May 2007

End to Free Banking Looms as Watchdog Investigates Charges
Free current bank accounts have come under renewed threat after the Office of Fair Trading (OFT) announced the largest ever investigation into personal banking. The OFT said that it intended to conduct a wide ranging study of overdraft charges and the transparency and value of the service customers receive. A combination of consumer pressure and increasing awareness of the complexity and cost of banking charges prompted the inquiry, which is due to report at the end of 2007.

HBOS, which comprises Halifax and Bank of Scotland, charges £39 for each bounced cheque or direct debit subject to a maximum of three fees per day. It also imposes a monthly £28 fee for exceeding an agreed overdraft limit. Abbey charges an unauthorised overdraft fee of £20 plus a £30 charge for each direct debit or cheque honoured when there is not enough money in the account.

The OFT study will include an examination of the implications of charging customers for having a current account. Watchdogs say that the complexity of the penalty system means that customers have little idea when they will be penalised and by how much. The OFT says it has not ruled out referring banks to the Competition Commission.

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Curbing Young Driver Deaths on the Road
The issue of young driver deaths continues to be something of a hot potato, for politicians and motor insurers alike. Road crashes are the biggest killer of people aged between 15 and 25 in the country.

Recently the insurer CIS warned that a whole generation of drivers could become uninsurable unless action was taken to address the increasing number of young drivers and passengers either killed or injured on the UK's roads.

The government has identified the issue of young driver safety in its Road Safety Strategy Review, and indicated it would be overhauling the current driving test. MP's have been calling for the introduction of a graduated licensing scheme, which would include a minimum learning period of one year for all learner drivers.

The ABI has been lobbying the government for some time to step in and introduce reform. It called for the introduction of restrictions on night time driving and passenger numbers. It also suggested a graduated examination period, including a fixed limit on the number of hours a learner driver must spend behind the wheel.

One answer could be to lower car insurance premiums - a concept met with with decidedly mixed reaction from motor insurers. Some insurers have already made attempts to address the problems of affordability - Norwich Union (NU) launched its pay-as-you-drive scheme in October 2006. According to NU, the system has achieved savings of up to a third, and reduced fatalities among young drivers by 20%.

There is also considerable disagreement over the extent to which the police will be able to enforce any new legislation that imposes restrictions on young drivers. While the ABI maintain that problems of enforcement can be dealt with, organisation's such as Roadsafe insist that restrictions on night time driving and passengers numbers will be perceived as unfair.

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Rivals Sounded Out to Buy Direct Line
Bidders are bering lined up to make an £8 billion offer for the Direct Line and Churchill insurance division of Royal Bank of Scotland, which is attempting to tie up a £50 billion takeover of Dutch bank ABN Amro.

Investment banks UBS, Morgan Stanley, and JP Morgan approached a number of potential buyers for the business, which made a £750 million profit last year (2006).

Possible buyers of the insurance operations include American Giant AIG and European players Axa, Zurich and Allianz. RBS Insurance is the second-largest general insurer in Britain, with 26 million policyholders and the largest motor insurer. It has operations in Spain, Italy and Germany.

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FSA Warns of TCF Clampdown
The Financial Services Authority has reported an increase in commitment by senior management to the principle of Treating Customers Fairly but warned firms who have failed to engage that they face tough action.

To ensure rapid engagement, the FSA has also announced a new deadline for all firms to have completed their work on TCF and be able to demonstrate that they are consistently treating their customers fairly by end of December 2008.

The current level of progress on TCF was set out in a report published today, 8th May 2007. It detailed firms' performance against the FSA's March deadline - by which time they had to be implementing necessary change in a substantial part of their business.

The results show that 93% of major retail firms, 87% of medium sized retail firms, 74% of wholesale firms (where TCF is relevant) and 41% of small firms met the deadline.

To help small firms, the FSA will expand the range of TCF online tools and begin the rollout of regional workshops. In future small firms can expect even more focus on TCF in their dealings with the FSA.

Source: InsuranceAge, May 8th 2007

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Elderly gain access to bespoke insurance
The recent launch of a line of personal insurance tailored to older Britons should be cause for celebration for those who are either nearing or living their golden years. Help the Aged, the charity, has revealed that it had reached an agreement with Liverpool Victoria, the mutual insurer, to offer bespoke car, home and travel insurance policies to the tens of millions in the UK over the age of 50.

Prices for premiums for these products, which will be carried by brokers under the name of “intune”, fall in the middle range of the market. But the relatively extensive range of the line will help expand capacity in an underserved market where elderly people can find it difficult to secure any cover at all. (Help the Aged’s oldest client for travel insurance is 106 and the group also provides liability insurance to an 86-year-old who participates in winter sports.)

The expensive price and meagre offerings for car, travel, home and medical cover that aging Britons are presented with is widely considered a problem which must be addressed, particularly as baby boomers enter retirement. Analysts, however, expect the offerings will improve and say they are starting to see insurers push up their limits on the cut-off age for new customers.

Representatives from the ABI are shortly to complete an investigation into ways to make it easier for the elderly to obtain insurance. They have formed a working group of brokers, insurers and consumer lobby groups to study ways to improve the market. Help the Aged, Saga and Age Concern, another charity, are among the few providers offering specialised products for older customers.

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Highest Fixed-Rate Saving Deals since 2002
Savers can snap up the highest fixed-rate deals since 2002 as banks and building societies compete for business after the recent Bank of England quarter percentage point base rate rise.

West Bromwich Building Society and Bank of Cyprus have introduced new fixed rate bonds paying 6.3 pc and 6.33pc gross interest a year respectively. The West Bromwich internet -operated E-bond has a one-year term maturing on May 21, 2008, and can be opened with £1,000.

The Bank of Cyprus UK's bond, which also runs for a year, can be opened with just £1. The bank of Cyprus' activities in the UK are regulated by the Financial Services Authority, and it belongs to the UK Financial Services Compensation Scheme (FSCS).

As well as these two launches, Halifax increased the rate on its one-year Fixed Rate Web Saver account, which can be opened with £500, to 6.3pc gross a year.

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Insurers Targeted by Post Office
The Post Office has drawn up ambitious plans to quadruple its share of the home and motor insurance market in the next five years. It aims to take on such giants as Norwich Union and Direct Line to become a top five motor and household insurer.

A subsidiary of Royal Mail, the Post OFfice is already one of the fastest-growing insurers, having written 500,000 policies since it entered the market two years ago. It currently insures one in 50 cars in Britain. However, the company is aiming to write 2m policies, equivalent to £1 billion in premium payments, by 2012.

If successful, the Post Office's market share would increase from about 2% to 8%, propelling it from 15th largest motor and home insurer into the top five.

The British motor and home insurance market is led by Royal Bank of Scotland, which owns Direct Line and Churchill, with about 25% of the market and Norwich Union, with a share of about 19%.

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SAGA Enters Price Comparison Bandwagon
SAGA insurance is set to launch it's new price comparison website: Confident Cover. The website will compare prices of insurance products aimed at older consumers, with the possibility of it being extended to cover other financial services.

It is believed to be the first website of its kind specifically targeted at older people, said Paul Reading, chief operating officer of Confident Cover. He added that the website would not be focusing purely on price, but would also look at more extensive elements of products that older people needed.

Confident Cover, which will invite insurers to join the site, has been registered as a trademark and the domain confidentcover.co.uk was bought by SAGA last September (2006). The planned launch comes as a glut of price comparison websites - or aggregators - have hit the market.

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