Following last month’s news of the collapse of CBL Insurance and the subsequent failure of Denmark’s Alpha Insurance, Andy Talbot of ARAG considers where the next legal expenses underwriting failure may occur
In 2016, it was AU Insurance Services. Last summer, it was Elite Insurance Company. Already in 2018, New Zealand’s CBL Insurance has collapsed, leaving Alpha Insurance in solvent liquidation and run-off.
Often, it seems, these failures affecting the legal expenses sector get associated with the after the event (ATE) insurance market, somehow remote from the majority of brokers. But most legal expenses underwriters, wherever they are based, will have feet in both ATE and before the event camps.
Alpha Insurance is a case in point, having underwritten numerous motor legal protection and other policies for brokers around the country, as well as some ATE business.
The precise causes and circumstances of these failures (and the several others that have occurred in between them) may be very different, but they have all left brokers, other intermediaries and their clients in the lurch.
In most cases, clients are unlikely to be affected if a change of underwriter is forced on their insurance provider. Some consolation for brokers that have to go back to the market, find a new underwriter or product and undertake all the subsequent work that such failures inevitably trigger.
What is troubling is the frequency with which such failures seem to be occurring.
The legal expenses insurance market has not been an easy one in recent years. Increased regulation, the Legal Aid, Sentencing and Punishment of Offenders (LASPO) Act, numerous other legislative changes and even the succession of insurance premium tax rate increases have all put pressure on smaller legal expense insurance providers.
Some underwriters have also been more vulnerable to the impact of continued uncertainty over EU passporting rules, resulting from the Brexit vote, and there are likely to be more legislative changes to come. Proposals to change the way whiplash claims are handled and raise small claims court limits could seriously undermine the business models of some legal expense insurance providers and trouble their underwriters.
Brokers have good reason to be cautious. Alpha Insurance is only the latest underwriter to exit the legal expenses market. It is highly unlikely to be the last.
How and when the next legal expenses underwriter will leave the market is inevitably difficult to predict, but brokers owe it to themselves, at least, to minimise the risk of finding themselves in a similar situation over the coming months.
Very few law firms will have the knowledge of insurance markets that most brokers do, so it may be hard for them to understand and calculate the risk. Brokers, on the other hand, should be much more adept at asking the right sort of questions, not just of their immediate provider, but the ultimate underwriter, too.
Who is this policy underwritten by? Where are they based? Who regulates them and what sort of scrutiny do they come under? Are they independently rated by a credible agency? How much experience do they have writing this sort of business?
Thankfully, it seems that Alpha’s departure and run-off will, like Elite’s before it, be orderly. The underwriter appears solvent and seems capable of meeting its obligations.
Next time, we may not be so lucky.
Andy Talbot is head of sales at ARAG