Renewal Notice Regulations – Winter is coming
Tue Jun 25 2019
Brian Hughes is Director of Personal Underwriting at Patrona Underwriting and has over 30
years’ experience underwriting Personal Lines and Commercial Motor in the Irish market.
Non-Life policy documentation will be a little different from November this year following the coming into law of the Non-Life Insurance (Provision of Information) (Renewal of Policy of Insurance) (Amendment) Regulations 2018, or SI 577/2018 for short. SI 577 will affect renewal notices and new policy documentation from 1st November 2019.
There are three changes to the renewal notice.
Firstly, the notice period for issuing all renewals has been extended from 15 days to 20 days, which will mean the entire production schedule for renewals will need to move forward this summer. Naturally, brokers’ own renewal cycle will also have to move forward.
The second change, limited to all motor insurance, is that an insurer must offer a price on all the cover options they offer. If a customer has Comprehensive cover, the insurer must also offer a price for Third Party Fire and Theft and Third Party Only, in the same renewal notice if they are available. Again, this change is in the interests of customer choice and transparency but at the extremes this could be counter-productive. Offering the owner of a €500 banger Comprehensive cover at a €600 differential is hardly in that customer’s best interest, yet it must be offered. Likewise offering the owner of a €100,000 plus luxury car a cheaper Third Party Only option will also not be in that customer’s best interest. In addition, while the primary difference in covers is the nature of damage to the insured vehicle, many other subsidiary covers and policy limits can change when a different level of cover is chosen. For example, Personal Accident Benefits may differ, the provision of Breakdown Assistance may change, or maximum amounts available for replacing locks or paying fire brigade charges may differ. In addition to an IPID, a renewal notice should contain a full comparison of what is to be gained or lost in choosing a different cover, and that will require some additional sheets of paper.
The final change, this time limited to just private motor insurance, emulates recent developments in the UK requiring last year’s premium to be displayed on a renewal notice. This requirement is a welcome increase in transparency on price changes, but there will be additional complications where mid-term amendments carrying a premium have taken place in the intervening policy period. In this case insurers will have to provide an “annualised premium” though this term is undefined and the method of annualisation, has not been specified. For some, it will be a matter of pricing the expiring risk on the previous year’s rates. For others it will mean unwinding the pro-rata process of the MTA to bring it back to an annual amount. Thankfully a statement announcing that the annualised premium figure may not reflect the actual amount paid is mandated, as in some cases the annualised premium will be quite a bit different. This will have to be a figure provided by the insurer, and there is as yet no way to re-calculate the annualised amount of an amendment that takes place after the renewal notice is issued but before its due date.
New Policy documentation:
SI577 has also sought to apply some of the renewal notice requirements to new policy documentation for the first time. The nature of this change has been the subject of much discussion between insurers and the Central Bank of Ireland (CBI). The new law as written is at odds with later guidance issued, caused by the regulations changing “These Regulations apply to the renewal of a policy of insurance.….” to “these Regulations apply to a policy of insurance entered into..”. Naturally, once a policy is “entered into” cover has been bound. The later guidance recently issued states that the regulations are to be applied to all “pre-contractual instances”. In other words, quotations.
This means several changes to pre and post quote new business documents:
Firstly, it must offer alternative covers for motor in the same manner as renewals, which also means describing the subsidiary covers and limits that change with cover. This only works where the insurer is trading directly or on a tied intermediated basis, but it has nevertheless been applied universally. From a broking perspective it will for example be misleading to offer insurer A’s Comprehensive quotation also having to quote insurer A’s Third Party Fire and Theft quotation, when a better Third Party Fire and Theft offer may have been available from another insurer. Furthermore, how brokers and insurers will reconcile the law as written with the later guidance remains to be seen. Once a contract is entered into, the cover has usually been discussed and chosen, offering alternatives at that point will be too late, yet that remains the written law. In addition, this regulation is to be applied to all motor. It is going to severely delay commercial fleet quotes if the insurer has to work out two or three quotes using differing claims experiences reflecting the cover being offered and this may well constrain insurers’ offers to only one level of cover in the interests of efficiency.
In addition to these requirements a quote or new business document must set out the other mandatory components of what has been up to now a renewal such as the cover chosen, the cost of ancillary covers, details of payment options, and the amount of any portion of premium calculated on the basis of previous claims or convictions. This will have the effect of showing a premium calculation in the new business documents.
Finally, this change has also had the effect of requiring the new insurer to issue a statement of No Claims Discount, and like a proof of NCD on a renewal it has to be a separate or separable piece of paper. Despite its very questionable usefulness the CBI’s guidance has doubled down on it being a separate document, adding further weight to an already hefty envelope stuffed with a proposal or statement of fact, IPIDs, terms of business, data protection statements from both broker and insurer, alternative cover offers, a description of the cover changes if an alternative cover is chosen, premium finance papers, a new policy premium breakdown and cover statement, and the largely useless NCD statement. That one page alone has the potential to put in excess of two million sheets of unnecessary paper into circulation, at a time when Government is prioritising a Green agenda.
Naturally these changes gives software developers plenty of future challenges, from how to pass a risk through rating algorithms two or three times during new business and renewal, how to annualise premiums and even how to get the part of the code that produces a document to interact with the ledger that recorded the premiums. The effort will soak up all development resources in both broking software providers and most insurers for the coming months but the CBI is not for turning on the implementation date of 1st November. It is probably a coincidental portent that this day is Samhain, the first day of the Celtic Winter.