CCPC Report on Public Liability Insurance Market
Thu Jan 7 2021
CCPC Report on Public Liability Insurance Market
On 23 December 2020, the Competition and Consumer Protection Commission (CCPC) published its market study on the public liability insurance market. Brokers Ireland Members will recall that the CCPC commenced the study following a request from the then Minister for Enterprise, Trade and Employment, Heather Humphreys in July 2019.
The CCPC’s report examines the public liability market from a competition perspective. Brokers Ireland is cognisant of the importance of this market for Brokers. Hence, we engaged with the CCPC, including providing a Submission to the Public Consultation and meeting with groups of Brokers in order to prepare the Submission.
The study found that a lack of independent, public data on the insurance market as well as a lack of open access to claims history information may be acting as barriers to market entry. The lack of data on the operation of the market causes problems for policy makers as they work to improve the market for public liability customers. The study also finds that customers should be supported to better engage with the market. It recommends that the role and remit of the Personal Injuries Assessment Board should be enhanced to provide a more stable and lower cost claims environment.
The recommendations made by the CCPC were in three areas (i) data availability (ii) supports for buyers and (iii) PIAB. Of these, the second recommendation is of interest in that it is recommended amongst other things that the State should assist public liability buyers to become more engaged in the market providing information to organisations on active public liability insurance providers and assisting organisations in profiling their risk and identify possible options to reduce it, including the full suite of potential supply options in the market. The CCPC has noted that the exact nature of the support here would need to be carefully considered so as not to encroach on the commercial activities of brokers.
The substance of this Market Study is positive from the point of view of Insurance Brokers. The importance of Insurance Brokers in this market and the work done is clearly acknowledged. Moreover, the three recommendations made do not suggest that the PL market in itself is being rendered dysfunctional by Insurance Brokers, although it is being negatively impacted by factors including lack of data and the personal injuries claims environment.
The following points may be of interest to Insurance Brokers:
- While price is prioritised over other considerations in respect of their public liability policy, 66% of organisations have not switched Broker to obtain a better priced plan in the past ten years. The level of engagement by buyers in the market is relatively low. 25% of respondents did not know what their organisation paid in an annual public liability premium. While 82% of respondents felt they understood their insurance either very well or fairly well, they did not always comprehend key distinctions in relation to insurers and Brokers or how their Broker is paid or who their insurer is.
- The market research suggests that organisations would benefit from being more informed about issues relevant to liability insurance so that they are better equipped to engage more effectively with a broker or insurer. The CCPC welcomes that buyer engagement will be considered by the recently established SME Forum (referred to in the Programme for Government) where areas that could be considered are as follows: Provide information to organisations on active public liability insurers; Assist organisations in profiling their risk and identify possible options to reduce it, including the full suite of potential supply options in the market (the exact nature of the support here would need to be carefully considered so as not to encroach on the commercial activities of brokers), and; Improve choice for organisations by supporting greater market entry through the development of an international outreach programme to build confidence in the Irish market.
- The importance of Brokers in the market is highlighted in the market research where 72% of surveyed organisations stated they acquired public liability insurance through a Broker, compared to just 24% who went directly to their insurer. Organisations in retail were most likely to go through a Broker (76%) and those in manufacturing had the highest proportion insuring directly (35%).
- Brokers are either paid flat fees for their services or through commission, as a percentage of the premium secured. For surveyed organisations that used a Broker, 36% paid their Broker a flat fee; 28% paid a percentage of premium based commission; and 33% did not know the structure of their payments to their Broker.
- Brokers are a key intermediary in the public liability insurance market where they assist the majority of buyers in sourcing insurance. In principle, their activities in obtaining the best value for their customers should result in price competition, which can also have the effect of exacerbating a soft market. Conversely, Brokers can also dampen hard markets by facilitating the entry of transient capacity and a return to price competition.
- The majority of public liability insurance is sold via Brokers where 72% of organisations surveyed for the market research indicated that they used a Broker. The high degree of Broker usage by buyers should, in principle, support market entry as entrants do not have to build their own distribution channels and can avail of a Broker to distribute their products. It should be noted that the percentage of organisations using the services of intermediaries such as brokers is likely to be higher than 72%. A small percentage of respondents in the CCPC market research appear not to have fully understood the distinction between broker and insurer and when asked for the identity of their insurer provided that of their broker instead.
- The market research found that 30% of the organisations that use a Broker have switched Broker in the last ten years: 12% in the last three years, and a further 18% more than three years and less than ten years ago. The most commonly cited reason for switching Broker was that another Broker found a better priced insurance policy for the buyer. The market research suggests that the average premium increase for organisations that switched Broker were slightly lower than those that didn’t switch. (NB page 119 onwards in the CCPC Report has data from a survey relating to Brokers that is worth looking at)
- Organisations who use a Broker have higher switching rates than the organisations that insure directly. This suggests that brokers provide value to customers by reducing search and switching costs due to their knowledge of the market
- The market research findings suggest that Brokers, in their capacity as a key intermediary in the market, seem to support the process of switching insurers for buyers, which can mitigate the price increases. There seems to be a lack of engagement by buyers in the public liability insurance market, which is a concern as engaged buyers underpin switching behaviour, which is a key driver of competition
- While switching is a feature of the market, where a quarter of respondents switched in the last five years, the levels seem to be relatively low given the premium increases in the market. Despite the issues being experienced by organisations they are not always fully engaged in this market, and are often very reliant on a single Broker. While 82% of respondents felt they understood their insurance either very well or fairly well, they did not always comprehend some key distinctions in relation to insurers and brokers, who their insurer was, or how their Broker is paid. While price is prioritised over other considerations for their public liability policy, 66% of organisations have not switched broker to obtain a better priced plan in the past ten years.
- Brokers provide a useful service in assisting their clients to navigate the market and are the preferred means in the market to source public liability insurance where at least 72% of respondents use them. The market research suggests that a significant number of respondents rely heavily on their Broker. 66% of the respondents that use the services of a broker had not switched in the last ten years. 84% of those respondents did not switch either due to them being happy with, or having a strong relationship with, their current broker. Of the 30% who switched broker in the last ten years, securing a better priced plan was the reason to switch for 47% of the respondents, which suggests that better value is possible for some organisations from being more active in the market.
- Brokers can be paid either on a flat fee basis or as a percentage of the overall premium. Respondents were not fully aware of the type of fees they paid or the level of costs associated with their broker. For example, 28% of respondents did not know which payment method they used. Of the respondents who paid a flat fee, 49% did not know how much they paid. For the respondents who pay based on the percentage of their premium, 76% did not know what that amounted to.
- The market research suggests that organisations would benefit from being more informed about issues relevant to liability insurance so that they are better equipped to engage more effectively with a Broker or insurer. This could include having a general understanding how the public liability market works in relation to costs, risk and claims, which organisations operate in it, how they can accurately profile their risk and what type of cover is the best fit for their circumstances. This knowledge is particularly important for MSMEs (Micro and SME) as sourcing public liability insurance for an organisation can often become the responsibility of the owner, general manager or accountant by default.
- The OECD conducted a review of SME and entrepreneurship policy in Ireland in 2019. That review identified the need for improvement in their financial capability and recommended that Ireland ‘Develop an action plan for financial education to strengthen the financial skills and financial management of small business owners and manager’. The CCPC understands that the outcomes from the OECD review include the development of an Entrepreneurship & SME Strategy by the Department of Enterprise, Trade and Employment and that the recently established SME Growth Task Force will develop a ‘SME Growth Plan’. The CCPC believes that including measures to assist MSMEs to navigate insurance markets, as part of the development of their financial skills, should be considered in these initiatives.
- In tandem, the CCPC recommends that the State should also assist public liability buyers to become more engaged in the market as follows: i. Provide information to organisations on active public liability insurance providers; ii. Assist organisations in profiling their risk and identify possible options to reduce it, including the full suite of potential supply options in the market (the exact nature of the support here would need to be carefully considered so as not to encroach on the commercial activities of brokers), and; iii. Improve choice for organisations by supporting greater market entry through the development of an international outreach programme to build confidence in the Irish market.
Brokers Ireland has identified a number of lobbying points that we will take forward in Q1 2021 to ensure that the interest of Brokers Ireland’s members are protected and advanced where possible.
Director of General Insurance