Reputation, Regulation and Recruitment Focus of CII Conference

September 26, 2005

“Pulling Together” was the overall theme of the U.K.’s Chartered Insurance Institute’s Annual Conference, which concluded Friday, Sept. 23 in London. However, the “Three Re’s” took an equally prominent role. Delegates heard a great deal on how to address: The industry’s Reputation (not too good); the future course of the Financial Services Authority’s (FSA) Regulations (they mean business), and the Recruitment of high quality people to join the industry (badly needed).

The first issue of the Conference Bulletin presented a survey, conducted by Post Magazine of its readers and conference delegates. While the poll did find that commercial insurance buyers generally have a different (and assumedly higher) opinion of the industry than the general public, the latter’s perception ranged from “a necessary evil,” to “poor, average” and a (very) small percentage of “good.” In light of those findings, it’s no wonder that a vast majority of those polled also indicated that it was either extremely important or in fact “vital” to enhance the industry’s reputation.

The problem isn’t new, nor is it unique to the U.K. However, a good deal of the negative impact in Britain is due to various pension and mortgage policies that featured high returns. But they also turned out to be high risk when equity markets turned South and companies had problems meeting their promises. As Aviva plc CEO Richard Harvey observed in the keynote address, general insurance [P/C] has a much lower rate of investment and better underwriting discipline. He reacted strongly, however, to the new regulations being put in place by the FSA, which he sees as economically burdensome. He cited estimates that they will add some 200 million pounds ($356 million) to general insurance industry costs and another 100 million pounds ($178 million) in compliance costs.

Lloyd’s Worldwide Markets Director Julian James made a strong statement on the importance of reputation. He reviewed how Lloyd’s, after Sept. 11, had fulfilled all of its obligations, most importantly fully funding its U.S. trust accounts. James noted that Lloyd’s had been able to do this as a result of reforms in its business processes and by concentrating on underwriting profits. He said Lloyd’s had “fixed its fundamentals and enhanced its brand.” The next step is to communicate that fact to the customers and thereby also enhance the reputation of the entire industry. A number of speakers expressed similar thoughts as “treat customers-or consumers- fairly” (TCF). Simple to say, but not easily accomplished. A majority of the Post poll said it would be 3 to 5 years, while others said it would take 5 to 10.

The U.K.’s insurance industry, however, doesn’t have that much time when it comes to regulation. Between the tsunami of Eliot Spitzer and the FSA’s assumption of full authority over the country’s insurance industry last January, new regulations increasingly govern how the industry functions. While no one is totally against them, many feel that too much regulation will prove to be overly burdensome and could strangle insurance market initiatives. Some, like Harvey, also complain of the costs.

Most speakers seemed to feel the proposals would improve transparency. “They’ve had a positive effect,” said AXA U.K.’s distribution director Mark Cliff. “The relationship between insurers and brokers was too informal, so the regulations have introduced the ‘required formality’ that was needed. Brokers and insurers should talk more,” he continued. “They should treat this [the impending regulations] as a ‘wake up call’ – a signal that change is needed.” He added that AXA had randomly checked 22 brokers, and “none were fully compliant with AXA standards.”

The FSA is committed to fulfilling that mandate for change. It’s announced in clear terms that the insurance products offered to U.K. consumers must be fair, that contracts must be certain and understandable, and that claims should be handled quickly and efficiently. Clive Briault, the FSA’s Managing Director – restated those priorities in his address to the delegates.* He outlined the four major FSA objectives as follows:

1. Consumers buying insurance on a non-advised basis should receive sufficient information to be able to make an informed decision, and the firms selling the insurance should check that their potential customers are eligible to claim on the policy;
2. Consumers understand the key features of a policy, including significant exclusions, before buying;
3. Consumers buying insurance on an advised basis are recommended suitable policies that meet their demands and needs; and
4. Consumers claiming on their insurance policies have their claims dealt with promptly and fairly.

Then Briault dropped a bomb: “I am therefore announcing today that we will be undertaking a review of the effectiveness of the general insurance regime. This review will begin in April 2006, and will focus in particular on our retail conduct of business requirements in this area, and on the effectiveness of the regime in meeting the intended outcomes for consumers.” The review will be the first indication of who’s getting things together and who’s lagging behind. With an absolute deadline of December 2006 for brokers and insurers to become fully compliant, it doesn’t leave much time. A large number of the industry’s most capable people are going to be working overtime in order to achieve that goal.

Where those people will come from and what they can bring to the industry remains an ongoing concern. The ever present problem of getting decent, experienced claims managers is well known, and was also discussed at the Conference. What CII Director General Dr. Sandy Scott is proposing goes even deeper. The panel discussion he chaired, focused on how to recruit talented people into the industry. It began with a rhetorical question from Royal &SunAlliance Commercial Operations head Brendan McManus. “How many people fell into insurance by accident,” he asked. A majority was the unspoken answer. By the time the industry gets around to recruiting people the most talented graduates are already gone.

Dr. Scott wants to change that, but he realizes it won’t be easy. He’s not talking about industry learning. The U.K. has plenty of that, led by the CII. Just as the U.S. has certifications – CPCU, CLU, CPLU, etc. – so does the U.K. Scott wants to start attracting bright young men and women before they leave universities or graduate schools, when they’re still pondering a career choice.

The industry itself is the initial obstacle. It doesn’t have the cachet of banking, marketing, fund management or any of the other myriad high level financial service activities that compete for talented people. And yet, as Chris Hanks, Allianz Cornhill’s U.K. general manager for Commercial lines, observed, the industry needs financial expertise, “world class skills” and leadership qualities as much or more than any other financial services industry. “We need a rich expanse of market judgment,” Hanks said. We can’t afford to have “expert jobs dumbed down.”

The industry “relies on professionalism,” Dr. Scott stressed. Therefore it needs to convince potential candidates that their skills are valued and that they will have an interesting and rewarding career in insurance. He’s also convinced that a lot of people have woken up to this and they’re ready to act to improve recruitment.

Dr. Scott, together with McManus, Hanks and Mark Cliff, are part of a team, under CII auspices, dedicated to exploring ways to attract the highly skilled professionals the U.K.’s insurance industry (and those of most other countries as well, including the U.S.) need to attract. They are not a luxury, but a necessity, if the important U.K. insurance sector** is to maintain its high standards and leading position. Its future depends on functioning more efficiently and to improving its standards in an increasingly competitive world.

*Briault’s speech is available on the FSA Web site at:
** A number of speakers pointed out that the U.K.’s insurance industry is the largest in Europe and the 3rd largest in the world, representing 9 percent of global premiums. It earns 18 billion pounds ($32 billion) annually, 14 percent of Britain’s GDP; it employs over 350,000 people and pays on average 50 million pounds ($89 million) a day in claims.

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