From City AM:
Motor insurers have paid out more in claims than they received in premiums every year since 1994, according to the Association of British Insurers, as claims filed by “no win, no fee” lawyers have increased.
Insurers have long battled fraudulent claims and are hopeful that plans to ban lawyers from paying fees to agents who refer accident victims to them will temper the increase.
However, Admiral [a motor insurer] revealed in August that fees from referring its own customers to personal injury lawyers generate six per cent of its UK pre-tax profit.
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1 hour ago
21 comments:
Where does the money come from? Did they just build up enormous war chests pre-1994? Or are they just mortgaged up to the hilt?
RA, we only have the ABI's word for that. Short of downloading all their accounts and trying to piece it together, I'd assume that they make money from:
1. Investment income (i.e. income from all the pre-94 accumulated premiums)
2. Cross-selling, maybe they take a loss on the motor insurance but stiff you on the home insurance.
3. Other income, like selling off customer databases.
MW
I'm sure you're correct. Why would any insurer keep offering motor insurance if it had been producing losses for 16 years? AFAIAA there is no law/regulation in place which compels insurance companies to offer motor insurance.
Either the ABI is lying/playing fast and loose with the truth (not unknown in respect of trade bodies) or it is seriously deluded about the way the insurance business works (also not unknown in respect of trade bodies).
I despise the no win/no fee rules. It's one of the many things that panders to the 'it's [never] my fault' culture, which is of course deliberately engendered by the quangocracy for its own marketing reasons. It is rife in financial services where any spurious claim from mendacious clients is supported by a capricious bureaucrat in order that that bureaucrat is perceived to be the white knight rescuing someone from the unscrupulous maw of inherently 'dishonest business'. It is needless to say exactly the other way about. It is the opportunistic customers / clients that are mendacious and the arbitrary decsions by the bureaucrats that are dishonest.
The 'processes' these functionaries establish to 'assess' alleged commercial calumny are easily maniputable by ambulance chasers who trawl for business on the same no win / no fee basis.
This whole edifice has reversed the fundamental English law concept of caveat emptor, whilst also being deliberately obtuse when making judgements about 'professional responsibility.
It is all utterly corrupt.
U, ta for back up.
L, that's a bit strident. UK financial service has a long and shameful record, like endowment mortgages, split capital trusts, Equitable Life, PPI etc. For sure, all these fines and penalties are a drop in the ocean and after the event, but the problem is that people keep falling for the same old crap.
I suppose that's an argument for not having any compensation schemes whatsoever - once everybody has been ripped off and not compensated once, they'll never trust the financial services again, above and beyond basic banking and taking out a mortgage. Which would be a storming result.
Mark:-
You might be looking for...
4. Interest on premiums.
Even if you pay out the same in claims (less costs) that you get in premiums, you still make money because of the interest that's accuring.
And because it's large amounts of money that you can consistently predict, you get quite a decent return investing it (major storms tend to throw a spanner in the works).
I was told 20 years ago by one of the senior guys at the large brokerage I worked for that insurance companies pay out the same in claims that they make in premiums, but the profit is the interest.
The funny thing is that until I read this story today, I was a bit suspect about what he said, but it seems to add up now.
JT, ta for anecdotal, we'll add that interest to investment income.
MW - strident it maybe, but oyu may not have to live with this stuff, I do.
Whilst I agree that there have been 'issues' with FS products by far and away the biggest culprits are the retail banks. Only about 4% of successful FOS claims are attributable to indendent advisers.
In regards to endowments I personally have never had a complaint to me about them, but I have had over a dozen come across my desk from clients who previously bought elsewhere. In the majority of cases these clients acknowleged that they were fully aware of what they had bought and simply felt it was daft to pass up 'free money' by not making a complaint.
The other side of the 'it's not my fault' culture is the greed of the citizen. A large proportion of them continue to believe that that there are clever people with unique knowledge and insights that alows them to beat the market, and they buy into it. It's been that way for centuries (Dutch Tulip Bulbs, South Sea Bubble, Ground Nut Scheme etc etc) and I do not ever see it changing. It's the human condition. In fact the current reg-yew-latory settlement aggravates the problem.
I am currently going through our one and only 'complaint' that has got as far as the FOS and you just would not believe the abitrariness, bias and general incompetence of the FOS 'adjudicators'. However it goes I am going to tell the FOS that I am going to publish everything. You can bet your bottom dollar that they'll do all they can to stop me.
And as you know I hold out no candle for FS in general and banks in particular.
Oh, and I second your last paragraph, except that I am certain that I could still make a business in FS.
The home of litigation is crippling our industry.
L: "by far and away the biggest culprits are the retail banks. Only about 4% of successful FOS claims are attributable to indendent advisers."
Yes, that it certainly true. It is usually the retail banks who dream up these wizard schemes, the little chaps just sell them to the end punter.
So auto-insurers can't be accused of getting economic rent from their product being mandated then?
-Kj
MW. No, you are mistaken. These are not 'wizard schemes' that are onward sold. These are simple things like endowment mortgages, investment products, ISA, Insurance bond funds or whatever sold by the banks staff, badly. Or rather, as the bank is not the agent of the client it is simply doing what say, car dealers do, selling a product for a profit.
If you really look at the figures such products sold by independent advisers have a very low complaint rate, usually because they take their time to try and figure out what the client wants/needs.
I accept your native point that blokes like you (and me) don't need this service, but millions do. In fact by my calculations 80% plus of what I do is education, making up for the huge educational deficit engendered by a disfunctional educational system, the financial pornography in the press and the deluded consumerism/cod socialism of the BBC. Personally I am more than happy when clients are highly informed.
Furthermore if it wasn't for the ludicrously complex pensions and tax and other mad rules and regulations the job would be much simpler and clients would have a hope of getting it. Dealing with that takes up another 15% of our time leaving 5% for actually dealing with the client's hopes and dreams.
When I am FS minister by Tuesday afternoon 80% of the complexity will have gone and the poor bloody citizen will have a hope in Hell of understanding it all. That will also kill off a lot of the confusion marketing opportunity for the banks - which in any event I will have sorted on Monday.
"The home of litigation is crippling our industry"
And not just our industry. It's hard to think of any part of life which is not duller or in some way worse, because of the risk-averse nature of society engendered by all this bloody sueage.
The biggest problem is the bogus personal injury claim.
It is standard practice for "claims advisors" (who never seem to have any qualifications to suggest their advice is anything more than shysterism) to ask gently (or not so gently) leading questions so as to elicit a report from their customer of whiplash injury, or a stiff shoulder, or trouble with a knee. Only injuries of a type that cannot be disproved by medical examination are included together with a claim for £100 to repair a dented door.
Payouts are often in the low thousands because the cost of defending a bogus claim made by someone with no money is seen to be greater than paying-off the fraudsters.
Fighting a whiplash case through the small claims court will cost the insurance company a few thousand even if it is done at bargain-basement prices and they will not be able to get any of their legal costs back (other than court fees) even if they win because the court doesn't have the power to order it. Instead of spending £3,000 successfully defending a claim they are better-off paying £2,000 for it to go away.
An awful lot of "claims advisors" are just fraud advisors.
TFB, Eggsaktly. Similar process is used by FS 'ambulance chasers', except that they take 30% ish of 'redress'. Again stats show consumers using these 'services' are less likely to be 'successful' in claiming 'redress' than if they'd gone straight to the the (corrupt) FOS.
KJ, the insurance market seems to be reasonably competitive. For sure, third party insurance for cars is compulsory, but that seems like a sensible rule to me, and we just have to live with a bit of rent seeking.
L, you're the expert not me. When I say 'little guys', that applies to bank staff working on commission in branches, TBH you can't expect them to know what they are selling, they just repeat what it says in the memo from Head Office.
B, agreed.
TFB, thanks, that seems to be how it works, all a bit self-defeating but where do you draw the line?
MW - Quite, Bank sales staff sre by and large numpties. I have had some approach me for a job, and upon interview it is totally clear that they require complete technical and ethical re-education, and worst of all they have absolutely no idea how to generate their own work. Plus they are wildly overpaid, so we cannot compete with that either.
Bayard,
And not just our industry. It's hard to think of any part of life which is not duller or in some way worse, because of the risk-averse nature of society engendered by all this bloody sueage.
A lot of the problem is that our public servants have little incentive to do things, and plenty of incentive not to do things. It's not just about litigation.
If a council officer allows a torch parade to go through the town, what's his personal potential gain, and what is his personal potential loss? If he bans it, what is his personal potential gain and loss? Basically, he gains nothing from it going ahead, and potentially risks his career if a disaster occurs and he becomes the fall guy. So, given a choice of where to apply his energies, is it going to be towards making it happen, or to look for something in H&S legislation that can stop it happening?
This is one of the many reasons I like the competitive private sector - because they'll try to make things happen. They'll balance risk with reward. If you take out the big slide at your funfair, people won't come. So, you have to work out a way to make it safe, and to some extent, to accept the risk in return for a reward.
It's even better if the 'fraudulent claim' comes from a minor under 18 or someone who is living on benefits only as the insurance co even if it wins cannot get it's legal costs back as the lose is made of straw. This has happend to my children twice now in the last 3 years in both cases the other party really was the at fault one but insurance company paid up to repair car as the other party had no money/insurance and then to add insult paid £1000 in one case and £2000 in other to the person who caused the accident in the 1st place. So much for justice in britain. Just pay claim it's cheaper than court and by the way we will up your premium as you have had to make a claim!
MW it's when you get industrial scale ambulance-claiming of the kind that the Fat Bigot refers to. Maybe a blacklist of shyster "lawyers" would help. Any claim from them, instantly disqualified...but then how do you keep the list up-to-date. Perhaps the solution lies in making it mandatory for magistrates to be bad-tempered, crotchety, gouty bastards - who will instantly rule out any claim from anyone with a "legal" advisor for anything to do with insurance or financial services.
BTW http://www.telegraph.co.uk/news/worldnews/africaandindianocean/southafrica/8887115/South-African-farmer-killed-by-pet-hippopotamus.html
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