Mactavish launches campaign for change in the insurance industry

Mactavish has issued a call for radical reform of the insurance industry, which has for too long put price of cover ahead of value, it says. This, it says, has depleted contract quality, increased opacity around broker fee structures and and led to a prevailing attitude of one-size-fits-all on even complex risks. This, Mactavish says, has led many clients to see insurance as a commodity purchase rather than a complex and vital financial instrument.

It believes soft market conditions have contributed to the sidelining of traditional underwriting and broking skills, and that now that period is coming to an end, it's time for change.

Today, the organisation is launching a year-long "programme of investigation and discussion" aimed at transforming the sector over the course of next decade.

CEO Bruce Hepburn said: “Insurance buyers are facing a growing number of risks – many of which are relatively new, such as cyber – at the same time, the industry has de-skilled throughout the last decade-and-a-half of soft market conditions. While this is already a problem it will be massively exacerbated as insurance rates are now rising as the market hardens. Not only are buyers being served with unsuitable products, they will now have to pay much higher rates for the privilege.

Unsustainable trajectory

Bearing in mind the relatively high cost of doing business in the UK, Mactavish says it believes the UK insurance market is on an unsustainable trajectory. Indeed, the company points out that the UK has gone from being the third largest non-life market to the fifth in a decade.

“The question now is whether the return to higher premiums will see insurers and brokers increase their investment in the technical skills that underpin the sector or whether they will simply enjoy the increased margins. Ultimately, if brokers only pass on insurers’ products at market price, clients are quite right to question the value they provide,” Hepburn added.

Chairman of Mactavish’s dispute resolution team, and a former law commissioner, David Hertzell, added: “The UK insurance industry employs over 300,000 people and provides a greater net contribution to the UK economy than any other sector. However, emerging markets are now taking a lead -- and showing higher levels of profitability than the UK and other established hubs. While the underwriting excellence that sits at the heart of unique institutions such as Lloyd’s remains, other institutions -- in alternative global centres -- can now credibly claim to match them. This then, is a picture of managed decline in the UK’s position as an international market.”

As part of its campaign to encourage a broad cross-section of sector participants to share their views, Mactavish believes there are two clear questions that need to be answered:

1. How can we ensure that the UK insurance market retains and enhances its competitive edge in an increasingly globalised world?

2. Is the market delivering for policyholders, and discharging its wider duty of care to align with and support long term economic growth in the UK by providing high quality financial risk transfer protection to the real economy?

Hepburn was at pains to point out that his programme was not about adopting a "critical attitude towards the great market professionals we work with day-in-day-out", but that he does believe the UK insurance market is at a defining juncture.

"The decisions we make now will have very real long-term consequences. It’s vital that we now take an honest, open and constructive approach to our future. Our overall aim is for London to be seen as the gold-standard for sophisticated risk transfer.”

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