Peter Hill CORPORATE SOLUTIONS Where do I begin
Peter Hill CORPORATE SOLUTIONS
Where do I begin? A decade of opportunity A decade of achievement A decade of growth and prosperity for insurers? A decade of opportunity
Aegon Company (UK) Ltd AGF Insurance Assitalia Avon Insurance Co Builders Accident Insce. Chubb Insurance Cigna CAN Re Colonia Continental Insurance Dominion D. T. Carey Syndicate Eagle Star Frankona Gan Minster Insurance Gerling Insurance Hallmark Insurance Provincial Insurance QBE Insurance R. H. Lister Syndicate Scottish Lion Independent Insurance Sirius Insurance Iron Trades Insurance Skandia Insurance J. Murphy Syndicate Sun Alliance Insurance K. J. Davies Syndicate Swiss Re London & Edinburgh UAP Munich Re UK M. W. Payne Syndicate NW Reinsurance UIC Insurance Winterthur Insurance Zurich Insurance
Reliance Royal London MGI/MMI Northern Star Reliance Sampo/Colonia Baltica/TRYG Baltica St Katherines Choyoda Lombard CU/GA Pru GRE CU Underwriter
A decade of missed opportunity A decade of under achievement A decade of decline insolvency/run-off and Market withdrawal
What have we as Underwriters been considering? Short review of some of the topics discussed over the last 10 years
‘ 94 Mark Scoggins, ‘The Uncertain Legal Background’ - IBND Peter Cane, ‘Torts. An Unfair System of Compensation’ ‘Alternative Systems of Accident Compensation’ Andrew Bryce, ‘Pollution & Unforeseen Exposures’
‘ 95 Mark Scoggins, ‘Legal Developments’ - P. T. S. D. - Limitation - Latent Losses - Conditional Fee - Aggregation of Claims & Deductibles Andrew Bryce, ‘ Environmental Impairment’ Peter Cane, ‘Accident Compensation’ Michael Medelowitz, ‘ Insurance Cover for the Long Tail & the Unforeseeable - Problems with wordings which arise when Courts interpret them
‘ 96 Valerie Fogleman, ‘Legal Developments in Environmental Law’ Matthias Solibent, ‘Faults in Liability Wordings for Long Tail and Environmental Exposures’ Glenn Legge, ‘Legal Developments in the USA’
‘ 97 Dick Blatt, ‘USA Revisited’ Ken Larner, ‘Actuaries - Empowering the Underwriters and Risk Managers of the Future’ Tom Constance, ‘ More Long Tail Pollution EMF’s and other problems’ Don Carey, ‘Liability Wordings Exposed’
‘ 98 Glenn Legge, ‘ A Signpost for the future. A Review of Developments in the USA’ Debate: ‘This house believes that the subscription market encourages poor underwriting standards’
‘ 99 Derek Burke/Valerie Fogleman, ‘Genetically Modified Organ’ Charles Secrett, ‘Hormone Disrupting Chemicals’ Carmelia Gabriel, ‘E. M. F. ’
‘ 00 F. Gill Geoff Meye/Debbie Chartler, ‘The Legal Challenge’ - Corporate killing - Trans-national litigation - Stress Mike Brockman, ‘The Challenge of increasing awards - an actuaries view’ - Estimating the ultimate cost - Dealing with large claims - The reserving - prior limbs
‘ 01 George Pullman Q. C. , ‘Developments in Personal Injury Litigation’ - Toxic torts - Damages, keeping claims within bounds - Costs, CFA’s & Legal Aid Steve Sayers /Jonathon Clark, ‘ Emerging Issues in Product Liability’ - Home pollution, lead/appraisals - Technology, mobile phones Alan Bertoshaw, ‘ Rehabilitation - a New Approach to Handling Personal Injury Claims’
‘ 02 Geraldine Elliot, Paul Matthews & Simon Goldring, ‘ Facing the Demons - the UK’s Compensation Culture’ - Class actions - Tobacco drink & food - Stress - Education
What can we learn from this? ROME BURNED WHILST NERO FIDDLED We have been concentrating on mass tort Trying to predict the next ‘asbestos’ We have ignored the growth of the attritional loss problem We have not addressed the latency issues inherent in an occurrence wording
What has happened to our industry over 10 Years? Partial consequence in the volume of; - run-offs - insolvencies - withdrawals - restructuring/merger/de-merger - re-financing - down-sizing - return to core business - concentration on key market sectors
What has happened to our industry over 10 Years? De-manning of the industry; - De-skilling at a time when key skills were most needed - Bad choice of cases to run to trial resulting in adverse case law - Lack of product development - Flight from basic principles; - Losses of the few shared by the many - Fortuity of loss
I said ‘partial’ consequence. What else has contributed to the state of the market now? Cash Flow U/W & Market Share U/W - Both produce unsustainably low premium levels - This in turn produces unrealistic expectations by buyers Severe reduction in investment income - Traditionally investment returns would pay for, substantially contribute to office expenses - Hence damage limitation on overhead
I said ‘partial’ consequence. What else has contributed to the state of the market now? Fall in the value of investments This directly affects the amount of business that can be written If this reduction coincides with an up-turn in Premium rates the effect of the market to take the business volume is further reduced Changes in the dynamics and costs of claims investigation and settlement The market cycle assumes pari-persu with regard to all other variables. This has significantly changed this time.
Whilst the insurance market was doing this, what else changed? Societal changes Changes in the law Changes in legal practice Changes in the regulatory regime Lloyds - the phoenix from the ashes
Societal Changes Developments of the ‘blame’ culture increasingly litigious approach
Changes in the Law Increasingly consumer friendly directives from the E. U. Imposing liability has no point unless there are funds to meet the damages
Changes in legal practice Changes in the civil procedure rules - claimant friendly - front loaded costs - presumption of a desire to settle - Judge driven - Speedier process - Costs limits NOT implemented Introduction of Conditional Fee Arrangements - Uplift for success - Arrival of the claims handling agent
Simple injury Liability admitted - value agreed £ 1, 500. No trial Claims handling agency receives 20% of award Claimant receives = £ 300 £ 1, 200 Solicitor received for investigation and preparation Plus 50% uplift Total cost of claim (ex-claimants expenses) £ 1, 500 £ 750 £ 2, 250 £ 3, 750 of which the injured party receives £ 1, 200 Hangers-on with no added value £ 2, 550
Changes in the regulatory regime Move from little or no regulation to semi-constant supervision Probably a direct result of failures within the market
CONCLUSION - The situation in 2003 Problem Income insufficient to meet latency claims Exacerbated by: - Poor investment income - drop in value of investment - changes in society - changes in the law - changes in the legal environment
CONCLUSION - The situation in 2003 Solution Raise income Produces extensive criticism from industry who had not budgeted for significant cost increases Produces the arguments, “I haven’t had a claim in 20 years, why should I pay more for other peoples mistakes? ”
CONCLUSION - The situation in 2003 Problem Actuarial forecasts predict long-term unprofitability - dependant on the structure of the model Solution Get out of the class or Change the structure of the class
Summary We have paid far too much attention to the potential cost elements of our business We have ignored fundamentals - attritional loss and latency We have not spoken (or had an effective speaker) to our market as an industry only as individual “brands” We have ignored financial probity to our cost We have underpriced our product too long How many of you would accept that the 1993 premium is sufficient to cover the 2003 liabilities that arise from that year?
- Slides: 30