Lords Select Committee on Financial Exclusion – Call for Evidence
The British Insurance Brokers’ Association (BIBA) is the UK’s leading general insurance intermediary organisation representing the interests of insurance brokers, intermediaries and their customers.
BIBA membership includes just under 2,000 regulated firms, who employ more than 100,000 staff. General insurance brokers contribute 1% of GDP to the UK economy, they arrange 54% of all general insurance and 78% of all commercial insurance business. Insurance brokers put the client’s interests first, providing advice, access to suitable insurance protection and risk management.
Thank you for the opportunity to contribute to the Committee’s understanding of access to insurance; answers to the questions set out in the call for evidence are included below.
Q1. Is financial exclusion the inverse of financial inclusion and, if not, how do the two concepts differ? What are the causes of financial exclusion?
Insurance pricing is risk-based with those posing the highest risk contributing more in to the risk pool by way of a higher premium, or customers being declined because the risk is too high or not properly understood by an insurer who is not specialist in that particular area of risk or does not possess the relevant knowledge. Whilst there can be risk-factors which may result in these individuals failing to find appropriate cover, it is not necessarily because the risk is uninsurable; often it can be because they are not going to the right insurance provider. The recent popularity of price comparison websites (PCWs) has resulted in a ‘computer says no’ scenario for many non-standard risks. More often than not, specialist insurance brokers can place these risks. Lack of knowledge of where to go for non-standard insurance means perceived exclusion has the same effect as actual exclusion. Appropriate signposting to providers who can help is one way this can be avoided.
Q2. Who is affected by financial exclusion? Do different sectors of society experience financial exclusion in different ways? To what extent, and how, does financial exclusion affect those living in isolated or remote communities?
Examples of exclusion include, but are not limited to:
- Criminal convictions
- Northern Ireland conflict-related convictions
- Pre-existing medical conditions with travel insurance
- High flood risk in property insurance
- Older people with travel and motor insurance
BIBA has been able to successfully work with Government and other industry stakeholders to provide cover to groups such as these. Specialist brokers can provide cover to those with criminal convictions and we have worked with the Office of the First Minister in Northern Ireland to provide insurance to those with convictions related to the conflict in NI. We have several members who specialise in offering cover for people affected by terminal illness or cancer – allowing them to travel abroad, sometimes for the last time. Our flood specialist brokers have helped many customers who thought they could not get cover when they were turned away from price comparison websites and we have signed an agreement with the Government Equalities Office and the Association of British Insurers on insurance for older people. The agreement launched jointly with BIBA and Teresa May when she was Home Secretary in April, named ‘Transparency and access in motor and travel insurance for older people: An agreement on age and insurance’ is a condition of membership of both the ABI and BIBA. It mandates that if you’re not able to offer cover to an older person based on their age, that insurance provider should signpost them to someone that can help. More often or not, that customer is signposted to the Find a Broker service operated by the not-for-profit trade body BIBA. The service has helped over 243,539 older customer access insurance in the last four years.
Q3. What is the relationship between financial exclusion and other forms of exclusion, disadvantage or deprivation? What role does problem debt play in financial exclusion?
Credit rating is one of the important risk factors used in motor insurance. This can provide several indicators such as likelihood to pay monthly premium instalments and propensity for fraud. In terms of motor insurance, employment status is also used, as insurers understand those who are employed are more likely to keep the vehicle in a roadworthy state – reducing the risk of accident.
Q4. Do individuals with disabilities, or those with mental health problems, face particular issues in regard to financial exclusion?
In terms of motor insurance, cover cannot be refused based on a disability if the DVLA are satisfied as to the health of a driver and have issued a driving licence. In terms of travel insurance, 80% of claims are for medical care; therefore health plays an important role in determining risk. As mentioned above, specialist insurance brokers with expertise of complex conditions can often place these risks where price comparison websites fail. An example of this can be found in our Manifesto where a BIBA broker was able to find travel insurance for 120 WWII veterans to travel to Arnhem to attend a service to commemorate the Liberation of Arnhem in 1945.
A second example is also in the manifesto where a terminally ill man, Jason Liversidge, with both Motor Neurone Disease and Fabry disease could not find the cover needed to travel to Disney World with his family. BIBA’s Find a Broker service was able to step in and find the insurance they needed with a competitive premium (see video of Jason and Liz Liversidge explaining in their own words how they struggled, then found the cover they needed https://www.youtube.com/watch?v=Ok0nxOtVD1c).
Q5. Are there appropriate education and advisory services, including in schools, for young people and adults? If not, how might they be improved?
Q6. How can financial literacy and capability be maintained and developed over the course of a person’s lifetime?
Q10. How effective has Government policy been in reducing and preventing financial exclusion? Does the Government have a leadership role to play in addressing exclusion?
We have chosen to answer questions 5 and 6 and 10 together.
There is very little in the way of financial education the takes place in schools and few other bodies who work broadly on helping the public understand how insurance can help them protect themselves and their assets.
Following the Government decision to close the Money Advice Service, identifying gaps in the financial guidance market is a relevant objective for the replacement money guidance body.
BIBA would like to propose themselves as a relevant third party who could assist in this area. As described above, BIBA is a not for profit Trade Association who run a general insurance Find-a-Broker service which helps over 250,000 general insurance customers access insurance every year.
More often than not these queries relate to gaps in the financial guidance markets where customers with unusual or non-standard risks have been unsuccessful in finding suitable insurance solutions in the general market. This is often because they find ‘the computer says no’ – this concern was raised in the FCA Occasional paper 17, Access to Financial Services in the UK in May 2016 as a barrier that can exist for consumers trying to access financial services in the UK.
Another barrier that was raised in this same paper was that 3.8 million UK households are without any internet but also 12 million people live in rural or remote areas of the UK with poor internet access. This same paper also highlights 3 million people with disabilities who have been turned down for insurance or charged extra. This goes on to say the ‘non-standard consumer’ can find it impossible to find tailored or appropriate products.
We have formally suggested a new agreement with Government that builds on our existing and successful Find-A-Broker Service that could assist in this area.
Q7. What role should the concept of ‘personal responsibility’ play in addressing financial exclusion? Is appropriate support available for the most excluded and, if not, how should support be strengthened? What role should Government, the charitable sector and business play in tackling financial exclusion?
Personal responsibility is a key part of an insurance contract as the insured has responsibilities including a fair presentation of the risk under the Consumer Insurance (Representation and Disclosure) Act 2012, as well as other responsibilities dependant on the type of insurance, regarding due care, vehicle/home maintenance and reporting incidents that may give rise to a claim. If the insured does not fulfil the responsibilities they have an insurer may not pay their claim. Brokers, acting as agent of the client under agency law, often provide guidance on the cover they are purchasing as well the responsibilities both parties have to one another. This understanding is crucial to ensuring that an insurance policy responds when it is needed and pays the claim. Brokers usually get paid by insurer via commission rather than fees, meaning that this service often does not cost more than going direct.
Utmost good faith is a positive duty voluntarily to disclose, accurately and fully, all facts material to the risk being proposed.
BIBA has also recently launched a Code of Good Practice to help vulnerable customers in conjunction with the ABI. Under the Code participating insurers and brokers will:
- Ensure staff are adequately trained to recognise and understand potentially vulnerable customers at renewal and be able to offer flexible options to help address needs (where necessary).
- Periodically review legacy policies to, where possible, identify vulnerable customers to ensure they are aware of any more suitable alternative products now available.
- Ask potentially vulnerable customers at renewal if their current policy and renewal terms meet their needs, and make clear the importance of reviewing their cover.
- Consider if additional communication, for example a telephone call, is needed to help vulnerable customers through the renewal process.
- Ensure that the customer’s options, and how they can exercise them, are always clearly set out.
Q8. Are appropriate financial services and products available for those who are experiencing financial exclusion? What might be done to address any deficit? What role should banks play in increasing access for those most at risk of exclusion? What is the role of the Post Office in providing access to financial services for such customers, and how might that role develop?
Many banks opt to provide insurance cover via packaged bank accounts. There have previously been issues with the way these have been sold to which led to the regulator issuing new rules to ensure that the product was suitable for the customer. The policies offered are often limited in terms of their cover compared with quality stand-alone products sold by brokers, which can be a surprise to customers when it comes to a claim.
In terms of non-standard risks which banks, the Post Office or other providers can’t place, BIBA would suggest a system of ‘signposting ‘ to the BIBA Find a Broker service in a similar way to the ‘Transparency and access in motor and travel insurance for older people: An agreement on age and insurance’ agreement mentioned above– ensuring that those distressed risks that can’t find cover are directed to someone that can help.
Q9. What has been the impact of recent changes to the consumer credit market – such as the capping of payday loans – on those facing financial exclusion? How can it be ensured that those in need of affordable credit can access appropriate products or services?
In terms of credit, many brokers offer insurance premium finance, allowing them to spread the cost of their premium over the period of the insurance contract.
Q11. What has been the impact of recent welfare reforms on financial exclusion?
Q12. How effectively are policies on financial exclusion coordinated across central Government? Is there an appropriate balance and interaction between the work of central Government and the work of local and regional authorities, and the devolved administrations?
We have chosen to answer questions 11 and 12 together.
BIBA has no comment on welfare reforms specifically; however, young people aged under 25 have seen their housing benefit withdrawn. Young drivers also experience some of the highest insurance premiums.
Young drivers make up just 12% of licence holders but are involved in 25% of road deaths and serious accidents, which tend to be more expensive in terms of claims. The increased number and costs of accidents involving young drivers mean their insurance premiums are much higher.
One way to offset this could be to promote telematics insurance policies which offer discounts to the safest drivers based on their driving behaviours. This is monitored either via a smartphone app or ‘black box’ in the car measuring variables such as speed, acceleration, deceleration, G-force in corners and familiarity of route. Young drivers in particular can make significant savings as well as
Research by the Road Safety Foundation, commissioned by Ageas and in conjunction with BIBA member ingenie, showed that an Insurance Premium Tax (IPT) break on young driver telematics products would lead to safer roads and more insured drivers. It would mean a net benefit to the UK economy of £370 million at a benefit- cost ratio of more than two to one.
Further details can be found on Ageas’ website: https://www.ageas.co.uk/documents/corporate/press/IPT_business_case_FINAL.pdf
Q13. To what extent is the regulation of financial products and services in the UK tackling financial exclusion? Are alternative or additional regulatory interventions required to address financial exclusion? What balance should be struck between regulations and incentives for financial institutions?
Q14. Does the Government have a role to play in ensuring that the development of financial technologies (FinTech) and data capture helps to address financial exclusion? If so, what should this role be?
We have chosen to answer questions 13 and 14 together.
Brokers play a crucial role in helping customers, particularly those with non-standard risks, find the insurance they need. However, research commissioned by BIBA and carried out by London Economics shows that UK insurance brokers face the most expensive regulatory regime in the world; more than double the cost of our nearest competitor, Singapore. As well as the extra cost, the extra work generated by UK regulators stifles innovation in Fintech that can help empower customers.
The sheer weight of regulatory change in recent years from the FCA and the Competitions and Markets Authority (CMA) has meant a significant amount of IT resource has been diverted away from innovation and into compliance.
For example, a leading broker software houses advised they have had to delay developments of Mylicence – a facility to automatically check DVLA’s driver licence records, and Flood Re to ensure compliance with the CMA protected no claims bonus (NCB) rules that begin in August this year as they require major systems changes.
They reported to us that new regulation CMA and FCA regulation required them to spend an additional 4,000 hours of work in ensuring compliance. BIBA would argue that something like Flood Re is far more important for customers in flood risk areas; however, because the new CMA protected NCB rules is a legal regulatory requirement we have no choice as an industry but to focus on regulation as the priority. This resulted in few brokers being able to utilise Flood Re when it launched on 4 April – ultimately meaning fewer customers can access affordable flood insurance.
The FCA’s forthcoming changes to split out add-ons into more detail and to show last year’s renewal will also take up front line resources and mean innovations such as Mylicence get pushed further down the agenda.
The UK is already the most expensive regulatory system in the world. Some of BIBA’s largest members pay comfortably over £1 million in regulatory fees and our members pay collectively over £28 million for their direct cost of regulation, but then even more than this again to ensure compliance with this constant flow of new requirements from our regulators.
At the moment we have seen no benefits from the Government’s red tape challenge and in fact for 2015-16 saw a 8.4% increase in the direct cost of regulation.
We would recommend to the Committee that now the Enterprise Act has received royal assent, that Government strongly enforce part 2 of the Bill regarding a regulators performance report and the duty to report on the effect on economic growth of regulation ‘Red Tape’. Crucial to this helping our industry this is ensuring the FCA is confirmed as one of the designated regulators under the secondary legislation.
BIBA would be very happy to give oral evidence to the committee and we are happy to invite any committee members to come and visit the call centre to see how we can help the financially excluded to access insurance.
Graeme Trudgill, FCII
0207 397 0218
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