UK Insurance News

Last month the Office of Fair Trading (OFT) stated they were to investigate the cost of motor insurance in the UK. This followed concerns earlier in the year when the OFT first began looking at claims of corruption with the system of referral fees.

The motor insurance industry has come under scrutiny for this possible malpractice and the OFT investigation will try to resolve how widespread this practise is within the industry.

The concern is that insurers are stoking up prices by selling details of their policy holders’ accidents to no-win, no-fee solicitors. If like me you have been unfortunate enough to be involved in an car accident in the past couple of years, the likelihood of you receiving a call out of the blue or more likely a text from an unknown source days after reporting an accident to your car insurers, suggests this malpractice is writhe in the motor insurance industry.

Fortunately, I was only involved in a minor traffic accident with no casualties and I was nothing more than shaken up by the experience.  But imagine a worst case scenario whereby you find yourself having to deal with offers to win compensation when you are grieving.

Furthermore, the OFT are also investigating the cost of motor accident repairs and courtesy replacement cars.

Insurance companies recommend car accident and car hire supplier.  In my case, the accident repair garage my insurer recommended was a Mercedes garage, 10 miles away from my home.  As my car is a Honda Accord, and I have a good relationship with my local Honda dealer, I questioned how this could be better for me and cheaper for the insurance company.  I wasn’t given an answer, just told that it would delay repairs to my vehicle if they had to send a representative out to inspect the damage and approve an ‘independent quote’.

It is alleged that some “approved” garages also pay referral fees to insurers too.  In exchange, the insurers stipulate expensive paint and parts and even higher labour costs. The costs of which is paid for, and helps to justify, higher car insurance premiums.

Sonya Branch of the OFT said:

“Our concerns relate to the provision of third party vehicle repairs and credit hire replacement vehicles to claimants, where we suspect companies may be competing to extract money from each other rather than keeping premiums as low as possible and providing car owners with value for money.”

Preliminary findings by the OFT strongly suggests there is a correlation between referral-fees and the actual rise of car insurance over the past 12-24 months.

For many of us who rely on our cars whether they be a two-seater Smart car or 7 seater 4×4 there is no alternative than to shop around for the best deal and look to be rewarded by a no-claims bonus or insuring two or more vehicles at the same address. But it is a comforting thought that the OFT are at least looking to tackling such irregularities in the motor insurance industry.

Who will be responsible for winding up a pension scheme, and how they will go about doing this, will be largely determined by the circumstances under which the employer decides they can no longer contribute to a pension scheme.

If a company is unwilling or unable to continue making contributions to a scheme because it cannot afford the contributions or because a merger has taken place and budgeting changes, the regular trustees will most likely be the ones to deal with the long process of winding up. However, if a company has become insolvent, more often than not independent trustees will be appointed, alongside the regular trustees. This is because under insolvency law, the insolvency practitioner in charge of dealing with a company’s administration must inform the Pensions Regulator where there is a scheme to be wound up.

The Pensions Regulator appoints independent trustees (usually companies, rather than individuals) to take care of all discretionary matters, alongside the original trustees of the scheme who will no longer make discretionary or judgement calls, but only assist with the smooth administration of the pension scheme as it is wound up. The trustees will be independent if they have no ties with the company, and no vested interest as to who the final pay outs of the trust are made to.

Trustees wind up a pension scheme by investigating how the investments and assets of the scheme have been managed, in order to determine what will become available to the beneficiaries of the trust (such as the employees of a pension scheme). Having assessed the situation, the trustees will move to ‘realise the value’ of trust property by selling off remaining property, and maintaining the profits throughout the winding up process by investing them. Investments made during this time will low risk, in order that no further losses are incurred.

The most recognisable part of all this will be the final pay outs of the pension scheme to members, in line with whatever rules were established to govern what beneficiaries receive when the trust was set up. It is the trustees’ duty to follow these rules as closely as they can, however difficult the circumstances and whatever the value of the assets remaining. In practice this will often mean that a priority order is followed, whereby members are paid in turn based on what kind of voluntary contributions they made or how they participated in the scheme.

It is worth noting however that further payments may be available notwithstanding the specific trust constitution, which the trustees can take into account under statute. These payments are made by the Pension Protection Fund to compensate and protect employees who contributed to pension schemes which eventually fail. This is particularly important in cases where a scheme was underfunded up until insolvency. Contributions to ill health pensions and survivors’ pensions for example are protected up to certain limited percentages of the policy’s value.

Travel insurance is often considered a “grudge buy”.  Searching for a good value travel insurance policy is not the exciting part of planning a trip abroad.  Travel insurance is often bought by parents for their children who fail to see the importance of being covered on holiday for any unforeseen medical emergency or bought at the last minute, just in case.  The type of holiday insurance on offer is very varied and time should be spent to source the most relevant policy.  For example, not all travel insurance companies will insure their customers if they have a medical condition prior to travel, even if that condition is already under control with medication.

Most people take tablets at one time or another for a medical condition.  Figures estimate that more than 2.8 million people in the UK have diabetes, half of all the people in the UK over 65 have high blood pressure ( hypertension) and two thirds of the UK population aged over 40 are said to have high cholesterol levels.  For most people, taking tablets for these conditions is a daily ritual and of no great importance, but even if the medical condition is under control and the symptoms are not problematic, the condition may still need to be declared when taking out travel insurance.  Taking out travel insurance with medical conditions covered should be considered essential if there is the slightest chance that the condition could cause a problem when travelling.

Travel insurance policies can be nothing more than an expensive piece of paper, that is, until a holiday maker experiences difficulties abroad bought on by a condition that has gone undeclared to their underwriter.  Not all medical conditions can be covered.  If the risk is deemed to high for an insurance underwriter, the traveller with the condition will need to assess the pros and cons of travelling without medical cover and the consequences of hospital treatment abroad, against the prospect of not being able to take a holiday.

Travel insurance companies will not all have the same rules regarding medical conditions.  Some will expect only a 12 month period in which there are no symptoms, treatments or consultations before they consider that person to be free of an existing condition whilst others will extend that period to 24 months and more.  Some of the cheap travel insurance on offer will also cover medical conditions; it is not necessarily true that the extra endorsement needs to be prohibitive, the cost of medical care if the condition has not been covered, can be enormous.

Pension schemes have a committee of ‘lay’ trustees who have overall governance responsibility of the scheme. These lay trustees can be appointed by management, or elected by scheme members. So, a committee of lay trustees might include managing directors, financial directors and eminent scheme members.

Importantly, a lay trustee is a trustee in their own time and not in a full-time capacity. This in itself can raise its own problems. In addition to the commitment required, which is not always possible with a full-time job, there is the problem of conflicts of interest within a committee, the issue of vested interest (with certain members also being beneficiaries of the scheme) and the changing requirements of pension schemes.

As a result, many companies are now supplementing their lay committee by calling on independent trustees. Working as an independent agent, these trustees are able to mitigate any potential conflict and dedicate the equivalent of full-time effort to the scheme.

Pensions are changing. In the face of the current crisis, there is an increased emphasis on governance. As independent trustees work for a range of schemes, their expertise is market-led and therefore can be easily suited to each individual scheme. With the UK pensions crisis rumbling and the possibility of extra benefit bills running into hundreds of billions of pounds, such independent and impartial advice could be extremely beneficial for schemes looking to keep their heads above water.

What do I need to know?

By statute, all trustees fulfilling particular legislative conditions must be listed under the Independent Trustee Register – if you or your pension scheme has chosen to seek professional counsel from an independent trustee it is essential that you check they are on this list. This way you ensure that the trustee elected does the job according to the standards they are required, by legislation, to meet.

They should:

• Be fully up to date with all pensions issues, as well as any changes in legislation which affect pension schemes
• Work primarily with the interest of scheme members in mind
• Demonstrate an appropriate level of expert knowledge and understanding
• Be alert to cost and risk control
• Be able to identify the appropriate sources of professional advice in terms of compliance with legislation and scheme administration

Independent trustees can act alongside an existing committee of lay trustees, or take over the role of sole trustee. It is important to consider the advantages and disadvantages of each route for the particular scheme.
What are the benefits?

The benefits will depend to some extent on the role the trustee will take: it will be the company’s decision whether they are being employed into an executive or supporting role. Either way, however, there are some benefits that remain universal. These are:

• Impartiality: where conflicts of interest arise, it is the trustee’s job to mitigate and to ensure that all decisions are made on the basis of the members’ benefits.
• Transparency: due to the impartiality of the trustee, issues such as scheme investment or agreeing on the employer’s and members’ contribution rates are made with the advancement of the scheme in mind.
• Confidence: with a professional independent agent acting according to regulations set out by the Pensions Regulator, members can rest assured that their schemes are being governed fairly, professionally and according to best practice in governance.

Independent Trustees – A Changing Role

It was quite usual not so long ago to recruit independent trustees on the ‘nod-and-a-wink’ recommendation of a friendly pension fund professional. But not now. Several major scandals during the latter-half of the 20th century helped change the pensions landscape forever and shaped the role of the trustee that we see today.

As a consequence of these scandals – the Robert Maxwell scandal of 1991 is probably the most famous example in the UK – and companies, facing a pensions ‘black hole’ because of poorer-than-expected investment returns, being unable to pay employees what they once promised, all funds now paid into a medium or large company’s pension scheme must be held in trust.

This legal requirement not only prevents business owners helping themselves to pension scheme money whenever they want, but it also stops the pension fund counting as a business asset which might then be at risk if the company fails.

Small companies can also employ trusts to look after their pension schemes. But they don’t have to if they don’t wish it. Instead, they can choose to run a GPP, a group money-purchase personal pension scheme, which requires a pensions adviser and an administrator only and not the appointment of independent trustees.

The role of the trust is simple, to administer and protect the company pension fund and thus enable it to grow in value. It is independent of the company and the pinnacle of a triangle, with employer and employees forming the other two points.

All sides of the triangle need to work together to successfully achieve the pension fund’s primary goal, which is to ensure money moves from employee to employer pension scheme and then eventually back again to the beneficiary, the retired employee.

The job of the trustee is a demanding one at the best of times and now requires a degree of knowledge and understanding unknown in the past. The trustee can be either a lay person, a paid professional, or even a company – known as a corporate trustee. The corporate trustee will usually be the director, with the same responsibilities as an individual trustee. The pension scheme’s employer can also be the corporate trustee.

Often an individual trustee will be just one of a number of trustees looking after the pension scheme. If that is the case, the group is known as the board of trustees. Anyone is eligible to become a trustee provided they fulfil a few basic requirements.

Trustees must be aged 18 or over and be legally capable of holding property. They cannot have a conviction for an offence involving dishonesty or deception (unless it is spent) or be an undischarged bankrupt or have voluntary agreements with creditors.

Independent trustees must not be disqualified from acting as a company director, or have property in Scotland covered by a sequestration order. They cannot be a trustee if they are a company which already has one of its directors disqualified from being a trustee. The same applies with a Scottish partnership where any of the partners have been disqualified from being a trustee.

While the country struggles to come to terms with the proposed cuts in government spending and the knock on effect throughout the economy in terms of wage cuts and redundancies, it is quite galling to hear latest reports from the insurance market regarding increases in insurance premiums this year.

Motorists have been among the worst affected throughout the economic crisis, between the oil producers and government fuel duty we have recently witnessed fuel prices escalating to over the £6 per gallon barrier.

The latest budget news deferring the anticipated fuel duty increase in April was expected by most and does little to quell the anger of motorists parting with half their wages to fill up their vehicles.

Motor insurance premiums have risen on average by 31% over 2010 figures and could be set to rise further still in the light of the recent EU ruling stating that insurance companies cannot treat male and female drivers differently when supplying motor insurance products.

The latest reports from the insurance industry suggest that buying home insurance is likely to cost us more than last year, although it has to be said that the average rise of 6% in this market is a little more palatable than the huge increase in motor policies.

Reports suggest that a typical average premium for buildings and contents insurance has risen from £142 last year to £151 in 2011, not a great deal, but still an extra expense that most of us could do without in the current climate.

It appears that insurers are keen to recoup the cost of claims made during the freezing winter weather last year, but with extreme and severe weather in the UK becoming a trend, the costs of insuring our homes is set to increase indefinitely.

Another area that has been attributed to the rise in premiums is fraudulent claims which appear to increase in times of recession, one insurer claiming that these claims cost each of us £44 on our annual premium.

There are of course various websites available that compare home insurance products and we would highly recommend that you shop around for the best deals available.

The majority of insurance companies prefer to insure both buildings and contents in one package and will offer a reasonable discount when these two products are bought together.

If you are about to replace an existing policy it is a good idea to have your previous documents available when checking out alternative insurers, this will enable you to compare services and premiums on a like for like basis and give peace of mind that you are at least getting the same cover as previously held.