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Steve Ray - Moving With the Times 2011
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Transcript of Steve Ray - Moving With the Times 2011
Today’s Conveyancer ConferenceSolicitors: The PI Insurance History, the SRA role and the likely future
September 2011 Steve Ray
Contents
• Solicitors practices in the Insurance market– Since the demise of the mutual– Background to the current position– Insurers concerns
• Key issues:– Wording – Common renewal date– Assigned risks pool
• The proposal form and maximising your opportunity in front of insurers
The Market and Insurers
• Solicitors enjoy the widest policy wording of any of the professions
• We will look at total annual premium paid and the additional factors
• Last four years have been unprofitable for Insurers which means that market for firms has polarised
• Also:– Ongoing worry about ‘W’ shaped recession!– Ongoing concerns over the credit risk of clients
What are Insurers saying - challenge and uncertainty
Reducing investment
returns
Expense costs
Reinsurance costs
Large loss frequency
Prior Year deterioration
Credit crunch
Increasing volatility
Natural
catastrophes
Insurers
PI Premiums
226246
215
£155m£161m
£221m
£251m£242m£235m
£211m£206m
0
50
100
150
200
250
300
Primary premium (£m)
20002001200220032004200520062007200820092010
True figure at 1st October 2010?
• A whole new dictionary of Insurance terminology:– Flipping – In-fill– Stretched primaries (i.e. significantly more than £2m or
£3m for LLPs)• Effect:
– Recent report for ARP Managers considers that true primary premium position should be at least £50m more
2000 Original Qualifying Insurers
CGNU
RSA
QBE
Zurich
Ace
Hiscox Syndicates
St. Paul
Hiscox
AIG
Chubb
R J Wallace
M J Harrington
Liberty
Brit
The Underwriter
R E Brown
Cox
Chartwell
Hicks & Wheeler
SJB (1212)
Denham
Axa
R J Kiln
Wellington
Drysdales
Heritage
P G Butler
Independent
Saturn
Admiral
Alleghany
Mitsui
St. Paul Syndicates
Janson Green
2000 Participating Qualifying Insurers
CGNU
RSA
QBE
Zurich
Ace
Hiscox Syndicates
St. Paul
Hiscox
AIG
Chubb
R J Wallace
M J Harrington
Liberty
Brit
The Underwriter
R E Brown
Cox
Chartwell
Hicks & Wheeler
SJB (1212)
Denham
Axa
R J Kiln
Wellington
Drysdales
Heritage
P G Butler
Independent
Saturn
Admiral
Alleghany
Mitsui
St. Paul Syndicates
Janson Green
2010 Participating Qualifying Insurers
Aviva (NU)
RSA
QBE
Zurich
Ace
Hiscox Syndicates
Travelers
Hiscox
Chartis (AIG)
Chubb
D A Constable
M J Harrington
Liberty
Brit
The Underwriter
R E Brown
Cox
Chartwell
Hicks & Wheeler
SJB (1212)
Denham
Axa
R J Kiln
Wellington
Drysdales
Heritage
P G Butler
Independent
Saturn
Admiral
Alleghany
Mitsui
St. Paul Syndicates
Janson Green
Newline
Alpha Ins
Novae
W R Berkeley
A G Dore
Catlin
Dual
Hannover
Quanta
Quinn
Aspen
XL Insurance
Allianz
Lemma Europe
2010 Participating Qualifying Insurers (over 5%)
Aviva (NU)
RSA
QBE
Zurich
Ace
Hiscox Syndicates
Travelers
Hiscox
Chartis (AIG)
Chubb
D A Constable
M J Harrington
Liberty
Brit
The Underwriter
R E Brown
Cox
Chartwell
Hicks & Wheeler
SJB (1212)
Denham
Axa
R J Kiln
Wellington
Drysdales
Heritage
P G Butler
Independent
Saturn
Admiral
Alleghany
Mitsui
St. Paul Syndicates
Janson Green
Newline
Novae
W R Berkeley
A G Dore
Catlin
Dual
Hannover
Quanta
Quinn
Aspen
XL Insurance
Allianz
Lemma Europe
The Market and Insurers(at 2010 renewal)
2010/11 Participation
2009/10 Participation
Rank Insurer Percentage Value (£) Percentage Value (£)
1 Chartis Insurance (UK) Ltd (formerly AIG) 18.06% 38.56m 14.91 36.02m
2International Insurance Company of Hannover 14.41% 30.78m 4.48 10.82m
3 XL Insurance Ltd 13.33% 28.47m 7.12 17.19m
4 Zurich Professional Limited 12.90% 27.5m 12.77 30.83m
5 Travelers Insurance Co Ltd 11.04% 23.50m 13.37 32.27m
6 QBE International Insurance Limited 8.22% 17.55m 9.97 24.08m
7 Allianz Global Corporate & Specialty AG 6.41% 13.2m 4.54 10.96m
8Aviva Insurance Limited (prev Norwich Union) 4.24% 9.056m 3.94 9.52m
9 Lemma Europe Ins Co Ltd 2.93% 6.14m 1.04 2.50m
10 Royal & SunAlliance Insurance PLC 2.24% 4.78m 5.87 14.17m
The Quinn Effect
• Entered market in 2006 (less than 0.4%) • Increased to 5% share in 2007, 10% in 2008 and
2009• 2,911 firms insured at peak. Mostly sole
practitioners and 2/3 partner firms• In administration (but importantly not liquidation
as per Independent Insurance)
Before 2010 renewal
• Withdrawals at 2010 renewal– Hiscox Insurance– Catlin Syndicate– Others threatened
• Following the CRA review and subsequent Consultation process, and the lack of activity:– A number of significant players were looking to enter the
primary market– Aspen Insurance, ACE and Pembroke Syndicate have exited– First Title have entered
Charles Rivers Associates & the Consultation period
What were Insurers asking for?• Cancellation for non payment of premium• Review of minimum terms and conditions
– Lender claims?• Assigned Risks Pool
– Not a hospice, what chance of rehabilitation?– Commercial reality
• Review of necessity for common renewal date
Policy wording
• Broadest coverage; if had wanted to impact on affordability then a number of opportunities were likely to be considered.
Assigned Risk Pool
• Premium equates to 27.5% of first £500k fees (30% for LLPs)
• Reduces in bands thereafter• Every firm qualifies• Inspected and monitored at the firm’s
expense• But how much is actually collected?• & non payment didn’t preclude firms
from continuing to trade!
The ARP – how bad is it?
Firms Total Incurred Premium Due Premium Paid
2000 69 £9,621,243 £1,490,277 £952,337
2001 136 £2,962,348 £1,883,347 £1,386,179
2002 60 £3,767,611 £1,657,439 £1,143,735
2003 59 £1,934,359 £1,175,192 £647,107
2004 38 £723,146 £634,225 £441,109
2005 33 £4,521,767 £927,297 £411,419
2006 32 £4,459,971 £522,552 £271,293
2007 28 £7,921,338 £308,308 £200,650
2008 168 £48,141,516 £4,788,562 £2,064,066
2009 274 £25,144,970 £6,053,553 £2,972,371
2010 295 £922,855 £12,921,899 £2,435,462
TOTAL £110,121,124 £32,362,651 £12,925,728
Assigned Risks Pool
• 1 October 2008 – worst year on record; only 43% of premiums due were collected
• Loss ratio (on incurred position) at end of July 2011, nearly 2000%
• Insurers have to fund the shortfall and therefore have to include within their rating
• 2009 year not fully developed but heading the same way and again premium collection falls short of expected
• Cash call April 2011 – for £38m, to fund some of the current shortfall (including £17.5m for 2008 year and £15m for 2009)
Assigned Risk PoolThe future
• At 2011 renewal – period which an individual firm can remain the Pool is reduced to 6 moths
• At 2012 renewal – costs shared between Insurers and profession (50/50 – how will the profession fund?)
• At 2013 renewal – disbanded, last Insurer gives notice and becomes Insurer of run-off policy (without premium consideration)– Effect on next 2 renewals – Further focus on financial position of firms
Common Renewal Date
• Most Insurers support moving to staggered renewal dates as do the Law Society
• Apparently the SRA consider this would be difficult • Smaller firms more opportunity to engage with Insurers /
counter argument is that so much premium on one day focuses Insurers attention and keeps premium rates down
• Common renewal date will now stay until October 2013
Run off cover
• All firms ceasing to trade should buy run-off cover
• Insurers have different payment criteria from 250% to 400% of annual premium (6 year policy)
• If acquiring another practice check on PII history
• Successor practice rules (changed in 2010)
Where Are The Claims Coming From?Historically
Claims by number
7%
18%
36%
15%
8%
6%4%
6%Personal Injury
Commercial
Property
Litigation
Trust & Probate
FinancialServicesEmployment
Non Lit Other
Where Are The Claims Coming From?2009 / 2010 – per loss type
Where Are The Claims Coming From?
Claims by value
11%
34%
24%
10%
5%1%
5%
10%Personal Injury
Commercial
Property
Litigation
Trust & Probate
Fin Services
Employment
Non Lit Other
Where Are The Claims Coming From?2009 / 2010 – claims incurred
Risk Assessment
From an Insurers perspective• 10,400 firms renew on the same day (smaller firms may
struggle to differentiate)• Size of firm (easy for Insurers to segment by number of
partners)• Number of offices (spans of control and supervision)• Work split• Claims history• Risk management questions / cross reference to Lexcel
or ISO 9001
Lessons to be learned
• Be careful with your Proposal Form in the market • Quality of submission
– Take the trouble to fill this in properly, ensure all questions are answered and all relevant information attached
– If you cant answer yes but you have information to explain this, take the trouble to do so
– Remember after salaries and perhaps premises this could be your largest expense
• Number of offices / number of partners• New partners, part-time partners• Quality systems• ‘Dabblers’
Learning from past mistakes and PII claims records
• Central point of contact• How many complaints claims? Trends emerging?• Underlying causes investigated• Explain to Insurers
Influence Insurers opinions!
• Why do Insurers place so much emphasis on Lexcel?• What to do if you don’t have Lexcel or ISO 9001?• CQS• Practical Law / Lexis Nexis• Differentiate your firm from the Insurance
Underwriter’s typical view of your size of practice• Buying groups?
The future
• SRA regulatory reach
• ABS
• Rebranding
Today’s Conveyancer ConferenceSolicitors: The PI Insurance History, the SRA fantasy and the likely reality
September 2011 Steve Ray