/insurance market and make it future-proof with more transparency, opportunities for growth and enhanced protection across the value chain.”

11%

OF BUSINESSES HAVE A SPECIFIC CYBER INSURANCE POLICY IN PLACE Source: ABI

BY 2019, CYBERCRIME IS EXPECTED TO COST BUSINESSES MORE THAN

£1.6tr UP FROM £400M IN 2015 SOURCE: JUNIPER RESEARCH

The significant fall in silentcyber claims expectations among respondents could result from an absence of wide-scale cyber events in the 12 months prior to the survey, in contrast to 2018, when the NotPetya and WannaCry malware events remained fresh in the collective memory, suggested Willis Re. According to Munich Re, global cyber insurance premiums are on course to rise to more than £7 bn by 2020, making cyber one of the insurance industry’s fastest growing business lines.

However, rating agency Moody’s has warned that the understanding of cyber risk is still developing and (re)insurers’ ability to cover it is constrained by their strict risk limits.

Moody’s also pointed to the silent cyber risk, saying: “Accurate assessment and management of cyber exposure is a top priority for P&C (re)insurers. Many are actively managing down their “silent cyber” exposures, especially since commercial property policy limits are often multiples of limits provided for cyber-only coverage.”

This, said Moody’s, was a top priority “because commercial property exposure limits are often multiples of limits provided by standalone cyber policies.”

It said the market has been reacting and insurers that write large national and multinational property accounts are shifting cyber risk to standalone policies or implementing cyber sublimits, or both.

In April 2019, Allianz announced that its large commercial business unit, AGCS, is taking the lead to implement a strategy for new business that will clarify whether cyber risk is explicitly included in traditional policies or covered in a specific cyber policy. The company also plans to implement a strategy for renewal business, subject to regulatory and filing requirements in certain jurisdictions.

Regulators are also acting: in January, The Bank of England’s Prudential Regulation Authority said it expected insurers to develop action plans by the first half of 2019 with dates and actions taken to address silent cyber risk.

In July 2019, Lloyd’s of London announced that beginning in 2020, all first-party property policies should be clear as to whether cyber is or is not covered. For liability and treaty reinsurance, insurers will need to clarify whether cyber is covered in a staged approach in 2020 and 2021. Lloyd’s also requires its syndicates to run realistic disaster scenarios, including a major data cyber security breach. ●

sib.org.uk / Society of Insurance Broking / Autumn 2019

5

R E G U L AT I O N

SAFE CONDUCT? 6

IKON

With the recent changes in building regulations and fire safety, are brokers talking to their clients about changes in the insurance cover needed? asks Rob Dakin

T

he Grenfell tragedy has highlighted many things can go terribly wrong with building regulations for fire safety.

The June 2017 blaze that killed 72 people is still being investigated.

Whether or not the regulations were correctly followed in the North London tower block remains a moot point.

But it should be remembered that these regulations are written to ensure life safety for occupants and visitors, including the fire service. If a fire starts, can occupants be warned and can evacuation safely take place?

Life safety is an absolute must.

The cost of insurance will depend on material factors. Best premiums apply when the building has been built for the higher level of property and resilience standard protection.

Take, for example, the fire that occurred in September at a timberframed apartment building in Worcester Park, destroying the whole block of 23 flats. If architects and developers plan only for life safety, and still allow for combustible elements of construction into the building, the margin of error – and danger – is quite high.

sib.org.uk / Society of Insurance Broking / Autumn 2019

R E G U L AT I O N

£1.3bn PAID IN PROPERTY FIRE CLAIMS IN THE UK IN 2018

Non-combustible construction typically means a fire is restricted to one flat. However, some factors can jeopardise that: designs to achieve good energy ratings; product sustainability; or fire door systems that are badly maintained. If fire protections do not work or have been compromised by alterations, flames can spread further.

There are positive noises from the government around reducing the height of residential buildings that must have sprinklers fitted from the current 30 metres, to 18 metres, with even the suggestion of 11 metres (which is around four storeys).

Insurers naturally support sprinklers, but the system that is designed and deployed must be right. One must bear in mind that a sprinkler system can still be overcome if flames develop in a void or in areas that are not protected by sprinklers, or in the case of a large multi-seat arson attack.

impregnated with resin to form the façade, which could perform worse than ACM. Dorian Lawrence, managing director of Façade Remedial Consultants, estimates there could be more than 5,000 buildings out there that could still have unspecified or defective systems in place.

Increasingly, insurers are asking for more information about the materials in use, how they were approved and the plans in place to replace defective systems. For high-rise residential buildings with one of the above systems in place, they will look at the fire risk assessment with great interest.

A type-4 invasive risk assessment should bring some information on the insulation materials.

A new market of façade inspection companies has developed to assess the panels for product and installation defects and determine if they would allow fire to spread and, as such, be non-compliant. The competency of these companies should be checked, of course, along with any fire risk assessment that comments on the suitability of the panels.

Clearly there is a debate now around the acceptability criteria of noncompliant clad buildings. What risk management approach is being used to mitigate the danger? How long before such systems are replaced? Government funding is currently available to replace

RENEWED FOCUS As the safety of tower blocks was assessed across the country after Grenfell, aluminium cladding materials (ACM) quite rightly became the focus of attention, as they made up the rainscreen wall system of the high-rise building, along with additional combustible insulation. The government is currently closing the net on other cladding systems such as zinc and copper, which present similar performance issues. And a question has now arisen on high-pressure laminate (HPL) systems, layers of wood

RISK MANAGEMENT HAS A KEY ROLE TO PLAY IN REDUCING CLAIMS COSTS. DEVELOPERS NEED TO ENGAGE WITH INSURERS EARLY IN THE PROCESS WHILE THE MATERIALS THEY WILL CHOOSE AND THE BUILDING TECHNIQUES THEY WILL OPT FOR WILL HAVE AN IMPACT ON THE PRICING OF THEIR COVER

sib.org.uk / Society of Insurance Broking / Autumn 2019

cladding on private blocks, but the fund is small (£200m) and the timescales are tight.

Besides, the issue of combustible construction is not restricted to highrise buildings, as the Worcester Park fire has reminded us. Fire is one of the most expensive property insurance claims, with the Association of British Insurers reporting £1.3bn paid to customers in 2018.

And results for the first half of 2019 results have outstripped 2018, making it a worrying trend.

KEY ROLE Risk management has a key role to play in reducing claims costs.

Developers need to engage with insurers early in the process while the materials they will choose and the building techniques they will opt for will have an impact on the pricing of their cover.

Installing more fire safe materials into the build is a starting point – that is where premium control is enabled.

Developers should also ensure the contractors they employ install everything in a fire-safe way. Bad workmanship is not always visible, as many fire protection systems like intumescent strips and cavity barriers are hidden once the works are complete. Having a clerk of works inspect sites should drive quality.

Ongoing and progressive training should maintain high standards.

In this context, omissions or poor workmanship can have hugely serious consequences.

In conclusion, fire regulations are getting stricter and there may be a cost associated with replacing unsafe materials, but it is worth the investment. The safer the materials, construction methods and building maintenance, the cheaper the insurance premium – and that is a message that brokers should be passing on to their clients. ● Rob Dakin is head of business resilience management delivery of AXA Insurance

7

S E N I O R M A N A G E R S & C E RT I F I CAT I O N R E G I M E

8

LOOKING CLOSER With the aim of encouraging public trust in insurance, The Society of Insurance Broking (SIB) has already examined both areas extensively as the focus of a former New Generation Group report and two separate good practice guides. These resources provide a helpful entry point for those who want to learn more about these risk groups as well as informing how to respond to the consultations. They explore the concept of vulnerability, how to identify it, how to identify

WHAT’S NEXT?

James Moorhouse looks at the impact of the SM&CR and what the regulation will mean for firms next year gaps in knowledge, how to provide suitable products and services, as well as how to signpost to other services.

If an insurance broker recognises something that their firm is not yet doing, then conversations should take place on how to improve their offerings.

Customers with pre-existing conditions have already been identified as a separate group that needs attention, particularly when purchasing travel insurance. At present there is a significant gulf between the understanding of particular medical conditions and how to price coverage accurately.

The consultation on vulnerable customers will no doubt identify other specific issues that require focused consideration.

One such group might be customers affected by dementia, whether

VULNERABLE CUSTOMERS Types of customer who could be considered as vulnerable include: ● elderly customers; ● customers with a disability; ● customers with mental health issues; ● customers with poor literacy, numeracy or computer skills; ● customers providing care; ● customers diagnosed with a long-term or chronic illness; ● customers experiencing a sudden change in circumstance.

they have dementia themselves or have caring responsibilities for someone with dementia. The emotional impact of a diagnosis will be big enough, let alone the difficulty some people experience either accessing or handling their insurance products. According to research from Alzheimer’s Society, “people living with dementia have told us that one of the biggest challenges they face is dealing with banks, building societies and insurance companies”.

Responses such as this demonstrate the need for insurers to identify how fairly they are treating their customer. If someone experiencing difficulties finds their insurance products challenging then something is wrong. Treating everyone the same is not the same as treating everyone fairly. A one-size fits all approach is not necessarily the best method.

Income protection and critical illness cover also need to be easily accessible. Insurance brokers should be looking at whether existing products are fit for purpose and are suitable for their customers.

Just because they have been suitable in the past does not mean they will still be suitable in the future. They should be considering how they match up to their responses to the FCA’s consultations. If there is a difference between what they would like to sell and what they actually sell, then changes need to be made.

Rather than wait to see the outcome

sib.org.uk / Society of Insurance Broking / Autumn 2019

KON

T

he Senior Managers & Certification Regime (SM&CR) has been a focus for all insurers for the past few years. Ever since it was extended from financial services to solo-regulated firms, accountability and ways to identify it have been a priority for most. Once the regulation applies to solo-regulated firms in December, the question will be, “what’s next?”

Looking at current activity from the Financial Conduct Authority (FCA), it looks as if 2020 will focus more on the fair treatment of customers. At present there are two major consultations: one on the fair treatment of vulnerable customers; and the other on new rules to help consumers with pre-existing medical conditions access suitable travel insurance.

The need for these consultations has arisen from observations that access to insurance products and services can penalise and exclude those who need them most. The FCA describes a vulnerable customer as, “someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care”.

Both consultations complement each other as one addresses the concept of vulnerability, whereas the other focuses on one particular vulnerable group. Hopefully, the feedback from each consultation will be relevant to the other so that they can work consistently alongside each other.

S E N I O R M A N A G E R S & C E RT I F I CAT I O N R E G I M E

BY GETTING INVOLVED NOW WILL MEAN THAT NOT ONLY WILL INSURANCE BROKERS BE BETTER PREPARED BUT THAT THEY ARE INFLUENCING A POSITIVE CHANGE of the consultations, insurance brokers should actively participate with their thoughts and examples on what they are already doing or their areas of concern.

It is inevitable that changes will take place and new regulations will be created as a result. By getting involved now will mean that not only will insurance brokers be better prepared but that they are influencing a positive change. The implementation of the SM&CR should mean that insurance firms are better organised internally, so that they can now spend more time on their customers and how to provide a fairer service.

To read the New Generation report and Good Practice guides, visit the Learning Content Hub on the Society of Insurance Broking website at: sib.org.uk â—?

James Moorhouse is content manager at the Chartered Insurance Institute

sib.org.uk / Society of Insurance Broking / Autumn 2019

9

PREMIUMS

BUDGETING FOR INCREASING PREMIUMS 10

UK environmental conditions and government directives both look likely to raise insurance premiums once again. Owen Thomas explains how increased uptake of premium finance can help alleviate this issue and create a positive outcome

sib.org.uk / Society of Insurance Broking / Autumn 2019

PREMIUMS

T

he insurance market has had a difficult few years.

Following on from the global natural catastrophe events of 2017, such as the HIM hurricanes and, in 2018, everything from Latin American dam collapses to large losses in global director’s and officer’s, construction and marine markets, the full impact of Hurricane Dorian which hit the Bahamas in early September this year is still unknown.

Closer to home, torrential rainstorms have been wreaking havoc in various parts of the UK. Images of flooded homes, decimated businesses, damaged infrastructure and cancelled events have once again become common place in the news. Thankfully, disaster was averted at the Whaley Bridge dam – the consequences of a failing dam wall would have been unimaginable for the communities close by.

As the flood waters subside, who will pay for the damage caused? The answer in short – insurers to a large degree and ultimately, the insurance customer through an increase in premiums.

Environmental impact is also causing a potential premium rise, alongside regulatory decision making.

Long awaited adjustments to the Ogden rate, reflecting the return that personal injury claimants can typically expect to receive when they invest their compensation came into force in August.

To the industry’s dismay, the review has not increased the rate to levels hoped for, triggering concern that insurance premiums will rise yet further as expectations have not been met.

The consequence to raising insurance premiums in general will be significant.

It will bring an inevitable wave of consumers and businesses becoming underinsured, not insured at all or having their cash flow negatively impacted - won’t it? Well actually ‘no’, not necessarily.

SOFTENING THE BLOW Insurance premium finance is one option to help soften the blow of any future increase in premium costs and avoid the aforementioned scenarios. It is offered by many insurers and brokers giving their customers a payment option that spreads the cost of the insurance premium through monthly instalments and lessens the impact of any increase in insurance costs.

Everyone from the home or car insurance customer all the way up to corporate and multinational businesses will have budgeted for an expected outlay on insurance and so a premium finance option could allow budgets still to be achieved in year, while providing time to allocate the funds for the increase in the following year.

Premium finance also offers additional benefits not only to the customer, but to the broker and insurer, who can gain from the thirdparty relationship with a premium finance provider. As well as increasing payment options and customer choice, intermediaries receive a percentage commission for every new credit agreement they set up for their customers choosing to pay in this way.

As such, premium finance is viewed as an additional profit source; a second

income stream with commission on each finance approval and often a way to improve client retention. Insurers also get the benefit of receiving all the insurance premium up front and not having the uncertainty or processing costs of direct debits throughout the life of the policy.

Premium Credit has invested significantly in the business and its technology in recent years to provide partners and their customers with a seamless, compliant journey.

Technology can seamlessly connect with a broker’s systems and processes and provide digital self-service for payments, automation to replace manual processing and enables the consistent offering of finance for every policy a broker writes. The data also powers analytical tools which will help to improve brokers’ commercial performance.

We also have a national capability team to provide bespoke training; much of it continuing professional development accredited, to broker partners. The team has had a significant and positive impact on customer experience, revenues and brokers’ commission, while the support ensures that front line staff are properly equipped to best serve the needs of their customers.

Due to a number of factors, an increase in insurance premiums is inevitable in coming months.

Premium finance is a viable option to help alleviate this issue with many additional benefits besides. ● Owen Thomas is chief sales officer of Premium Credit

IKON

BENEFITS OF USING PREMIUM FINANCE ● Improved cash flow – freeing up the lump sum to use elsewhere ● Ensuring customers have the required level of insurance cover without being held back by the upfront cost ● Eliminates the requirement for a large up-front payment to an insurance company, particularly for new purchases ● Multiple insurance policies can be attached to a single premium finance agreement allowing for a single payment plan ● Avoids the need to liquidate other assets to ensure insurance coverage ● By using other people's money (leveraging the premium finance lender's capital), customers can retain a significant amount of capital known as ‘retained capital’

sib.org.uk / Society of Insurance Broking / Autumn 2019

11

Chartered In su ran ce In stitute 21 Lombard Street, London, EC3V 9AH cii.co.uk