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A big budget for insurance

Director General, Association of British Insurers Director General, Association of British Insurers

George Osborne’s seventh Budget was a big one for the insurance and long-term savings industry. He has used it to frame questions vital to our future ability to serve our customers. Having asked the right questions, we need to seize the opportunity to provide the right answers that will help providers be part of the solution, not seen as the problem.

  1. Action on Claims Management Companies (CMCs). Both parts of this announcement are welcome and demonstrate the Government’s renewed focus on ensuring the ‘access to justice’ reforms of a decade ago are not exploited by CMCs, resulting in inflated insurance costs for customers. The consultation on a charge cap comes first, with a parallel review of the regulatory framework for CMCs. In both, insurers will need to demonstrate with cold analysis the impact of claims farming so that the status quo is not an option.
  2. Green Paper on pension framework. For long-term savings providers, this is the big one that we have campaigned for; an opportunity to look at the use of pensions tax relief in the round, rather than have constant salami slicing of the existing framework (as exemplified in the use of top end higher rate relief to pay for the inheritance tax cut also announced on Wednesday). But the market must not be in any doubt that the hard work starts here. Firstly to advance constructive reforms that can meet the needs of the Exchequer and be less prone to constant tinkering  than the current system. Secondly, to ensure our proposals will encourage higher saving from across society as a whole; men and women, young and middle-aged. Part of our role here will be to act as a corrective to those who pretend that the simplest of policy solutions will be equally beneficial for all. Meeting the accumulation needs of an ageing society is a complex challenge that is unlikely to have a one dimensional  answer.
  3. FCA Review of General Insurance premium transparency. Not for the first time, the Government has set some very clear direction for the operationally independent FCA. Again, there is a lot here we can work with and we were encouraged to see the Government endorse insurers’ call  for the FCA to deliver renewal pricing transparency for home and motor insurance across all parts of the industry. With some sections of the media likely to claim this as a triumph for its campaigning, it will be important for insurers to continue to demonstrate our ongoing support for this necessary reform.
  4. Delay in Secondary Annuity Market introduction. Deep in the Budget small print is a welcome move by the Government to a realistic timetable for the introduction of a Secondary Annuity Market, something we had publicly called for. While we support the policy objectives of the reforms, they will be complex to introduce and there are significant implementation challenges that need to be overcome if a market is going to develop successfully. Allowing time to get this right is a sensible decision and we should use the breathing space productively so that customers are able to benefit properly when the reforms go live in 2017.
  5. The less good news. Yes, there was some of that too. Most obviously the significant hike in IPT which will undo some of the savings for customers which resulted from the industry’s partnership with the Government on motor reforms. It will be important for insurers to remind ministers that this is a direct hit on customers and hikes in it should not become an annual event. For investors the reduction in social housing rents was also unwelcome and a reminder of the political variables that are always part of investment in public projects. Finally, the Government’s reference to a review of how compensation for industrial injuries in the workplace is funded between employers and insurers is also one to watch; details are unclear at the moment but the reference to reporting back in the Spending Review is a clear hint that the Government is looking to find savings in this area.

So plenty for the industry to digest and some important arguments to win. I am confident that with a sustained focus on what works for customers now and in the future, strong collective engagement by the industry and robust analysis, we can do exactly that. Insurers and long term savings providers are key to our future prosperity and healthy society – now we have to demonstrate why.

Huw Evans is Director General of the Association of British Insurers (ABI).

Last updated 29/06/2016