One for the road

In the past 100 years, the design of motor vehicles has changed immensely, and so it is with the motor insurance market. Now that the Lloyd's Motor Underwriters Association has been absorbed into the Lloyd's Market Association, Hugo Cranmore looks at issues rearing their heads in the early years

The absorption of the Lloyd's Motor Underwriters Association into the Lloyd's Market Association last year came 100 years after the dawn of the motor age. Who could have foreseen where those early developments would end? After all, it was once predicted that 'the car for everyman' was an impossibility - there would never be enough chauffeurs to go around.

Historically, it is extremely difficult to trace the first motor insurance policy ever issued. However, the tradition of the Lloyd's market for tackling the unusual lends credence to the claim that underwriter AJ Whitcombe drafted, with the help of a friend from the marine market, a 1901 policy that treated the insured vehicle as a ship navigating on dry land.

A somewhat happy-go-lucky attitude seems to have prevailed at that time because an early total loss claim was settled when Mr Whitcombe offered to toss for it, double or quits - he won.

More formal organisation followed when Walter Bersey, inventor of the electric car, devised a schedule showing how motor insurance could be made to pay and, together with underwriting input, he was instrumental in developing a syndicate that became known as 'White Cross'.

White Cross and Kinloch were certainly transacting in Lloyd's in 1908 and by 1916 the names HP and British Standard had appeared, followed by Red Star, Eclipse, Leadenhall, Ensign, Anchor, and Shead and Service. A further seven syndicates were created in the 1930s - still a far cry from the 'Golden Age' of motor syndicates at Lloyd's in the 1960s, when a peak of 47 was reached before merger and consolidation took place, with many syndicates leaving Lloyd's to become insurance companies.

The LMUA's own story began in 1931, shortly after the passing of the Road Traffic Act 1930. Up until then, motor insurance matters were handled through the Lloyd's Non-marine Association. However, in view of "the serious situation presented by the introduction of the RTA, it was felt that a separate motor organisation ought to exist", stated the LMUA's first chairman, Herbert Shaw of Red Star in his inaugural annual review.

The LMUA's objectives were defined as being: "To interfere as little as possible with individual underwriting, to agree on matters of common interest to all members, and to serve as a connecting link between Lloyd's and the companies, government departments and others on matters of mutual interest."

The original LMUA members were A1, Anchor, Bell, British Standard, Eclipse, Ensign, HP, Kinloch, Leadenhall, Lion, Red Star, Service and Shead; the first committee meeting included Kenneth Poland and Norman Frizzell. In those early years, the committee had plenty of pioneering to do, with much unknown territory to be explored.

Far from being seen as a business opportunity, the Act of Parliament imposing compulsory motor insurance was not enthusiastically accepted in Lloyd's. "Unforeseen difficulties have arisen that have added greatly to our problems, to say nothing of the increased expense created by the issue of certificates of insurance," state the LMUA's minutes. An undeclared factor in this hostility could have been the Act's removal of certain defences that insurers had previously enjoyed in respect of injury claims involving third parties.

LMUA reached its first birthday with £66 in the bank, and by 1933 the members were finding to their relief that the RTA was not having the serious effect so feared at the time of its introduction.

The disciplines involved in the issue of insurance documents, as proof that cover for a particular vehicle was in force, raised problems that were not fully appreciated at the outset. For example, a tariff company was prosecuted for allowing a pre-dated renewal document to be issued to a motorist who paid the premium after renewal, and after the accident. (This may have been the first but not the last time this would happen.) Other cases followed and Ocean Accident was also prosecuted, with contemporary press cuttings noting that it had been fined £50 plus five guineas costs, with the insured facing a five shilling fine - 25p.

Something had to be done and the solution was the invention of the 'cover note'. This was printed on the reverse of the renewal notice, which avoided the need to anti-date certificates by providing 10 days' extended cover, assuming an intention to renew.

Yet even then there were differences of opinion between the company market, represented by the Accident Offices Association, and the LMUA. The question being asked was whether the 'scheme', as it was called, would be suitable for Lloyd's underwriters? In the end, despite further differences, a standard period of 15 days was agreed by both associations in the summer of 1932.

Premium Instalments

Payment of premiums by instalments is often thought to be a relatively new development but it was the source of considerable heat within the LMUA membership as long ago as 1932. Lloyd's hostility toward such payments persisted for many years, with an eventual change of heart only coming in 1967.

The passion of the debate can be seen from minutes in February 1932 voicing the need "to ascertain the names of Lloyd's underwriters reported in press advertisements as accepting premiums by instalments". It had been suggested that some brokers were using the Lloyd's name to promote their own instalment schemes and the LMUA was anxious to delete any reference to Lloyd's.

Underwriters even considered refusing to deal with brokers that accepted premiums paid in this way, particularly those that found themselves unable to collect the balance and then wished the syndicate to apply the policy cancellation clause. It was, however, agreed that cancellation could only be made with the surrender of the policy and certificate and after applying short period rates for the time on risk - bearing in mind that at that time the usual agreement was a pro-rata return premium.

Problems continued to be encountered over the years and it was not until July 1967 that the LMUA's chairman, Sandy Lane of Red Star, suggested to the Committee of Lloyd's that it really might be time to reconsider Lloyd's attitude towards premium by instalments.

Premium Increases and Rating

A prophetic statement also appeared in the early minutes from the LMUA. It states that: "The margin of profit in our business tends to grow smaller each year."

The modern concept of regular premium increases was unknown in the association's formative years, largely due to the daunting administrative effort involved. Ratings tables were unsophisticated compared to today, and many insurers could - and did - reproduce their own on the proposal form, an indication not only of the scarcity of ratings factors at that time but the belief that premiums could be set in stone for some time, with old printing stocks merely updated with pasted updates. These labels would even be sent to brokers to be attached to proposal forms already in their possession.

Rate reviews may have been relatively infrequent but they were discussed at the highest level within the LMUA, and members were encouraged to act in concert. That said, there have always been mavericks when it comes to motor rating. For example, in June 1935, collective action on a particular increase could not be agreed because one member preferred to go their own way. The existence of verbal agreements on ratings came to light the same year when it was stated that no member would knowingly offer a lower rate where the existing member had raised the premium.

The beginnings of ratings differentiation according to geographic location were, however, emerging, with the LMUA urging members to raise premiums in London, Glasgow and what were described as 'Lancashire areas'.

Some members were often slow in responding to the association's pleas but this was simply part of ratings tactics at that time - it being openly admitted that Lloyd's motor syndicates quite deliberately chose to delay imposing rate increases to ensure competitive advantage when the tariff and non-tariff insurers had increased rates.

The LMUA also considered introducing a new method of rating private cars that would take into account horse power and value; however, categorisation by engine size had to wait until after the Second World War, by which time technical progress in the motor industry, in the form of smaller, more powerful engines, soon made simple horse power unrepresentative of the risk. The more sophisticated vehicle group ratings system was only introduced in 1967, not that even this system catered for the newly invented hovercraft - was it an aircraft, a boat, or a land vehicle? The Sinclair C5 was, of course, still some years away.

The origin of the 'Green Card'

Between the two world wars, increasing numbers of daring motorists took their cars abroad, on occasion finding that their insurance policy was not recognised. By 1936, the Lloyd's motor market was experiencing these difficulties, particularly in Scandinavia.

So an agreement was concluded, via the Committee of Lloyd's with the Danish Insurance Association, whereby Lloyd's motor policies were accepted in Denmark, subject to a guarantee being furnished by Lloyd's on behalf of motor syndicates. Lloyd's also agreed to a request to appoint an agent in Denmark who could be held responsible for the payment of any sum for which a motor syndicate might become liable, that agent being provided by Lloyd's with the appropriate indemnity.

Policyholders visiting Denmark were provided with a card that confirmed their insurance cover - a card that some may well view as a forerunner to the Green Card and its supporting system.

LLOYD'S MOTOR UNDERWRITERS ASSOCIATION - THE EARLY YEARS1931

- "Motor is now regarded as one of the most important departments of insurance ... and there is bound to be considerable development for many years to come. It is comparatively easy to write premium income but no business offers an easier path to commercial suicide." Chairman's report

Hospital charges: Members asked in 1931 to collate lists of hospital charges being made to insurance companies by different hospitals - in the days before the NHS.

1932

- Commission: A 1932 movement in the Lloyd's non-marine market to give brokers an extra 1% for expenses, in addition to commission. Such a request was "not expected in motor, as the present 25% brokerage was, if anything, on a too generous scale".

- A motor engineer made contact with the LMUA offering to inspect vehicles at no cost, apart from the underwriter paying them one half of whatever they saved over the repairer's original quotation.

- Market stability threatened when the LMUA cited an alleged agreement between insurance companies and the Ministry of Transport in the News Chronicle concerning the possibility of the national press selling motor insurance to their readers. However, "from inquiries subsequently made, it was ascertained that the newspaper report was incorrect". This idea fluttered again in 1934 when an evening newspaper announced an apparent entry into motor insurance. The tariff got together with Lloyd's and the scheme died a natural death.

1934

- The removal of all limitation on the use of vehicles for insurance purposes was threatened by a planned revision of the Road Traffic Act but the MoT withdrew following strong representations from the industry. The MoT also agreed that certificates of insurance already in the hands of policyholders would not have to be recalled for replacement in the aftermath of new RTA being enacted. (The collective uproar, had the MoT done so, can be left to the imagination.)

1935

- A contemporary school of thought declared that 'accident proneness' was a science, with an individual's capabilities in this field able to be measured. Chairman Herbert Shaw attended a meeting on this topic hosted by the MoT and also a seminar conducted by the Medical Research Council. The ultimate conclusion was that "any information insurers could give on this topic would be of no practical value".

- The LMUA instigated a press-cutting service reporting instances and names of drivers convicted of serious motoring offences.

- Passenger liability: as the scope of the RTA expanded, concern was expressed by the chairman in 1935. "Comprehensive cover goes beyond what can be reasonably expected by a motor car owner," he said, citing situations where injury occurred to members of the driver's own family, or where the insured was suing their own chauffeur.

- LMUA discussions included the impact of at least two insurer failures that year, alleged to be the result of charging unremunerative rates, joining five others going into liquidation in the past few years. Also discussions took place as to whether frost damage was an insurable risk.

1937

- The possibility of a central fund was mooted to pay for the aftermath left by insolvent insurers. It was stated that 1% of motor premium in the UK would yield £150,000.

1939

The case of Lovell v Williams allowed the resurrection of a settled claim for compensation. "A motor insurer can never be certain of his liabilities," concluded the LMUA's then chairman.

- The Lloyd's Motor Underwriters Association celebrates '100 Years of Motor Insurance at Lloyd's' tonight, with a private reception at Trinity House to mark the passing of the LMUA and the centenary of motor insurance in Lloyd's.

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