Aldermanbury: the industry's new order?
Written by Jon Guy
To stay competitive admit wider market turmoil, the insurance market is being urged to review the way it conducts business and raise professionalism among its participants. The CII has come up with a plan to achieve just that. Jon Guy takes a look at the Aldermanbury Declaration
The word declaration is not often used lightly - the words war or independence will commonly spring to mind, both of which suggest conflict. So when the beginning of March saw the UK insurance industry issue the Aldermanbury Declaration it was accompanied with the words 'unique', 'unprecedented' and 'ambitious'.
To keep up with the powerful theme, the Declaration was made as a result of the work of a Task Force and is designed to fire professionalism into the heart of the industry at all levels and across all disciplines. The aim is to raise the public perception of the profession as a whole and improve its performance in an environment where poor underwriting cannot be so easily mitigated by hefty investment returns.
The Aldermanbury Declaration is a weighty document containing eight core strands which the task force and, with it the Chartered Insurance Institute (CII), believe need to be addressed to enhance the image of the industry with its clients and those who are looking to find a rewarding career.
The choice of name for the Declaration is also interesting. Aldermanbury is the City of London street on which the CII has had its headquarters for many years. During the Second World War the building was left remarkably unscathed by Nazi bombing raids while those around it were badly damaged to the point that war-time Prime Minister Winston Churchill visited the building to show how there were parts of the City which could survive the worst that could be thrown at it by the enemy...
Therefore, the hope has to be that the bold declaration designed to deliver a metaphorical rocket of professionalism into the industry will not fizzle out as apathy fails to light the fuse.
No signs of such apathy were evident at the launch of the Declaration by the task force, which spent six months exploring the issues and the challenges; is led by CII president, and Fortis Insurance CEO Barry Smith; and contains some of the biggest names in the UK insurance markets within its ranks.
At the time it was described as "an unprecedented call to the general insurance sector to commit to a framework". The taskforce concedes that there is a job to be done to win the hearts and minds of the public and its customers.
Chris Hanks, general manager, commercial lines at Allianz Insurance and a member of the task force, says he participated because there needed to be a shake up of how the industry was perceived and the level of professionalism in senior management positions.
"This really was a case of the whole industry: personal lines, commercial lines, the London market, the international and provincial brokers all being represented and saying that something needed to be done," he adds.
The fact remains that insurance is still seen by many as a grudge purchase despite the billions paid out in claims and the peace of mind it brings. The credit crunch and the financial crisis has also tarred the industry with the same brush as the banks, which were fundamentally at the heart of the problems.
Indeed, the European and global regulators have acknowledged the fact that the insurance industry fared well throughout the worst of the problems, and while some of the world's most famous banks collapsed or needed multi-billion pound central government bailouts, the insurance industry - with the exception of one prominent name - managed to ride out the storm. Indeed, the last high profile collapse among insurers in the UK was Independent Insurance.
But the industry has been hampered by its size, scale, and the diversity of the risks it underwrites, which has left it with no single voice to start the 'hearts and minds' programme. The Declaration aims to change that by promoting professionalism in an effort to not only enhance the services it provides to policyholders but also better compete for the best young talent - a task which has been enhanced in recent months by the problems in the banking sector.
The Declaration states: "By placing a renewed focus upon professionalism within general insurance, it is believed that there will measurable benefits for both those working within insurance, and for the wider society." These include:
•better outcomes for customers;
•improved standards of risk management;
•a more confident, trusted profession;
•more talented people attracted to a career in insurance;
•more rewarding careers for those within insurance; and
•reinforcing the reputation of the London wholesale market.
The declaration defines measurable standards for the industry and encourages firms to sign up to pledge to meet those standards.
For insurance intermediaries, it will mean at least half their operational management team should be qualified to advanced diploma level (ACII).
For insurers, at least half the people in the senior claims management team, senior underwriting management team, and all authorised underwriting agencies should ensure their lead underwriters are qualified to advanced diploma level (ACII).
As part of the Declaration, individuals in key leadership and management positions, for example broker relationship managers and risk managers, would be expected to be members an appropriate professional body and hold relevant professional qualifications.
"We should have our senior management professionally qualified," says Hanks. "What we have not said is that it should be 100 per cent because there has to be the recognition that we will have managers which have achieved MBAs and business qualifications that have to be recognised.
"There might be some who say that this is just to drive professional examinations, but that is not the case. No one bats an eyelid about the need for professional qualifications for lawyers and accountants so why should the insurance profession be any different?"
"Clients should be secure in the knowledge that brokers and underwriters are qualified to do their jobs and understand the industry and its products. In a way it is a return to say 30 years ago when professional qualifications were a pre-requisite of doing the job. I also believe that if we enhance the level of professionalism it will enhance the performance of the market in terms of the construction, pricing, and sale of its products," Hanks adds.
The aim is for the proposals in the declaration to have been signed up to by the industry as a whole by December 2013.
"We believe our proposals are ambitious but realistic, and hope those signing up to the Declaration will fully implement its recommendations," says Smith.
"The creation of this Declaration highlights the insurance market's intent to raise its standing and reputation with the public. It comes on the back of what I believe is a growing desire, within the market for concrete action that will bring the dream of an insurance profession closer to reality."
The UK industry does have a fight on its hands and it is interesting to see that one of the core aims of the declaration is to reinforce the reputation of the London market which remains at present at the heart of the global insurance and reinsurance industry.
However, plans are already advanced for the formation of a rival insurance exchange in New York - a project which was formed but failed 20 years ago. Depending on whom you talk to, the new plans for the exchange are set to be a stunning success or already doomed to failure, but it has come as a clear indication that there are other centres which are looking to challenge London's supremacy. Indeed Bermuda has said that if the New York exchange does not get off the ground, it will seek to launch its own.
Members of the task force say the declaration had to be made if the market was to prosper. Eric Galbraith, chief executive of the British Insurance Brokers' Association, says that any move to make the market more professional has to be applauded.
"I believe this is a really good starting point for what the industry has to achieve," he adds. "It is also important if we are to avoid any further action by the regulators in the wake of the financial crisis. They are looking to see we can put our own house in order and drive higher standards and professionalism."
"The issue has long been what counts as professionalism in an industry which is a very broad church in terms of the roles which are carried out," explains Galbraith. "While professional qualifications are a start they are not a badge of experience and as such we need to be mindful of the fact. "What is encouraging is that this is an initiative which has seen the whole sector get together to come up with the solution."