Friday, 24 May 2013

Where did all the ethics go?

In September last year the Office of Fair Trading referred the UK's private motor insurance industry to the Competition Commission. The referral followed a study by the OFT in May 2012, which found that there were reasonable grounds to suspect that there are features of the insurance market that prevent, distort or restrict competition.

In other words: there is reason to think the insurance industry is not serving its customers well.

It's a year since the study that, in turn, led to the referral to the Competition Commission. Perhaps, if we look back at the study, we might find that insurers have started to get their house in order, ahead of the report of the Competition Commission in September next year?

Dubious Practices

Sadly, the short answer is 'no, they haven't'. The OFT, in its summary of the referral, put it thus: in focusing on "the provision of replacement vehicles and vehicle repairs", it was thought that "the insurers of drivers responsible for an accident ('at-fault' drivers) appear to have little control over the way repairs and replacement vehicles are provided to the 'not-at-fault' driver." The OFT  added that this "may enable the insurers of not-at-fault drivers, and others such as insurance brokers, credit hire organisations and repairers, to engage in practices which appear to result in the cost of replacement vehicles and vehicle repairs provided to not-at-fault drivers being higher than they might otherwise be."

What is meant by the use of the word "practices"? Let's be clear. This means the payment of referral fees. The Legal Aid, Sentencing  and Punishment of Offenders Act (LASPO) may have banned the flow of these between solicitors, claims management companies (CMCs) and insurers, but they are alive and as insidious as ever when it comes to garages, credit hire companies leasing vehicles to drivers after accidents and recovery companies.

A Conduit for Backhanders

If little, if anything, has really changed, there's worse. An (unintended?) consequence of the Alternative Business Structure (ABS) regime, which came into being in January 2012, is that insurers have a ready-made way of circumventing the referral fee ban: they can now simply buy or merge with law firms. The backhanders keep flowing.

It's not easy to discern in the terms of the OFT referral but there is clearly a huge question mark over the conduct of insurers and their representative body, the Association of British Insurers (ABI). The ABI has proved adept at spinning the yarn that 'compensation culture' fuels hikes in insurance premiums and makes our lives a hostage to unscrupulous bounty hunters who will issue a claim at the drop of a hat - and yet it is the ABI's very members who cause the 'blame and claim' syndrome in the first place.

These thoughts lead inevitably to a consideration of the ethical standards - or absence of them - at play among insurers. Time and again stories of outlandish litigation in the media turn out to be bogus or wildly exaggerated; time and again we encounter insurers blaming the increase in the cost of premiums on everyone but themselves.

In truth, investment income - which is what our premiums are used for - has flattened out because of the global recession and so insurers seek to ramp up their profits through a back door which has become nothing but a conduit for backhanders. It's a vicious cycle: as one insurer ups the ante, passing on costs to another, so does its competitor. And so on, and on - until, hopefully, the Competition Commission will do something about it.

Wishful thinking?

Meantime, as Duncan Minty's excellent blog recounts, insurers continue to fall short when it comes to acting ethically. This post, for example, reveals that a "survey by CSR Europe and KPMG of five European insurers and five European banks found that 80% had no ethical objectives or targets of any kind, while only another 10% had a qualitative target." As Minty notes, while admittedly a small survey it shows "that ethical objectives and targets remain a challenge for insurers."

From a claimant solicitor's perspective, I'm tempted to go further and say that acting ethically seems to resemble a brick wall for insurers. But bricks walls don't stand forever. Even the Berlin Wall came down eventually. Minty has produced a free e-Book on setting ethical objectives and targets for your business. Here's hoping that the CEOs of insurance companies download it, read it and learn from it. Wouldn't it be nice to think that they'll do so, ahead of the Competition Commission's report next year?