Tackling Theft of Metals

In recent years metal theft has become increasingly attractive due to the escalating value of scrap metal and the cost of metal theft to UK businesses is now estimated at £770m annually.

While copper is the main target, aluminium, bronze, steel and other ferrous and non-ferrous metals are regularly stolen. Lead, copper and stainless steel roof coverings, copper lightning conductors, lead and copper rainwater pipes, bronze statues, metal garden ornaments, iron gates and even church bells have all been stolen.

Whether the thieves are opportunists or organised criminal gangs, the financial implications of their activities goes far beyond the cost of replacing the metal, with bills for structural damage and resultant water damage costing 75% of a typical metal theft claim. The thefts often result in an irreplaceable loss of heritage as well as liability issues for property owners if premises are rendered unsafe.

Vacant buildings, especially when located in isolated areas such as business and industrial parks, are viewed as soft targets and church properties have, in particular, been targeted.

Security measures range from low cost options to more expensive high-tech solutions:

• Remove anything providing easy access to the building’s roof, such as water butts, waste bins and (with approval) trees.
• Store ladders in a secure place.
• Keep gates locked and restrict vehicular access.
• Remove means of transporting the stolen goods such as wheel barrows and wheelie bins.
• Cut back vegetation to improve surveillance levels.
• Carry out regular checks of roofs so that any theft is discovered before rain causes further damage.
• Encourage the local community to be vigilant and report suspicious activity, particularly individuals posing as builders present between 6:00pm and 8:00am.
• Apply anti-climb paint to drain pipes and roof guttering.
• Install security lighting at roof level.
• Security mark metal goods with products such as SmartWater and use signage as a deterrent.
• Install Closed Circuit Television (CCTV) with prominent warning signs.
• Install intruder alarm protection to roof areas and any scaffolding. Video alarm systems can be particularly effective as images are sent to a 24/7 response centre when a sensor is tripped, allowing operators to determine whether the perpetrator is just an animal or a suspected criminal.
• In some cases, manned guarding may be appropriate, but always make sure that any contracted guards hold Security Industry Authority (SIA) licences.

Graham Salmon is Managing Director of Realty Insurances Limited, a Chartered Insurance Broker.

Insurance Comparison – UK vs USA

Whether you work in a small, independent broking firm or the UK operation of a large, multinational insurer, it is likely that you are primarily exposed to ‘local’, UK insurance issues and problems. As a consequence, it is easy to become a little insular, forgetting that insurance in this country might actually be fairly straightforward and that lessons can be learnt from elsewhere.

Having recently returned from California, it is interesting to contrast the UK’s insurance structure and challenges with those in the USA – and recognize that we may not be so badly off.

Take regulation for example. While it is tempting to knock the FSA and criticise the growing influence of Brussels, perhaps we should be thankful that we are not grappling with the patchwork of laws and regulations, both federal and state, that our peers across the Atlantic face on a daily basis.

As brokers, we do not have to go through the tedious ritual of offering a risk to ‘admitted’ insurers (those formally licensed by the relevant state insurance commissioner) before obtaining cover with a more suitable, non-admitted, ‘surplus line’ insurer – who we knew all along would be more receptive to the exposure. We might have to contend with a certain amount of bureaucracy in the UK, but at least we don’t have to file an “affidavit of diligent search” with the regulator when we place certain risks.

As insurers, we are not prevented from distributing our products simply because we are unable to offer full perils cover. This happened, for example, in California after the 1994 Northridge earthquake. Not surprisingly, insurers were unable to offer earthquake cover in the aftermath of the disaster, but under the state’s ‘Mandatory Offer Law’ they were compelled to stop writing homeowner’s insurance altogether as a result. That particular piece of legislation was eventually modified some years later.

If we need any incentive to ensure that a competitive market for flood insurance continues to exist in the UK after the Statement of Principals expires in 2013, take a look at the US experience. American insurers have been unable to provide flood insurance for homeowners for decades due to their inability to spread the risk over a wide enough population to absorb the potential catastrophic nature of the hazard.

In response, the federal government was forced to create the National Flood Insurance Program (sic) way back in 1968. Over 40 years later misconceptions and confusion still exist. Apparently a third of US households still hold the false belief that flood damage is covered by their standard homeowner’s policy; and half of mortgage borrowers in low flood risk zones mistakenly think they cannot buy flood insurance.

Finally, we have Pool Re. Where else could we so easily access terrorism cover for commercial property that includes the risks of chemical, biological, radiological and nuclear force or contamination (CBRN)? The equivalent of Pool Re in the USA is TRIA (the Terrorism Risk Insurance Program Reauthorization Act) but this federal government backstop does not cover CBRN damage resulting from acts of terrorism.

Perhaps it’s not so bad in the UK after all!

 Graham Salmon is Managing Director of Realty Insurances Limited, a Chartered Insurance Broker.

American Contrast

The Chartered Insurance Institute describes itself as the “premier professional body for the global financial services profession”. That’s a fairly lofty depiction, so on a recent business trip to California I was interested to compare the CII with its American equivalent, which in the non-life insurance sector is the American Institute for Chartered Property Casualty Underwriters and the CPCU Society.

The Insurance Information Institute in the US estimates that there are circa 464,000 jobs in the US property casualty industry (excluding reinsurers and claims adjusters) and a further 631,000 insurance agents and brokers. Despite this, only 65,000 people have earned the CPCU designation since its inception in 1942 and the CPCU Society currently has less than 25,000 members, of which fewer than 4,400 work in the broking or agency sector.

Contrast that to the CII’s thriving membership which has increased 50% since 2001 to over 100,000 (admittedly encompassing more than just general insurance) and some differences start to emerge, especially when one remembers that at last count (2008) there were 268,000 people working in the insurance industry in Great Britain.

While the CPCU Society has similar aims to the CII, my recent visit to San Francisco reminded me of the apathy within the American insurance profession towards the CPCU Designation. This was something I first became aware of working in Chicago in the late 1990s. If Realty was operating in the US, we wouldn’t even have the opportunity to showcase our professionalism through our corporate chartered status as the designation at the company level does not exist.

The CPCU Society does its best to rally support through 147 chapters and 14 different interest groups, but the indifference towards the professional body is possibly indicative of an underlying problem in the US insurance profession.

Whilst there are many highly committed, well qualified professionals working in the American insurance sector, part of my role in Chicago was to visit agents all over the mid-west states and it was here that one observed the lack of training and academic credentials. As a result, some of these agents were experiencing problems gaining credibility in front of clients and avoiding errors and omissions lawsuits.

According to the articles I’ve read, to be licensed as an insurance agent in the US apparently requires just 40 hours of training; 24 in the classroom and 16 outside. You will need to take a few exams, but many of them have a pass rate of over 90% so they’re not exactly challenging. You might have been stacking shelves last week, but now you can go off and pitch for Amazon’s account in the morning and Apple’s in the afternoon.

Continuing education in the US has grown into an industry that has become an end in itself, rather than a means to an end. Some self study material resembles little more than ‘Insurance Terms A to Z’, and certain online education providers grant credits based on word count, which means their material is padded with verbiage.

Whilst my personal observations from the USA are just that, the reflections of one individual, they do at least hopefully point to some important lessons for the UK. We all need to continue to support the CII so that it remains dynamic and gains further critical mass in terms of membership.

The CII qualifications must continue to be taxing to pass so that they are recognised as evidence of superior knowledge and competence, just as individual chartered designations must continue to be held in high regard as a clear indication of professionalism. Any complacency could rapidly lead to the lethargy that the US appears to be experiencing at the present time.

Graham Salmon is Managing Director of Realty Insurances Limited

European Court of Justice Gender Ruling

The insurance industry in the UK and the rest of Europe is currently coming to terms with the recent ruling by the European Court of Justice that, from December 2012, gender can no longer be used by insurance companies as a factor when pricing insurance policies.

This has particular ramifications for the motor insurance sector where there is conclusive statistical evidence to demonstrate that females have better claims records than males.

Insurers are already investigating criteria that can be used instead of gender. Obvious proxies for gender such as lifestyle (e.g. playing rugby) and occupation (e.g. nursing) may be reasonably accurate but would probably fall foul of equality legislation on the grounds of being indirect discrimination.

The other major concern is that a ban on age discrimination could be next. This would cause pricing problems not only for motor insurers, but life and health underwriters also.

Insurance Protection for Residential Landlords

The UK property boom prior to 2007 led many inexperienced individuals to try their luck at buy-to-let investments.

Unfortunately, many of these residential landlords still fail to realise that the insurance cover they had when they were perhaps living in a property is no longer adequate to protect them when letting it out.

If you are a residential landlord, examples of areas you may wish to check  include:

• Are you insured against malicious damage by tenants?
• If you are letting a property unfurnished and hence have no contents cover, do you have public liability cover if your tenant trips down the stairs due to a badly fitted carpet?
• Do you realise that you are responsible for common areas and you need to conduct a fire risk assessment?
• Do you know that building costs have fallen over the past couple of years and so your sum insured might need adjusting downwards?
• Does your lease have a break clause allowing the tenant to vacate if, for example, repairs are not carried out within a certain period? If so, does your insurance policy include loss of rent cover to protect your income?

These are all examples of areas that may not be adequately insured unless you have swopped your standard household policy for a specialist property owners cover.

What is worrying commercial property underwriters?

The past decade has seen a reduction in the number of residential and commercial fires, but a big increase in the cost per incident. According to the Association of British Insurers (ABI) between 2002 and 2008 the average cost of fire claims doubled, to £21,000 for commercial fires and £8,000 for domestic.

Underwriters are understandably worried about arson as this accounts for half of all commercial fires and past recessions have seen this type of crime increase. Happily this has not happened since the onset of the current recession.

A change in the way the fire services operate makes a total loss now more likely. Safety risk assessments by the fire services mean that they are more likely to let a building burn out if it is established that no human life is at risk inside.

Underwriters are also concerned about new building techniques and materials. The more widespread use of timber frames and the fashion for entire blocks with an outer skin of glass can increase the risk of a total loss. There is increased potential for water damage due to the failures of plastic and push-fit plumbing which, coupled with the trend for all-wood flooring, can mean that entire floors have to be replaced instead of just the carpeting.

Insurers are particularly nervous about vacant properties which are inevitable in times of recession. Vandalism and theft of materials have increased, which has resulted in insurers trying to impose unoccupancy conditions and warranties, as well as restrict the insured perils offered.

The other issue keeping underwriters awake at night? The Government’s cutbacks on flood defence spending.

Is your property in a flood zone?

The Government has decided to commit £2 billion over the next four years to flood defences. This may sound like a lot of money, but unfortunately it is over £200m a year less than the previous government promised and half the amount recommended by the Environmental Agency.

As a result, the availability of commercially provided flood insurance is in doubt when an existing agreement (the Statement of Principals) between the Association of British Insurers and the Government expires in 2013. The Statement of Principles obliges insurers to provide cover as long as the Government continues to invest in an adequate flood defence programme.

The provision of flood insurance is critical to both individuals and commercial entities with real estate exposures. Individuals will be unable to obtain mortgages on their homes without the insurance cover. Likewise, property companies and developers will be unable to execute leases, funding agreements or construction contracts without flood insurance.

Why the tough attitude from insurers? Many areas of the UK continue to face a serious flood risk, highlighted by the recent substantial flooding in Boscastle (August 2004), Carlisle (January 2005), Hull & South Yorkshire (June 2007), large parts of the South West of England (June/July 2007), and Cumbria (November 2009). The Carlisle losses amounted to £272m; the floods in the summer of 2007 cost insurers £3bn; and the Cumbrian claims amounted to £174m.

The Environment Agency has identified 2.5 million households (one in six) at risk of flooding and the insurance industry has made it clear that without certainty on flood defence funding, insurers will find it extremely difficult to continue to provide affordable cover to those living in flood-prone areas.