Insurance company failures predicted as Euro Solvency rules are applied

by Kris Oldland on November 6th, 2010

QIS5 set to see an increase in Insurer failure rates:
As final implementation of Solvency II looms ever closer, more and more industry experts are now predicting a complicated and worrying time for a growing number of insurers. Willis Re have recently admitted their own fears for the UK’s smaller regional insurers, predicting that many more companies are looking likely to fail in QIS5 than did so in the previous such exercise QIS4.

In a recently released report the global insurance brokers reinsurance arm announced that Quantitative Impact Study (QIS) 5 is shaping up to be a far tougher test than its predecessor, of which only 11% of insurers failed. Whilst claiming that the failure rate will be

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Unemployment to hit North of UK First warns Specialist Insurer

by Insurance Blogger on August 7th, 2010

As the CON DEM coalition Government budget deficit cutbacks begin to take effect, Insurance Blog asked one of the UK’s  leading Unemployment Insurance specialists to look at where the cuts are going to be made and who is going to suffer……….

UK Government Cutbacks Will Widen the North-South Divide

News of job losses continues unabated. Not so much for those employed by the house builders or major financial institutions, but further down the economic food chain. Those companies such as fashion house Ethel Austin with 300 stores predominantly in the North of England. They called in the receiver in February 2010 and have since set about closing 120 stores and issuing 1800 redundancy notices. They, like many others shedding labour, held on waiting for an upturn in the economy that never came soon enough to save them. Faced with still hesitant consumer spending, their loses continued and creditors ran out of patience. However, for the North, it is about to get a lot worse.

The UK’s fairy tale economy saw a mushrooming of Public Sector jobs over the last 10 years. The broad industrial group ‘public administration, education and health’ covered 7.16 million jobs in 2007, 26.9 percent of total employment (Source: ABI statistics). Since then the Public Sector has grown whereas the Private Sector has been battered by the recession. In 2007 there were substantially less than one million unemployed, in February 2010 this figure had grown to 2.5 million (Source: office of National Statistics) and almost all of these job losses were in the Private Sector. Post election slashing of Government budgets is unavoidable and contraction of Public Sector jobs is now widely forecast. The only question is where the axe will fall.

The North South divide is about to get a lot wider as the cut backs in pubic expenditure will be felt most acutely in the North. Because of their national pay scales, the wages of Public Sector employees have always gone much further in the North. They offer the opportunity to spend significantly more in the local economy than their colleagues in the South, saddled for years with high mortgage costs and rents. This has benefited the money in circulation in the North and the boom in restaurants, bars and countless other businesses blossomed up and down the land. Just how much this was dependent upon salaries paid out of the public purse is about to become far more apparent.

Things have now changed and ‘its grim’ is about to return ‘up North’ because cut backs will be felt disproportionately by the major northern conurbations. Perversely, past efforts of Governments to create jobs in northern Britain are about to make matters worse. The Lyons Review from 2004 had a target to move over 24,000 jobs out of London by this year. However Lyons followed years of relocation of Government functions to the regions that started in the 1970’s. As a consequence, by 2009 in the North West 3.4% of total employment was in the Civil Service. This compares to a more typical 1.3% in Eastern England and just 2.1% in London despite being the heart of Government. (Source: ONS, Civil Service Statistics, 2009).

Politicians pledging to preserve front line services in Health and Education will only mean even more pressure is applied elsewhere. Once again it is the North, specifically core cities that are likely to bear the brunt. Local Government statistics show they employ just over 40 people per 1000 residents in cities across the UK as a whole. However, in Manchester this is nearer 45 and in Birmingham, Nottingham, Leeds and Newcastle there are over 55 per capita. Clearly these cities offer greater scope for large scale cut backs than elsewhere in the country.

Whether the Public Sector ‘efficiency savings’ manifest themselves in redundancies or just a recruitment freeze, the North’s disproportionate dependency on the public purse will weigh heavily for several years to come. Money will melt from local economies and it follows that particularly smaller or regional businesses will suffer as a consequence.

State benefits paid when out of work are pitifully inadequate to meet the outgoings of the average household. Therefore, should anyone not have savings to get them and their families through six months to a year of unemployment, they should consider Income Protection Insurance. This can be bought for much less than insuring a car. On-line there are Income Protection Insurance providers offering typical policy benefits of up to

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Business Insurance: Business Interruption Cover Explained

by Insurance Blogger on August 12th, 2010

Business Interruption Insurance is usually sold as part of a Commercial Insurance combined policy or package and provides a layer of insurance against not being able to trade following a claim.

In addition to the physical loss of the claim, the financial loss to the business stemming therefrom needs to be dealt with by an interruption policy.

Formerly called ‘consequential loss’, ‘loss of profits’ and/or ‘profits insurance’, which can be misleading terms, the protection granted is in accordance with a policy formula, i.e. rate of gross profit applied to the reduction in turnover of the business in consequence of an insured peril, together with the increased costs to minimise an aggravated loss (but not exceeding the loss so saved) arising within the maximum indemnity period (as selected to be insured).

Provision is made for the accountancy definitions and the business, the premises and the insured to be defined. In any claim, adjustment can be made to the precious financial account figures so that the loss is in respect of the ‘would have been’ results that would have applied if the damage had not occurred.

The perils insured (for which there must normally be counter-part physical damage cover) can extend to include those normal to property insurances and such special perils as failure of public electricity or gas supply, loss from infectious disease for hotel and similar trades, or electrocution of cattle in farming risks.

Machinery breakdown covers can usually be arranged on selected plant. Advance profits covers can be arranged for new ventures and these may include marine transit risks.

Provision can be made, with first-loss limitations applying, to extend interruption insurance to protect the financial trading of the business following damage to other people’s premises (those of suppliers, subcontractors, customers, etc.) and in transit.

It is normal, in the current economic conditions, to insure 100 per cent of the remuneration of all employees at a reduced-rate level, but more employee cover can be arranged in this respect in suitable cases. This limited cover is largely a ’social’ protection to staff and their retention after a loss is thus safeguarded. While savings can be made by non-replacement where employees leave, the cover is not on the basis of the insured having to minimise the loss by dismissals.

The indemnity period, usually at least 12 months, is the limit up to which the recompense under the policy continues. It needs to be sufficient not only to restore the physical equipment and buildings but to allow turnover to reach the ‘would have been’ level. The sum insured is the forecast amount (including a margin to avoid under-insurance) that might be at risk for the 12 months from the end of the renewal period of the policy. Where the maximum indemnity period insured exceeds 12 months the figure is then proportionately increased. The premium is adjusted normally only to the extent of over-insurance.

For the small and medium-sized businesses, it is now possible to buy Commercial Insurance on what is termed a declaration basis. The cover may or may not include a maximum sum as a limit, but there will be no reduction applicable in the event of under-insurance (or a high sum insured limit is applied to avoid this); the premium is adjustable on the annual declaration,which must be received in a limited period from the end of the insured’s financial year.

The cover automatically provides for the cost of auditors in preparing financial details from the accounts, but not for the preparation of the claim itself.

It is often found that consequential losses will arise such as liquidated damages, above-economic increases in cost of working, deterioration or wastage of undamaged stock, etc. special items can be added to deal with these exposures. This section has indicated the need for individual review when arranging an interruption insurance and for the policy accountancy definitions to be suitable to the system of accounting adopted.

A further form of special cover called ‘book debts insurance’ provides for the loss flowing from the un-8urecovered monies from trading prior to the damage through the destruction of the account records and the inability to collect the outstanding debts. The essence of the insurance is the monthly declaration of outstanding book debts, which serves as a datum against which after damage the shortfall in recovery of book debts can be measured. A low rate is involved and the degree of duplication, protection of the records and sum insured determines further reduction to it.

It is in the field of interruption insurance that the importance of the assistance from loss adjusters and others arises, since as witnessed in the spate of recent natural disasters that have occurred, much can be done in emergency conditions to minimise the potential loss.

Business Interruption Insurance is today available on-line and is included as standard in all Commercial Insurance package polices. For larger business risks it is advisable to approach a specialist insurance broker direct.

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