ABI's views on a number of current topical issues are set out below. If you have any questions or require further information on these or any other issues please contact the ABI.

More details of these and other current issues can be found here.

ABI's publications, which include policy statements can be found here.

• PENSIONS BILL
• CONFIDENCE IN LONG-TERM SAVINGS
• ECONOMIC AND SOCIAL VALUE OF GENERAL INSURANCE
• CLIMATE CHANGE BILL
• FLOOD MANAGEMENT
• UNINSURED DRIVING
• COMPENSATION
• CORPORATE GOVERNANCE

PENSIONS BILL

ABI supports the Government’s aim to encourage more people to save for retirement through a work-based pension scheme, to which employers also contribute. However, as currently drafted, the Bill creates a strong risk that employers currently offering pension schemes to their employees will abandon those schemes and switch to Personal Accounts with a lower employer contribution. This would damage existing workplace pension saving. Amendments to the Bill are needed to minimise this risk.

The current Pensions Bill provides many broad, overarching powers for the Secretary of State, with much of the detail consigned to regulation. We believe more of the promised detail should be committed to on the face of the bill, and less through regulation. Where regulation is essential, this should be introduced via affirmative resolution, to ensure proper Parliamentary scrutiny.

Target Market

The Bill does not provide for the promised ban on transfers between Personal Accounts and other pensions. Nor does it provide for an annual contributions cap. Instead it leaves the Secretary of State the option to introduce – and amend - contribution limits through regulations. The absence of these elements from the Bill runs counter to Ministerial commitments. If Personal Accounts are to be targeted effectively, and their negative impact on existing good pension provision minimized, commitments on transfers and an annual limit must be provided for on the face of the Bill.

The Bill (53(3)) also allows the Secretary of State to make regulations to enable contributions in excess of an annual limit. This must be removed from the Bill.

The Government’s own research (MORI), published in the impact assessment with the Bill, shows there is little demand for such a provision: only 3% of the working population would ever be likely to exceed a £3,600 annual contributions limit. In addition, Government intervention in the market on this basis would be entirely unjustified – it would address neither a market failure nor a behavioural failure. The existing savings market already provides ample means of making lump sum savings. Such savings products are subject to rules on regulated financial advice, but encouraging lump sum savings into Personal Accounts would take such savings out of the scope of regulated advice. These contributions would not benefit from employer contributions and, as such, Personal Accounts may well not be the best place to invest them. Consumers might be better advised to clear debt or invest elsewhere. Not only would such a facility create the danger of inappropriate investment in Personal Accounts - It would also represent a distraction from Personal Accounts’ core function and target market.

Measures to maintain and encourage existing schemes

It is vital that good workplace pension schemes can be qualifying schemes under the provisions of the Bill, without imposing undue burdens on employers and providers. Clause 3(5) of the Bill sets out a broad provision that could be used to exempt workplace pensions from the auto-enrolment requirement, providing a solution to the prohibitions in the EU Directives on Distance Marketing and Unfair Commercial Practices.

But Ministers continue to delay providing certainty regarding an auto-enrolment exemption for contract-based workplace pensions. The future of these pensions therefore remains very uncertain, which is damaging to both employers and providers. Group contract-based workplace pensions account for almost 70% of UK pension schemes (118,000 out of 176,000) and almost 40% of scheme members (2.6m out of 7.0m). Employers contribute on average 6% for employees in these schemes, twice that of the Personal Accounts standard. This market represents annual pension savings of around £900m.

It is vital that Ministers provide employers, employees and providers with the certainty they urgently need regarding the future of these pension schemes. We firmly believe that the answer is to allow employers to use streamlined joining techniques - such as shortened application forms face-to-face sessions and contract joining (where employees agree in their contract to be enrolled in the pension scheme) - to enrol as many employees as possible into their existing schemes. These methods are already used and can achieve high participation rates.

Meeting the costs of Personal Accounts – Taxpayer subsidies

All set-up, administration and promotion costs for Personal Accounts must be properly accounted for and recovered through charges to Personal Account holders, as is the case in the current pensions market.

The Government’s has stated that Personal Accounts “should not receive state support where to do so would give it an unfair commercial advantage over other pension providers”. But the Bill (Clause 64 and Part 3) grants the Secretary of State extremely broad powers to give financial assistance to the Delivery Authority and the Trustee Corporation, including repayment of loans without interest. Such assistance would constitute state aid and would provide Personal Accounts with an unfair advantage over alternative work-based pensions, rather than being complementary, thereby encouraging employers to abandon existing good pension schemes.

The Bill should provide legal certainty of a level playing field by placing a requirement on the Delivery Authority and Trustee Corporation to borrow at commercial rates and to recoup all costs through charges to members over a number of years.

[top]

CONFIDENCE IN LONG-TERM SAVINGS

At the ABI’s biennial Conference in March 2005, ABI announced a five-point action plan for the savings industry to give customers renewed confidence and to help close Britain’s £27bn savings gap.

The ABI’s Action Programme is designed to give customers confidence in five key areas:

• that customers will receive the highest standards of service;
• that the industry will communicate with customers regularly and clearly;
• that the industry is facing up to people’s biggest concerns about the way it operates;
• that the industry is listening to customers and learning so it can improve;
• that the industry is working constructively with others.

This industry-wide programme will supplement recent improvements in statutory regulation and heightened competition between individual firms that boosts customer service.

Amongst the actions announced at the ABI Conference were:

• a commitment to produce best practice guidance for the industry on financial advertising and matching savings products to consumer needs;
• a fundamental review of the industry’s Raising Standards Quality Mark scheme;
• the development of short summaries of information for customers on savings products and the risks they carry;
• regular mystery shopping to take forward the debate on the future of advice announced by the ABI on 21 February;
• a benchmarking service for firms to measure what customers think of their services and how they compare with the industry as a whole;
• enthusiastic support for a new Financial Services Forum.

Following the review of Raising Standards, ABI announced in March 2006 its replacement by the Customer Impact Scheme. 26 ABI member companies covering over 80% of the pensions, protection and investments industry have signed up to this initiative which puts customer needs at the heart of the industry.

The Scheme includes:

• a set of commitments to customers adopted by the Boards of participating companies
• an annual report from each company explaining their progress in delivering against these commitments
• an annual survey of customers’ views and experiences across the whole industry
• new good practice guides for companies to use in improving their performance
• an independent panel to oversee the survey, advise the ABI Board on customer issues and help to drive continuous improvement in performance. Mike Ross (Chair) and Melanie Johnson (Deputy Chair) will lead the Panel.

Full details at http://www.customerimpact.org/

[top]

ECONOMIC AND SOCIAL VALUE OF GENERAL INSURANCE

The Economic Value of Insurance

Insurance is fundamental to the UK economy and makes a significant economic contribution, both direct and indirect:

• As an economic sector in its own right, insurance has an annual output of around £18 billion, and creates value (directly and indirectly) of roughly £13 billion, or around 1.2% of Britain’s GDP.
• Insurance promotes the accumulation of productive capital in the economy, by bringing together the many contributions of individual policyholders and investing them in productive assets.
• Insurance supports millions of individuals and households by allowing them to transfer risk and manage it effectively. Insurance means individuals do not need to retain high levels of liquid wealth as a hedge against risk and so this wealth can therefore be used more productively.
• Insurance provides exactly the same kind of service to businesses. For most firms, there are no sensible or affordable alternative ways of spreading risk effectively. For small businesses in particular (which make up 99% of all UK companies and employ over half the workforce) insurance makes possible commercial activity which would otherwise be too risky to contemplate.

The Social Value of Insurance

General insurance underpins the social fabric of society, in areas such as crime prevention, vehicle safety and flood management. There is more to insurance than compensating loss. It also helps society to face and manage risk. The benefits to society are:

• Freedom – insurance enables action by providing protection against what would otherwise be crushing personal and business liabilities.
• Security - insurers’ involvement in risk management has resulted in safer and more secure workplaces, homes and vehicles
• Better Health - from additional investment in medical care and an emphasis on rehabilitation.
• Prosperity - insurance supports innovation and risk-taking thereby allowing UK businesses to prosper
• Flexibility - by making social and economic life less reliant on government action and being better tailored to individual circumstances.

For more information, ABI has published a report on the value of general insurance to the UK, and on the social value of general insurance and another on the economic value of the sector. Click here for more details

[top]

CLIMATE CHANGE BILL

Adapting to Climate Change

The ABI has been leading the debate on the need to adapt to, as well as mitigate the causes of climate change. In June 2007 we published the insurance industry’s manifesto for adaptation, entitled Adapting to our changing climate: a manifesto for business, government and the public, which sets out how the UK can best prepare itself today for the impacts of climate change tomorrow.

The ABI supports the international leadership and strategic vision embodied in the Climate Change Bill, which sets out a coherent and robust structure for the quantification of emissions reduction targets and assessment of performance against these. 

However, irrespective of action to reduce emissions, climate risk, in particular the frequency and severity of extreme weather events, such as the devastating national floods this summer, will continue to increase over the next 30-40 years.  Legislation must recognise that mitigation and adaptation are two sides of the same coin and cannot be considered separately. Action is needed now to adapt and prepare for the impact of climate change.

We therefore welcome the inclusion of Clauses 48, 49 and 50 in Part 4 of the Bill, focused on adaptation to climate change, as well as the commitment made by the Prime Minister on 19 November 2007, stating that  "And because we know that, alongside measures to reduce carbon emissions, we must do more to deal with the effects of climate change, there will be new powers in the Climate Change Bill to require public bodies to assess, where necessary, the risks of climate change and set out what action they need to take in response."

However, we believe that as currently drafted, these clauses do not go far enough and are a missed opportunity. We call on Parliament to ensure that the Climate Change Bill is amended to include a coherent and progressive strategy for adaptation.

ABI Response

The ABI proposes that:

Coordination with mitigation measures: We believe it is vital that targets for adaptation are set out in the Bill in a similar way to those for mitigation.

Additionally, the report on adaptation measures should be made at a time that enables adaptation policy to be co-ordinated with measures for reducing carbon emissions in the five-year carbon budget.

The costs of mitigation need to be assessed alongside those of adaptation measures.  If we achieve this, short-term budgetary pressures will be less likely to stand in the way of long-term sustainable solutions.  The current approach could give rise to unsustainable solutions, unnecessary costs and reduced competitiveness by failing to take a holistic view.

Single body to lead on flood management: We propose that the Environment Agency (EA) is given a statutory objective to deliver the adaptation targets set out in the Bill. This would include reducing flood risk and making the EA the national coordinator for the identification, assessment and mitigation of flood risk from all sources, including drainage.

The floods in summer 2007 demonstrated the need for flood risk management to be properly coordinated, covering all sources of flooding.  The current piecemeal approach to the fight against flooding cannot continue.  There are currently too many organisations, each with too many competing priorities, to be able to give the fight against flooding the focus that it deserves: no single body is charged with preventing and managing flooding even though drains, sewers and rivers all contribute to flood risks. 

For example, while river and coastline flooding is under the responsibility of the EA, drainage is in the hands of Local Authorities, water on main roads is the remit of the Highways Agency and Local Authorities and private water companies are responsible for sewer flooding.

While one national body needs to be given overall responsibility for the fight against flooding, this should not mean unnecessary centralisation or national control.  Instead, this national body needs to lead analysis and research to assess flood risk and to lead work in partnership with the other necessary agencies to develop a holistic approach and national framework to reduce this risk. 

In particular, it is important that this national body works closely with regional Government Offices, the Office of Water Services, Local Authorities and resident groups to ensure that the national framework reflects local needs and can be delivered locally, right through to involving resident associations in being the front-line in the fight against flooding.

Annual adaptation reporting: Clause 48 in the Bill, which requires the Secretary of State to report on adaptation policies and proposals, with a first report in three years and five-yearly reporting thereafter, must be strengthened to require annual reporting. Such reports must be debated in both Houses on a substantive and amendable motion and address both proposals for adaptation measures and implementation progress.

An area of reporting could, for example, be a target for the maximum number of households and businesses at high risk of flooding from all sources, with the Government required to annually report on progress in achieving this target. 

[top]

FLOOD MANAGEMENT

Insurers are playing a full part in improving flood management through the successful implementation of our Statement of Principles which ensures that the vast majority of homeowners can get insurance against flooding, while setting targets for the Government to improve protection against flooding.

ABI has published guidelines that will help minimise flood risk in Government growth areas. These guidelines aim to help the Government, local authorities, and property developers develop truly sustainable communities by taking steps to minimise the flood risk, so that flood insurance remains readily available for these properties.

Following the summer 2007 floods, ABI called on the Government to develop a 25-year strategy to manage Britain’s growing flood risk. The recommendation comes in the ABI’s report, Summer Floods 2007: Learning the Lessons

The ABI wants to see a 25-year national flood strategy, based on:

- An investment programme that reflects climate change and the
real flood risks from rivers, coasts and drainage.

- Improved national leadership and coordination with national targets for reducing flood risk. A single national body should be responsible for flood management strategy to replace the current piecemeal approach.

- Stronger planning controls to ensure that new developments are not built in high flood-risk areas wherever possible.

Stephen Haddrill, Director General of the ABI, said:

"This summer’s devastating floods highlight the urgent need for a long-term strategy based around more investment, national coordination and better land use planning.

“Insurers want to continue to provide flood insurance. The right decisions from the Government will ensure that flood insurance remains widely available and affordable in the UK.”

For an overview of ABI’s work on flooding and advice for consumers please see http://www.abi.org.uk/flooding

ABI’s publication giving guidance on repairing your home or business after a flood and how to limit damage and disruption in the future can be found at http://www.abi.org.uk/BookShop/ResearchReports/Flood%20Repair%20Doc%201.pdf

[top]

UNINSURED DRIVING

ABI very much welcomed provisions in the Serious Organised Crime Act (2005) which gave the police improved access to the industry’s Motor Insurance Database to help them detect uninsured drivers and the power to seize, and in some circumstances, destroy vehicles being driven uninsured.

This was excellent news for honest motorists and all road users. We are pleased that the Government has seized the opportunity to act on what the industry has been calling for – better detection of and stiffer penalties for illegal and dangerous motorists who drive uninsured. This Act will send out a clear message: driving without insurance is a serious and dangerous crime, which the Government, in partnership with the insurance industry and the police, is determined to reduce.

ABI has also welcomed the decision of the Government to make it an offence in the Road Safety Act (2006) to be the registered keeper of a vehicle kept on the road without insurance.

[top]

COMPENSATION

In December 2005, ABI launched proposals to reform the UK’s compensation system, Care and Compensation proposes a fast and fair compensation system that puts the interests of genuine claimants first, and tackles the problems of the current system, which is too slow and expensive.

It would also reduce the massive £2 billion that goes each year on claimants’ legal and other costs. An average of 93p is currently paid in legal and other costs for every £1 paid out in compensation claims under £5,000.

Our proposals are a blueprint for much-needed reform of the personal injury compensation system. Too many people are waiting far too long to get a fair payout. This is because the compensation system is so adversarial. We are all paying more for our insurance than we need to as a result of the system’s legal costs. And the focus on compensation gets in the way of people getting rehabilitation care.

The Government’s Compensation Act is a positive first step on the road to reform. But much wider reform is urgently needed to ensure we have a compensation system that cares about the people it is set up to help. Reform will enable insurers to provide a better service to policyholders and claimants.

The ABI proposes:

A new compensation process for all personal injury claims under £25,000 that means claimants can seek compensation without having to go through a long and costly legal process:

• an easy-to-use claim form will enable people to submit their claim without the need for legal advice;
• a faster timetable would give insurers only three months to accept or reject a claim;
• a new public scale of damages will set out compensation payments for specified injuries.

Measures to improve the availability and quality of rehabilitation:

In 2004, 28 million working days were lost to illness; 7 million to injury. This costs employers up to £13 billion a year. The faster people get care, the faster they get better. To ensure claimants and employees receive the care they need quickly to help them recover and get back to work, the ABI proposes:

• tax incentives for employers to provide rehabilitation care, through a new rehabilitation tax credit;
• extending the role of the Health and Safety Executive and the NHS to include promotion of rehabilitation;
• a new code of best practice to improve responses to accidents and ill health in the workplace.

The ABI’s response to the Government’s consultation on ‘case track limits and the claims process for personal injury claims published in July 2007 can be found at http://www.abi.org.uk/BookShop/ResearchReports/FINAL%20RESPONSE%20TO%20PERSONAL%20INJURY%20COMP%20CONSULTATION%20_3_.pdf

[top]

CORPORATE GOVERNANCE

Insurance companies are the largest domestic owners of UK shares – investing billions of pounds in British companies on behalf of millions of customers. Overall, funds managed by insurance companies amount to over £1,000bn, including nearly a quarter of all shares listed on the London Stock exchange. The ABI therefore has an important role in coordinating and representing our members as investors. The ABI is a leader on issues of corporate governance and socially responsible investment.

To help members in their corporate governance work, including responsible exercise of their voting rights at company meetings, the ABI has developed a series of guidelines on subjects ranging from principles and guidelines on executive remuneration to socially responsible investment. In addition, Risk, Return and Responsibility explores the issue of corporate social responsibility.

[top]