Solvency 2 has become a moving target and getting that target in their sights is costing insurers a fortune. That was the unequivocal message delivered to the All Party Parliamentary Group on Insurance & Financial Services yesterday.

As the group chairman, Jonathan Evans, observed in setting the scene at the beginning of the meeting, Solvency 2 has suddenly become a political issue following the Prime Minister's intervention over the threat by the Prudential to relocate to Hong Kong, a threat the company reiterated yesterday when reporting its results. This is a serious and understandable threat in the face of the proposed treatment of non-EU (especially US) risks, a point that was emphasised by Sean McGovern, director of North America and general counsel of Lloyd's, speaking to the group yesterday. The 85 syndicates currently operating at Lloyd's have almost half of their business in the US and Canada, he said, and many will have to consider moving to non-EU domiciles such as a Bermuda if the regulations are not amended.

This is not just an issue for British insurers as several major European groups such as Aegon, Axa and Allianz have also raised the same issue and are putting pressure on the Brussells bureaucrats to think again. The trouble is a re-think will take time and will probably delay the introduction of the Solvency 2 regime still further, adding significantly to the already painful costs. It has already been delayed once – pushed back from January 2013 to January 2014 – but even this new deadline is starting to look optimistic. The next hurdle in the European Parliament (pictured) just before Easter looks daunting: there are over 400 amendments tabled to the detailed regulations required to activiate the regime and if these are not all dealt with then the implementaion date will start to come under pressure. This is before you throw in having to deal with the question of non-EU liabilities and the intense lobbying from the French mutual sector which is seeking significant exclusions from the new regime.

The costs are already causing huge concern, as Martin Shaw, chief executive of the Association of Financial Mutuals, told the group. At an estimated £2bn for implementaion alone this represents £10 per policy for every policyholder, a cost that cannot be justified, he argued, especially in the UK. "The UK's previous approach was based on successfully pursuing a more risk based approach than the rest of Europe...therefore UK consumers will see less benefit for their £10 per policy". It was, he said, "doing the same things in a more expensive way".

The consequences among mutuals could be more mergers, off-loading some books of business, a de-risking of investment portfolios, which could impact on the equity markets, and more sharing of costs, for example through the use of external actuaries.

Paul Clarke, Solvency 2 European leader for PricewaterhouseCoopers, the technical consultants to the group, attempted to put the cost into context, arguing that some of it would be "incurred anyway and will end up making businesses more efficient", citing Amlin as an example saying that processes had been improved and a refined reinsurance programme put in place as a result of the preparatory work done for Solvency 2.

While the UK regulators were generally praised for being supportive over Solvency 2, all the presenters agreed that the Financial Services Authority's proposals for non-executive directors was setting the bar too high. Mr McGovern said "they almost expect non-execs to train as quasi-actuaries" and this combined with the suggestion that even for smaller companies they should spend 35-45 days a year on board duties will "turn off potential non-execs".

Mr Evans said the All Party Group will be returning to the subject of Solvency 2 after the Easter recess when it hoped to hear from both the Association of British Insurers and the Prudential. Perhaps by then we might have a little bit more certainty on some of the detail and whether the revised target date of January 2014 remains realistic.

Last night's meeting of the All Party Parliamentary Group on Insurance & Financial Services was rather more tense than is usually the case as doctors and medical reporting agencies battled to get their views on the seemingly uncontrollable surge in whiplash claims across to MPs.

"Don't blame us" was the essence of their message which clearly wasn't what the members of the group, led by chairman Jonathan Evans, wanted to hear.

To be fair to both Donald Fowler, the managing director of the Premex Group and Dr John Canning, chair of the Professional Fees Committee of the British Medical Association, they set out to create some balance in a debate that, certainly within in the All Party Group, has been tilted towards the insurer perspective. In attempting to do this they at least flushed out some of the areas where Parliamentary opinion is beginning to firm up on this issue, although that wasn't necessarily what they wanted to hear.

The medical profession came under fire, especially from Lord Hunt, for submitting medical reports based on telephone consultations, a practice that Jack Straw is gathering evidence on. While Dr Canning was able to quote alot of fine words from General Medical Council guidance on writing reports about the need for honesty and completeness, he found himself struggling to defend the submission of reports where the patient hasn't been seen. This is something that is permitted under the GMC guidance and Dr Canning outlined some types of cases where it might make sense but he failed to convince Lord Hunt and his colleagues in the group that this was acceptable.

Mr Fowler tried to provide some context to the work of medical reporting agencies such as Premex and made a bold attempt to challenge the terms in which the debate is being conducted: "What is whiplash?", he asked, "It is hard to understand the figures without having a clear view of what whiplash is in the context of soft tissue injury", he told the group. The figure he was referring to is the one that is now uppermost in the minds of MPs: 1600 new whiplash claims every day. It was a bold attempt but one that was doomed to fail because this figure has shocked MPs and is now firmly fixed as their principal reference point for this debate.

What MPs want is answers to the simple question: Why are there 1600 new claims every day? They believe that this is an unacceptable figure and that there must be a substantial amount of fraud for it to be so high. They had hoped to find that the medical profession and medical reporting agencies were making a significant contribution to this deluge of claims but both Dr Canning and Mr Fowler at least managed to escape being saddled with that responsibility. Instead they presented themselves as the innocent but honest parties in a flawed system.

So, where do the flaws lie?

Clearly, referral fees are a significant culprit. They force claims into a system where there is too much money to be made by lawyers. At the end of the process is the money paid to claimants, another incentive to turn relatively minor injuries into claims. I don't know the answer to this but I suspect that one of the reasons we have more claims most European countries is that the compensation we pay is much higher. I say this because one point that struck me yesterday and has had me wondering in earlier presentations is why, if we use the same diagnositic tools as the rest of the world (which we were reassured that we do) do we have so many more claims? Surely, it can only be because our legal system puts a higher value on the pain and suffering of relatively minor soft tissue injuries than elsewhere? Does this make our system better or worse? That is a question that the insurance industry could very usefully invest in some proper research to help find answer.

The other challenge to the insurance industry has to be to stop paying all referreal fees immediately. We know they are a significant contributory factor and a real incentive to creating claims where none would exist otherwise. Why wait for the legislation to ban them? Some insurers have already banned them – what is stopping the rest?

This issue is not going to go away. It is on the Prime Ministerial agenda, the Transport Select Committe is due to return to this topic shortly and Jack Straw is in no mood to let it drop. Solutions have to be found. They will be better solutions for being better informed and yesterday's meeting was another small step in that direction. It did, however, yet again highlight what we don't know as much as what we do know.

 

It was strange being at the Institute of Insurance Brokers' final Parliamentary Reception this lunchtime, not least because a few people reminded me that I was at their first such event which was way back in 1988. It was also clear that many people were there almost 'signing off' from their long association with the broker trade bodies, not least IIB president John Greenway, former chairman Graham Gomm and other other IIB luminaries such as Mike Slack.

But it was also a forward looking occasion, carefully stage-managed by Barbara Bradshaw and Eric Galbraith to demonstrate the that IIB's merger with the British Insurance Brokers Association has strengthened the broker voice in government and Parliamentary circles, underlined by the presence of Treasury minister Mark Hoban. Both spoke powerfully of the challenges facing the broker market and how important the relationship with policymakers and politicians has been and will continue to be in the future.

This was echoed by the chairman of the All Party Parliamentary Group on Insurance & Financial Services, Jonathan Evans, who highlighted the work done by the group with the broker trade bodies to shift opinion on the need for a review of the Financial Services Compensation Scheme as an example of what unified, consistent and coherent lobbying can achieve.

Of course, the broker trade bodies are not quite united as there is still some fragmentation in the London Market but in terms of the issues that matter to MPs and Parliament - largely the issues that affect their constituents - there is now a single voice and they will welcome that. 

The big question that seemed to trouble everyone at Tuesday's meeting of the All Party Parliamentary Group on Insurance & Financial Services which discussed whiplash claims was the poor quality of diagnosis by general practitioners. The group heard how there are scripts available on the internet that guide a 'patient' through how to describe the pain so that they can guarantee a diagnosis of whiplash.

However, top-flight medical evidence (from the World Health Organisation) now allows for systematic categorisation of whiplash associated disorders (WAD) but it has so far proved almost impossible to get GPs in this country to use this evidence-based approach. Until this challenge can be met, MPs heard, it will be very difficult to address the problems caused by whiplash claims which, at 1600 new diagnosis a day, far outstrip any comparable country. This is not just a problem for the insurance industry the committee was told by Dr Nick Kendell, who chaired a recent expert medical panel on WAD, but a serious problem for patients. He told MPs that serial ineffective treatments administered as a result of the misdiagnoses can often make the condition worse. It can also mean that a process of claiming for inappropriate compensation delays the delivery of effective treatment.

MPs were also told that on a recent visit to the Thatcham Motor Insurance Research Repair Centre engineers from Volvo were shocked to hear that accidents involving their cars in the UK gave rise to whiplash claims as this didn't happen elsewhere in Europe.

Some MPs were extremely critical of the current situation with group chairman Jonathan Evans highlighting the problem of regional whiplash hotspots and Steve McCabe (Lab, Birmingham Selly Oak) condemning those who encourage false claims: "This is just the latest scam", he said, "It is aided and abetted by two of our most respected professions - the legal profession and the medical profession".

Despite this strong condemnation, Mr Evans said that he did not support the proposal in Jack Straw's bill to ban referral fees which would effectively reverse the burden of proof  for whiplash claims with the claimant having to prove that they are suffering a whiplash related disorder rather than the insurance company having to prove they aren't: "It is a much better option to get better information into the hands of the medical profession than to go down the route suggested by Jack Straw of reversing the burden of proof".

I think the next challenge for the All Party Group in helping to inform this debate before Mr Straw's bill reaches the floor of the House is to engage the medical profession, especially GPs, so that MPs can get a rounded view of the problem.

  

There are some changes among the key personnel on the All Party Parliamentary Group on Insurance & Financial Services after today's annual meeting.

The chair, Jonathan Evans, was re-elected as were the three deputy chairs, Andy Love, Lord Hunt of Wirral and Lord Newby. The group has two new hon secretaries following the decision of Tracey Crouch to step down, although she remains a member of the group. Succeeding her will be Heather Wheeler, elected as Conservative MP for Derbyshire South last year and a qualified member of the Chartered Insurance Institute, and long-standing Conservative MP for Gainborough, Edward Leigh.

The other change is that Jonathan Swift, now Editor-in-Chief of Post and Insurance Age, will take over the lead role in co-ordinating the group's activities from me. This is a role that I have performed since 1990 when the late Sir Robert McCrindle and myself set about creating an all party group to cover the insurance industry, finally establishing the group at the beginning of 1991. I recently wrote about some of the highlights of working with the group over the last 20 years so I am not going to rehearse them all again here.

This is an ideal time to hand over the reins. 20 years is a long time and it has been hugely rewarding to work with Parliamentarians and a wide range of leading figures in the insurance and financial services sector to ensure that government and Parliament are better informed about innumerable issues, large and small. But the main reasons for making the change now is that we are one year into a new-look Parliament with the group successfully reformed and working well, engaging with the industry, pressing regulators and government on key issues and attracting support from across the political spectrum. At the same time, Jonathan Swift has moved up to be Editor-in-Chief of Incisive Media's prestigious stable of insurance brands, publications and events, the very job that I was doing when we started the group. It made for perfect timing.

I am not disappearing and I was asked by Jonathan Evans at today's meeting whether I would still be around - I certainly hope so as I support both Jonathans in the next phase of the group's development. I also intend to keep going with this blog as the pace of regulatory reform accelerates over the next couple of years.

The debate over the future of the Financial Services Compensation Scheme took another step forward last night - at least from the intermediary perspective - when Jonathan Evans, Conservative MP for Cardiff North - presented a 7000 signature petition to Parliament.

The petition was organised by the British Insurance Brokers' Association and calls on the Financial Services Authority to get on with the delayed review of the FSCS and to take note of the excessive burdens currently falling on smaller brokers. It repeats the familiar call for them to be separated from other classes of firms the scheme currently throws them in with. Mr Evans is also chairman of the All Party Parliamentary Group on Insurance & Financial Services and will this afternoon be chairing a meeting of that group when it will hear from Sheila Nicoll, the FSA's Director of Conduct Policy on The Future and Funding of the FSCS.

While I applaud the effective campaign that BIBA has run on this topic, I am left wondering why there hasn't been more common cause made with the independent financial advisers who have exactly the same issues with the FSCS as insurance brokers? We know from the debates in the Commons on the Retail Distribution Review just before Christmas that small IFAs are a powerful lobby and have alot of supporters, especially among newer MPs. A joint petition would have the potential to make an even greater impact, not merely because it would have garnered even more signatures but because it would have shown common cause across different parts of the market diluting the inevitable accusations of special pleading by one sector.

There remains, of course, plenty of time and scope for linking up with IFAs and taking the campaign up another notch but perhaps we should see what the FSA has to say this afternoon first.

The debate about mutuality is back up and running and not before time.

In the run up to the General Election last year I was asked on innumerable occasions: "How are you going to replace John Greenway as chairman of the All Party Group?". The group in question was, of course, the All Party Parliamentary Group on Insurance & Financial Services and the questions prompted by the fact that John Greenway was standing down at the election after 18 years as chair of the group.