A new law requiring brokers to provide detailed information about no claims discount (NCD) protection insurance for private cars used primarily for social domestic and pleasure is causing a lot of work for the motor market.
The law follows an investigation into the supply and acquisition of private motor insurance conducted by the Competition and Markets Authority (CMA) after the issue had been referred to it in September 2012.
Jackie Childs, senior analyst at Polaris, explained: “The CMA came to the conclusion that although customers considered NCD protection to be a valuable benefit most of them, when they were asked specific questions, didn’t understand it properly.
The order by the CMA, which was passed in March 2015, comes into force on 1 August this year. Insurers and software houses said they are working on changing their processes and providing the necessary information to be compliant in time.
“It certainly has been a lot of work,” noted Simon Macray, director of insurer relations at Transactor Global Solutions.
“We had to analyse what we needed to do and there has been a large amount of work required to both the application and the underwriting – all the schemes needed to be reviewed and understood as to whether they had an element of protected applied on them or not.”
“It’s one of the things we had to do and we’ve done it,” confirmed Michael Lawrence, personal lines director at LV Broker. “It has added cost and distraction that we’d rather not have had, but we comply fully with the order.”
Meanwhile, the British Insurance Brokers’ Association (Biba) expressed concern that the wider broker market, including smaller brokers, did not know what their obligations were.
“From 1 August any new business quotation or renewal needs to be compliant with the CMA order,” said Martin Bridges, Biba technical services manager. “It’s not quite clear how it’s going to pan out because it’s a new rule, so obviously we’re keen that brokers are aware of the situation and do appropriate planning to make sure they comply.”
According to Macray, Transactor has issued regular communications to its broker clients to make sure they know what is required of them ahead of the implementation.
Lawrence said LV had not had any dialogue with brokers directly because the software houses had been controlling the updates to the documentation. But he added that the provider had issued information to brokers about what was going to happen.
The brokers Insurance Age spoke to had mixed views on what the effect of the new law would be.
Mark Bower-Dyke, CEO of Be Wiser, stated that he expected brokers to stop offering NCD protection as a result.
“The changes are costing the industry millions of pounds for nothing, because protected bonuses are meaningless in the first place,” Bower-Dyke said.
“I think brokers will take the cheapest and easiest line which is to not offer it unless the client requests it. If the client requests it and you explain what it is then you’ve done everything right.”
Bower-Dyke further questioned why insurers insisted on making changes to their systems and documentation when all they needed to do was to stop offering it or stop charging for it.
“If they want to keep protected bonus they should all agree on one wording,” he added.
But Lisa Powis, chief executive at Fresh Insurance, indicated that her company would continue to offer NCD protection to its clients.
“The changes are being made through our software house and we will certainly accommodate them,” she said. “We’ll be giving ourselves training on that basis. For us, we don’t envisage it being a problem.”
No claims discount protection, what must brokers do?
The law will require brokers to provide customers with additional information, such as about the price of NCD protection insurance as well as what the effect claims will have if they do or do not take out protection.
To comply with the new rules, brokers will need to amend their telephone scripts and written communications with their customers to display the required information.
In addition, brokers will need to supply a compliance statement to the CMA before 1 August. The first part of the statement is a declaration that needs to be signed by a senior executive in the organisation and the second part is a table of average NCDs. For a broker the table needs to include each of the private car insurers that they have on their panel.