Saturday, 20 August 2016

Smokescreen

I see The Times has lapped up the latest propaganda about the cost of car insurance.

This time we are back to whiplash, giving fraud a rest for a few days, with the claim that at least £64 has been added to your average car insurance premium during the last year under the heading “Whiplash claims bump up car insurance costs”.

It's another big fib from the Dark Side of the industry that so many of us know well enough.  Government figures confirmed only three weeks ago that whiplash claims were falling, as reported by Scott Rees & Co , for example.

So, how can this be?

Well, fundamentally the explanation is that one story is true and the other isn’t.  Anyone who keeps an eye on this particular area or the financial markets will understand why there is a renewed drive right now to cover up the truth.

Half year results are out.  Let’s have a look at how three of the big names in motor insurance are faring amidst this battlefield of whiplash, fraud and fat cat lawyers…

First - good old Aviva.  One of my former assistants will remember them as the people who recommended that she didn’t obtain independent advice on her claim against their insured (Livin’ Aviva Loca!).

The former Norwich Union began in 2016 “from a position of strength”.  The Telegraph reported in March this year “Aviva shares jump as insurer posts bumper profits”.  Dividends were raised by 15%.

It seems like it has continued to go well for Paul Whitehouse’s chums with the interim results announcement of 4 August 2016 .  Mark Wilson Group Chief Executive Officer tells us:-

“Operating profits are up 13% and the dividend is up 10%.  We are delivering consistent, stable and predictable growth despite challenging market conditions”.

AXA half year results on 3 August 2016 show income and profitability rising across the board although they were cautious enough to mention “rising claims costs in motor classes”.

Perhaps the briefing in the summer was tighter than it was at the beginning of the year when AXA had announced gleefully an earnings increase of 25% in its UK and Ireland operations.  This included, according to Group Chief Executive Paul Evans:-


No mention there of rising claims in the UK or that profits are static, or worse, despite massive increase in revenue.

Direct Lying (remember them and the lovable hound tampering with complaint files before they went to the FSA?) were reported at the beginning of March as seeing “profits rise on strong motor business”. 


Meanwhile, they spin the story that these hikes are all a product of opportunist and dishonest claimants assisted by unscrupulous lawyers.

The bolder and brassier you are, the more you can get away with.  This sort of thing has happened on a terrifying scale in the past and shown just how much selfish desire can be satisfied if you Make the lie big.

Just occasionally, these con tricks are properly exposed.  Unfortunately events such as the grilling of top executives from these companies by a tenacious parliamentary sub-committee chair never seem to get the profile they deserve. See Hey diddle diddle..

At the end of the day all this wailing about whiplash and fraud is utter rubbish. Here’s the truth.

Insurers will whinge as they always have done that motor never makes a profit, never has. I’ve no doubt that the accounts they present will 'prove' that. They were more than happy to be in the business though and collecting huge swathes of cash from the punters whilst double-digit interest rates enabled them to make a big turn on that money.

We all know they would string out the claims for as long as possible to keep earning interest for as long as they could. Now interest rates are almost negative that profitable model is broken.

The hike in the cost of your policy isn’t to counterbalance the effects of whiplash or fraudulent claims. It’s to compensate for the disappearance of the revenue from capital reserves so they can still post huge profits to pay fat salaries and rising dividends.

The truth is ugly and embarrassing so it's dressed up and the activity of a tiny minority of criminals within a culture that insurers have created and cultivated is exaggerated, at increasing prejudice to genuine claims from innocent victims and access to justice.

And whilst we're all distracted by whiplash, fraud - even claims management - they'll be helping themselves to more of our money as usual..




3 comments:

Christopher Taylor said...

Pretty much on the money Michael. There's also a phenomenon called the "underwriting cycle" - high profits tempt new entrants, companies compete to get new business, premiums fall, profits turn to losses, firms drop out and premiums start to rise again which is what's happening now. The last downturn was particularly vicious since as you note the cycle coincided with a collapse in investment returns. That might mean a longer up cycle, bad news for the insured unfortunately

Tom Owen said...

Great piece, we all know we are being ripped off, my insurance went up €200 last year even with no claims!

Duncan Paine said...

This is just about the best blog piece I’ve read on this issue so far, in part because it helps make it relatable to the lay person who normally (apart from not liking their insurance costs going up) usually does not understand the machinations behind it. As a costs draftsman whose practice has dwindled significantly in light of the changes to legal costs over the last 6 years, I have found myself increasingly infuriated at the myths and lies that the UK insurance industry has been allowed to propagate in order protect their already very cushy number. Having been at the forefront of the costs war for the last 16 years I’ve been particularly privy to how (on more occasions than I care to remember) costs have been over and above what might have been expected solely as a consequence of insurer/Defendant conduct – it makes a mockery of the arguments they used when pushing for costs limits in the first place, and failing to pass on savings to policyholders now they’ve got their way (whilst posting record profits) just adds insult to injury, as it were!

@Christopher Taylor - that's a fascinating insight I had never heard of!