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New Year New, but familiar insurance issues

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It seems that insurance was rarely out of the news in 2013 and all the while the media and MPs have (understandably) got their claws into the private motor insurance industry, it will no doubt grab it's fair share of headlines during 2014.

The problems with this part of the industry are now under the scrutiny of the Competition Commission (CC) who published a provisional report in December highlighting various concerns to include complex claim chains, the sale of 'add-on' products and price comparison websites.

The CC are particularly concerned about the chains for non fault claims which they found inflate both the cost of accident repairs and replacement cars. This is at the expense of the insurer of the at-fault driver and the increased costs (estimated between £150m and £200m a year) are passed on to motorists.

The CC has suggested possible remedies to the problems, inviting comment from interested parties and no doubt these will receive further media attention before the CC publish their final report in September 2014.

Flood insurance was also high profile given the widespread flooding, as well as the expiry of the agreement between government and the insurance industry on the availability of flood cover. The St Jude storms at the end of October (estimated to have cost UK insurers £830m) and what seems like constant rainfall since then, may have exacerbated the delay in finalising the new flood agreement (Flood Re) and all the while this is outstanding, there is likely to be bickering between the Government and insurers as to who is to blame.

Away from the national media headlines, fraud and job losses were the major topics within the industry in 2013 and once again look set to continue in 2014.

Insurance fraud dips in and out of the national media headlines, but is a massive problem to the industry with the figures quoted almost too big to get your head round. During the year we had estimates of fraud costing European insurers £10bn and within the UK £21m per week.

Insurers have invested a lot of money in fraud detection initiatives, such as funding the Insurance Fraud Enforcement Dept. and whilst convictions for insurance fraud are now more common, it does seem that fraud is almost endemic in certain types of insurance which are seen as easy targets.

Travel insurance certainly comes to mind and last July claims handling firm VFM Services, reported that 45% of claims reported to them are fraudulent, although 60% of these are dropped after one phone call. This does seem to highlight the bigger problem of breaking the perception in a significant proportion of the public, that ripping off insurers is acceptable.

2013 also saw continuing jobs cuts in the industry with significant numbers going from Direct Line, Legal and General, QBE and Zurich, although the most severe cuts were at Aviva, where 650 jobs went as part of a cull that also involved shutting 13 branch offices.

What is bad news for insurance staff, is in some ways good for the insurance buying public and businesses, as the cost cutting reflects insurer's inability to increase prices and once again business owners and managers are unlikely to see any significant increase in commercial insurance rates during 2014.

Insurers will look for increases, but will be restricted by the highly competitive nature of the UK insurance market and in most sectors, assuming you have a good claims record, you will generally see no more than an inflationary increase.

The knock on effect is if insurers cannot increase prices we are likely to see more closing of offices and job losses (known as restructuring, but always with the promise of improved service) and possibly some merger activity during the year. RSA seem to be the obvious target for a takeover, having had solvency problems in Ireland at the end of the year, 3 profit warnings and lost their CEO, there are concerns that they have problems throughout the whole organisation.

Otherwise 2014 will also see the Costa Concordia show recommence when it is towed away (scheduled for June) and perhaps the banks will surprise us and stay out of the news, or do they have yet more skeletons to come out of the closet?

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