Before-the-event legal expenses insurance seems to be an area ripe for development. Jane Bernstein reports on the debate raging over whether it should be built into insurances rather than 'added on'.
The future of the after-the-event insurance market currently remains unclear, despite hopes that the publication of Lord Justice Jackson's review would have removed any doubts about its prospects. Meanwhile, many believe that before-the-event legal expenses insurance is ripe for development. Industry insiders assert there is still room for increased penetration in both commercial and personal lines BTE, but that this can only be achieved through a fresh and innovative approach.
The Jackson review has reignited a debate over whether BTE cover should be built in to insurances rather than 'added on'. Greenwoods Solicitors has taken a keen interest in the review and its implications and consultant Geoff Owen argues in favour of making BTE an integral part of certain policies. "The idea is that you cover the vast majority of the adult population by making it an automatic add-on to everything else they buy," he explains. Mr Owen observes that, for solicitors, one of the major problems with BTE cover has always been that claimants often do not know whether or not they have it. Making BTE a built-in part of the insurances they buy would clearly remove this dilemma. "We see this as part of a detailed review of legal costs," he asserts.
David Haynes, underwriting manager with Arag, points out that the concept of 'building in' BTE cover is not a new one. Indeed, the issue caused much debate a decade ago, when the conditional fee agreement regulations were introduced. Mr Haynes recalls that while this was in fact trialled by some providers, there was a backlash" particularly from brokers. Certainly, brokers would have most to lose if BTE ceased to be an add-on and became an integral part of personal and commercial insurances, as they would lose the extra income they gain from selling these policies. "It is a significant revenue generator for brokers who sell this as an add-on," asserts Mr Haynes.
Tim Mullin, development manager at Composite Legal Expenses, points out that another problem for brokers would be the prevention of them choosing the BTE provider for their client. "This raises a question over whether you are in a position to give best advice to your customer" when you are not in total control of the cover they are receiving."
Another argument against incorporating BTE into products is that this would increase the quoted price of the insurance policies themselves" as the premium would have to reflect the additional cost of the BTE provision. Mr Haynes adds that as more and more business is sold via comparison sites where price is critical, the current trend is conversely to strip products down rather than add components into them. "Obviously, if you add an extra £20 onto your product for legal expenses, you could drop out of the top five on a comparison site and only appear in the top 20," Mr Haynes observes.
This is not the only debate keeping the BTE sector on its toes. For many, this is very much a changing time, with significant challenges to address and scope for development, both in the product itself and in the approach to selling BTE.
There is much consensus that any innovation must come hand in hand with effective broker training, and BTE providers are keen to invest in assisting them. There is some concern that despite being an income generator, brokers still fail to see sufficient value in BTE to prioritise it. David Vine, business development manager with Allianz Legal Protection, observes: "We need to work with brokers to help them understand the value." He blames the LEI market itself for not doing enough to publicise the opportunities in BTE.
Lyndon Willshire, head of sales and marketing for DAS, asserts: "Brokers remain key to our business strategy," and expresses sympathy with intermediaries faced with customers looking to decrease their insurance spend in the current economic climate. "On the other hand," he observes, "it is also true that brokers have a particularly good case to make for selling BTE cover today, with employment claims going through the roof and the frequency of contract claims increasing dramatically." Mr Willshire goes on to explain: "They would in fact be doing an injustice to commercial customers if they failed to sell them BTE cover as they are more likely to have an employment claim than a fire at the moment."
As far as developing the product itself is concerned, there has been a move towards offering a more bespoke BTE cover. Helen Withers, managing director of Arc Legal Assistance, claims this is something her firm has focused on since its inception in 2003. "We've built all our offerings on a bespoke basis. That's one of the ways we've tried to create a unique selling point" by not using a 'one size fits all' approach." Ms Withers says this means a household BTE policy, for example, can range from a very pared down model to one that is comprehensive, with additional sections of cover and extra helplines. "It depends what the intermediary wants and what market they are pitching to," she explains.
Graham Hollebon, head of BTE at First Assist Legal, also emphasises the benefits of a targeted approach. "Our product development is focused on niche and specialist areas that mean we are less reliant on mainstream household and commercial LEI. We develop propositions tailored to the clients' needs," he explains.
There is certainly a view that the traditional commoditising of BTE is outdated. Richard Candy, underwriting director with Abbey Legal Protection, points out that while there is a need for commoditisation at the small end, it is also important to recognise that one size does not indeed fit all.
Above all, legal expenses providers are keen to move the image of BTE away from that of a rarely used add-on and towards that of a cover that adds genuine value. "It has to do what it says on the tin," asserts Mr Candy, adding: "The innovation lies in providing clear, up-front explanations about the product and the risks. It is also about recognising that the law is changing as is the cover people require" and we continually need to develop in response to that."
Many LEI providers are keen to be seen as more rounded legal solutions providers, in a bid to extend their offering. Mr Willshire observes: "As an insurer, we are of course always looking at extending covers and identifying niche areas and affinity groups, but there are also non-insurance solutions that we need to be able to provide. These could include legal services such as assistance with wills."
When Arag launched into the sector more than three years ago, Mr Haynes says it was able to approach the issues with a blank sheet of paper. He comments: "We came fresh to the table. We wanted to widen the cover we could offer and felt the best way to do this, while remaining competitive, was to combine the benefits of BTE and ATE."
Providers are keen to ensure their products remain topical and there has been much development to reflect this, both in commercial and personal lines. On the personal lines side, Mr Mullin observes: "We have started providing some new covers such as identity theft. This has been a high profile issue recently and we are now providing this extra cover, which can pay the legal costs associated with restoring your credit history and identity."
Mr Mullin adds that the commercial side has also seen a number of developments over the past five years and points in particular to complementary products and services such as online HR and health and safety consultancy. "More recently, in light of the economic downturn, we've enhanced the advice side to provide experts who give specific advice on debt, cashflow, solvency and so on."
Activities have been undertaken in the BTE market to keep the advice and helplines as relevant as possible. Mr Vine observes: "The other issue coming to the fore on the household side is add-ons such as bereavement helplines and stress counselling." But Mr Vine believes there are particular opportunities for innovation on the commercial side. He comments: "We have a product now that is service rather than insurance led. It leads with HR and employment services but has a legal protection cover embedded into it."
First Assist Legal has also embarked on a programme to refresh existing products, says Mr Hollebon, "to ensure we are offering 21st century cover." This includes a Green cover and a new Business Care product providing advice and assistance for SMEs on issues like employment, health and safety, business start-up and tax.
As far as particular target markets are concerned, there has been renewed interest in affinity groups. Mr Haynes says this is a growing area for Arag. "We are seeing a big increase in areas like police federations and trade associations and there are a number of brokers that are particularly active in this area."
Mr Mullin also identifies affinities as a growth area and believes legal expenses cover represents a valuable part of an association's offering to its members. He explains: "If you're a membership organisation then you need to be providing the best possible services for your members. So we are helping the affinity groups and membership organisations to provide protection in these uncertain times and by the far the biggest area is employment" businesses are having to make redundancies and LEI is seen as a great membership benefit to add to their portfolio. We've seen a dramatic increase in affinity groups coming to us."
Mr Willshire agrees that professional groups, such as police associations, are increasingly interested in cover, observing: "They do need protection and they are willing to pay for it because they recognise the value in it." He points out, however, that there are also significant claims from these more vulnerable groups, particularly from those in the public eye.
Industry insiders tend to agree that while BTE is now widely sold with motor insurance, there is still room for greater penetration on the personal lines side, and certainly in commercial lines. Mr Hollebon comments: "There is still some room in household and in our experience with the right marketing penetration can be improved from as low as 20% to around 80%." He adds that one of the most interesting areas will be how to provide this cover to personal customers who do not have household insurance. This is particularly relevant, he says, in light of a recent Association of British Insurers' report showing nearly one in four consumers has cancelled or failed to renew their home insurance in order to save money.
The drive towards innovation will not be without its obstacles, and the most significant challenge lies in the competitive nature of the market. "There is always pricing pressure," asserts Mr Vine. He also expresses particular concern that there is a lack of technical ability in the marketplace and that "a lot of people still don't appear to underwrite the risk based on their exposures". This is keeping premiums artificially low and Mr Vine points out that while the motor sector is largely unproblematic, there needs to be more sensible pricing on family and commercial legal expenses.
Commentators seem to agree that BTE legal expenses insurance is 'growing up', with increased public awareness of the product and more relevant offerings from providers. But this is not a time to be complacent and innovation and continued development will be key, as will a commitment to ensuring brokers are informed and enthused.
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