Brokers are key to growth in the commercial legal expenses market. Peter Dobie, underwriting manager at Allianz Cornhill Legal Protection, tells Lynn Rouse about his plans
Many have identified commercial legal expenses as a market ripe with potential and Peter Dobie, underwriting manager at Allianz Cornhill Legal Protection, is certainly one of them. ACLP is keen to expand this line of business, but Mr Dobie does not flatter himself that fast, profitable growth will be easy to achieve. As a specialist underwriter in this field, he holds up his hand - and points to his contemporaries - accepting responsibility for the unoptimised sales.
CLE has traditionally been sold as an inexpensive add-on, which does not reflect the value of the protection it offers businesses or encourage brokers to sell it with any conviction. A scenario, suggests Mr Dobie, for which insurers only have themselves to blame. "We are guilty of giving brokers mixed messages. For example, saying 'here's a really valuable product, that can protect your clients against various costs and you can put it into your commercial combined policies for only £25'. That immediately suggests the product is low, rather than high, value."
The great untapped market
Only one third of businesses have any form of legal expenses insurance and with around 20 players in the market, it cannot be described as a congested one. Its potential also compares very favourably to that of personal legal expenses, where 60% of the market has already gone and penetration has, therefore, "reached something of a plateau", explains Mr Dobie. CLE however remains "the great untapped market".
Better broker education is one way forward, suggests Mr Dobie, but he stresses that this requires real time and commitment from underwriters in explaining the product's benefits. "Obviously, as underwriters, we are failing to get our message across. The fact is that businesses have a much greater chance of experiencing an employment dispute or tax investigation than suffering a fire. The irony is that the policy they are most likely to have to call upon, is the one they are least likely to have."
But not everyone has been struggling to convince businesses of the value of CLE. Alongside the specialist underwriters is a second camp of consultancies that represents the second main challenge to underwriters' penetration.
The strategy of these is to sell CLE insurance behind their primary and specialist range of services - for example, reinforcing the consultancy's employee benefits offering.
So is the answer to mirror the consultancies' strategy and sell CLE products on the back of something else? No, says Mr Dobie, who believes this model is also now coming under pressure and would be dangerous to follow. "There are half a dozen companies tending to replicate the same business model." The result is that differentiation has come down to price and such competition is "crazy" when the market has such penetration potential.
The future success of the CLE market, believes Mr Dobie, depends on both camps moving away from this counter-productive strategy of flogging it cheap. "A good policy should cost because it will offer protection against very real and tangible risks." CLE, claims Mr Dobie, can offer the difference between business survival and collapse - especially for SMEs. "Most small businesses cannot afford to write a cheque out for £10,000. And while we cannot criticise brokers about their client advice when it comes to risks of theft, fire and liability, the fact remains that most SMEs still mistakenly believe that employers' liability insurance would cover any employee disputes."
Mr Dobie is equally frank about the problems facing the after-the-event insurance market - a market that represents a third of ACLP's business.
He is acutely aware "real tensions" still exist between this market and liability insurers - a situation Mr Dobie believes is wholly unnecessary and can be overcome with upfront dialogue. "Unfortunately, I am not sure those conversations are happening. With ATE insurance, our ultimate paymasters will be the liability insurers, which are - perhaps understandably - still somewhat suspicious of the product." But genuine transparency about premium calculation could easily change that, he claims.
Mr Dobie is critical of the somewhat fatalistic stance currently being adopted by both sides. The entire dynamics of the ATE market are being shaped by the rulings of costs judges in terms of what is recoverable and acceptable as a premium, he says. "But we, as liability and ATE insurers, are the experts when it comes to risk and need to discuss together how such formulas can work in practice going forward - rather than simply relying on legal precedents and this current piecemeal approach."
ACLP now only markets its ATE products through solicitors - and there is a very good reason for this: "We were one of The Accident Group's underwriters, having a minor role towards the end, and that experience has reinforced our desire to work more closely with solicitors."
Solicitors, he explains, are obviously entitled to charge commission, but this model does not require the layering in of claims management fees and enables the underwriter to retain greater control. "We set the price, can demonstrate clearly where that comes from and can talk with solicitors about the sort of commission that would be appropriate. The partners of firms understand that this is open to debate. After all, we justify where our risk premium comes from, so they have to be able to demonstrate where their 10% or 15% commission would come from in terms of service."
But with the claims management model, the customer-facing companies have traditionally called the tune. This lack of control has been particularly symptomatic of Lloyd's involvement in the market, he asserts, "which does not want to be closely associated with the product, but merely wants the premium that policies generate".
So is the claims management model now in terminal decline, representing an ideal opportunity for underwriters of the solicitor model to capitalise on its failures? Not according to Mr Dobie. "I expect the model will reinvent itself because, as a sector, it has always been driven by entrepreneurs." And while potential claimants may now think twice before responding to a flyer, he does not believe underwriters of solicitor-sold products should take advantage of lost confidence. As claims can take several years from being incurred to settlement, he stresses that there is no room in ATE insurance for opportunistic underwriters.
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