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4th EU Motor Insurance Directive

MDS presentation to Brokers

Direct Commercial/Carraig Insurance Seminar18th September 2002

Presented by: Ian Witham, Director (ian@motordatasolutions.co.uk)Motor Data Solutions Ltd (www.motordatasolutions.co.uk)Customer Service Centre157 Redland Road, Redland, Bristol BS6 6YETel: 0870 12 13 408 Fax: 0870 744 3378

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What is this presentation about?

It is about how the 4th EU Motor Insurance Directive, as implemented in the UK, will affect the future of Commercial Fleet Insurance, a significant service sector

Fleet claims are £1.9bn per year for just 4.9m vehicle / years Private claims are £4.6bn for 18.9m vehicle / years Fleet claims frequency is 22% vs 16% for private (DTI figures 1999)

It is about clarifying the motivations and current plans of Insurers and other players so that Brokers can be better informedExplaining that,while many larger Insurers are investing heavily, their solutions may or may not be practical, and there are several issues which brokers need to be informed aboutAnd it is about

How Direct Commercial will address this problem and retain the existing Insurer / Broker / Client relationships

And how MDS can offer (and will demonstrate) a solution to Brokers to help address the practical issues for them and for their clients

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We will coverThe 4th Directive – from a Broker’s perspectiveWhat Insurers in general are doingWhat Direct Commercial and Carraig are doingChallenges for BrokersDemonstration

Source: Official MIIC Public Information leaflet

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4th Directive

Overview for Brokers

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Broker

4th EU Motor Insurance Directive – the Broker view

Before After

VehiclesClaims

Analysis

Client

Broker

Insurer

UpdatesChangesClaims

PremiumCover

Conditions

FeesDocumentation

Services

VehiclesClaims

Analysis

Client

Insurer

PremiumCover

Conditions

FeesDocumentation

ServicesRenewalVehicles& Claims

RenewalVehicles& Claims

MTA’sServices

UpdatesChangesClaims

MTA’sServices

MID / Insurer Site

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Why does this change?EU Directive intentions & impact

Harmonization of EU Law for Motor Liabilities (enacted in to UK law 20/1/03) Simple for EU citizens to make claims (via in-country claims representatives) Affects only around 4,000 UK claims annually (source: FSA Consultation Paper)

MIB (Insurers) agenda: Construct a complete database of all Insureds – meets directive’s

requirements Builds 4m fleet drivers on to the existing 22m MID private drivers:

Easier to spot the Uninsured driver – they can’t claim they are “Company drivers” Reduces the cost of MIB (£300m+ p.a.), and thereby reduces the levy paid by Insurers

HMG agenda Meet E-government objectives (Electronic Vehicle re-Licensing) Improved crime detection (Roadside cameras) Integrated with MOT & DVLA data

Why are Insurers concerned? The MIB has drafted Article 76, which will: Regulate to improve “timeliness of update” and therefore the usefulness of

the database to Government and Police, by fining Insurers whose policyholders supply data late or incorrectly

Current “timeliness” – 50% within 35 days; target – 100% within 14 days during 2003; longer term – Government would like + / - “real time”

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Target average delay between cover being given, and MID being notified

0

5

10

15

20

25

30

35

40

Day

s la

te

TimelinessProjected

Reduction from 35 to 25 days has been achieved for new private policies

Insured

Broker

Insurer

Insurer pays if data is late

Current approach renews – may employ new technology to achieve zero delay (e.g. Broker Point of Sale links)

Challenge for Commercial Fleets and Motor Traders

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Insurers’ technical solutions

Insurers must act – doing nothing is not an optionSome – are using the opportunity to link direct to clients

Building their own web sites – expected roll-out during November Asking for client (contact) data from brokers

Some – are seeking minimal compliance Using the MIIC / Experian web site Putting in place helpdesks but deferring investment / minimising

cost with arms length solutions

Most – are seeking responsible compliance Investing in their own systems or Helpdesks Trying to help clients and inform / work with Brokers

Current stance of national brokers is: Involved in early discussions but not offering specific solutions Have generally decided to offer advice based on reproduced

Insurer or MIIC provided notes

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Options for BrokersOption 1 – Do nothing

Risks: Unprepared to support clients, not aware of options Monitor Insurers & competitors in terms of offered services May have to respond anyway at the last moment – more costly to recruit and train staff

Benefits: No investment (time, money) required

Option 2 – Prepare to support all options Risks:

Unclear what’s on offer – may prepare for the wrong thing Over- or under-invest in recruitment & training (52 helpdesks, 20 different systems) Have no alternative to offer clients other than Insurer approach, with the associated issues

Benefits: Guaranteed to be able to provide a service

Option 3 – Support a “broker provided” service Risks:

May invest in a service that will not be accepted by many Insurers Benefits:

Can offer a genuine alternative for clients Lower cost service to provide (1 helpdesk, 1 system), solves the special problems of Motor

Traders and multi-site fleets Added advantages of electronic declarations & improved management information

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What Insurers are doing

The different approaches and the issues

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Too many options!No detailed central standard for what each Insurer should offer, supply or require – allows Insurer flexibilityLittle “inter-insurer” connectivity – if your client moves from (say) ZFS to RSA, they will have

different helpdesk different software different data requirements etc.

No central helpdesk – each Insurer has to provide their ownSome confusion in the marketplace

The legislation is late No concrete solutions / visible web sites

Penalties not definedLimited publicity, little public awareness

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The barriers for policyholders

Are they Internet enabled?Are they under-declaring?Do they have central records of all vehicles or are they distributed (branches, depots etc.)?Are they on “as and when” or periodic declarations?Have their Fleet Management Systems been adapted to supply data (to 19+ different interfaces)?Do they understand their obligations?Have they been contacted by their Insurers? Do their Insurers even have their address?Crucially, do they expect their broker to help?

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Carraig and DCL

The approach which Carraig and DCL wish Brokers to adopt

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Carraig Policyholders –For those on “As and When” declarations

For clients on “as and when declarations”, DCL will enter the details in to their own system

These must continue to be supplied as at present through the Broker or direct to DCL

The information supplied to DCL will be extracted from the DCL system weekly and uploaded by MDS to the MID

Carraig will incorporate the Industry approved wording in to its policies as an additional endorsement

As at present, no periodic declarations will be required from “as and when” clients and their brokers

In summary this is ‘business as usual’ – DCL/Carraig via MDS will take care of you/your policyholders’ MID obligations

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Carraig Policyholders – For those on periodic declarations

For clients on periodic declarations DCL will make it a policy condition that clients are responsible

for sending the data, using the MDS website Within the statutory timeliness criteria

DCL will monitor the timeliness of its policyholders and will receive reports from the MIICClaims notified by Policyholders of DCL for vehicles that have not been notified within the prescribed time may affect the claims processingFor clients without Internet capability, brokers can

Do the updates on their behalf, or … Can switch to as and when decs

Once entered on to the MID, the vehicle detail schedules will be used by DCL to replace the periodic declarations

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Demonstration

We will demonstrate: Adding a policyholder Acting as the policyholder’s agent Adding a vehicle Printing a declaration

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Challenges for Brokers

Is the closer relationship between Insurer and Policyholder an issue?

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Issues for consideration ..

The Policyholder is supplying direct to the Insurer – at renewal, will the Broker have accurate information? Will Policyholders be willing to supply to two different organisations?What about amending cover for additional vehicles? Will the Insurer simply underwrite based on the data sent?What will be the effect on cashflow, if the first that the broker knows of a change is when the Insurer issues an invoice?The Policyholder has a query or complaint – do you know what’s been happening?What about under-declarations – who’s responsible?Will commission be payable for MTA’s notified direct by the Policyholder to the Insurer?

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New Vehicle

BrokerInsurer

ProcessesCover Note

PaymentFrom Client

InsurerInvoicesBroker

PaymentLess

commission

NotifyChange

Week 1 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8Week 2

Premium available to Broker 6 weeks

New VehicleInsurer

ProcessesVia Website

Cover Note

InsurerInvoicesBroker

BrokerInvoicesClient

BrokerInvoicesClient

PaymentFrom Client

PaymentLess

commission

InsurerReceivesPayment

InsurerReceivesPayment

Week 1 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8Week 2

Premium available to Broker 6 days

Current

Position

With the

MID

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New Vehicle Broker Insurer

Claim Payment New Vehicle Broker Insurer

Claim

Payment

Recovery

Normal Situation – Client advises change of vehicle

Under declaration – Client does not advise change of vehicle

New Vehicle Web Site Insurer

Claim Payment

New Vehicle Web site Insurer

Claim Payment

RecoveryFromClient

Direct to Insurer – Client advises change of vehicle

Under declaration – Client forgets to advise web site of change but does advise Broker

Broker

BrokerRecovery

FromBroker

Current Position

With the MID

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NewVehicles

Broker

NewVehiclesNew

Vehicles

DeclarationInsurer

A

Renewal:Fleet Details

& Claims

InsurerB

InsurerC

ClaimsExperience

NewVehicles

Web Site

NewVehiclesNew

Vehicles

InsurerA

Renewal:Fleet Details

& Claims

InsurerB

InsurerC

FleetDetails

ClaimsExperience

Current Position

With the MID

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But all Insurer websites are equal, aren’t they?

How policyholders & brokers will actually use the system

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Challenges for BrokersFor non-Internet-enabled clients, Brokers can act to do the data entry

This can involve fee paying arrangements – Insurers cannot oblige clients to pay

Brokers gain benefit by performing periodic declarations as at present and retaining the personal service

Insurers will allow Brokers to act on behalf of Policyholders, but only in place of Policyholders, not as BrokersEach individual within a Brokerage must have their own user id and password for each PolicyholderEach Insurer has their own helpdesk – which means that the broker will have to know as many Helpdesk numbers and submission methods as they have agency agreementsDealing with Insurers over their own web sites and collection services will mean learning / training / monitoringPolicyholders may expect brokers to offer a service

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Broker2 Admin Staff*Insurer Solution

Insurer

Client Client500

Insurer10

Helpdesks10

Passwords240 – 12,000

per year

Websites5 - 10

Broker2 Admin Staff*MDS Solution

Insurer

Client Client500

Insurer10

Helpdesks1

Passwords1

For ever

Websites1

Multiple Websites MDS

* Calculated as 500 clients, 20 vehicles each, 2 changes per year- 20,000 transactions @ 3 mins per transaction – 1000 hours. 40% effective – 2 FTE’s

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What MDS can offer brokers

Single helpdesk, single user id and passwordMDS system is independent – can supply information to the MID directly or to InsurersBuilt-in broker functionality (client management, declaration functionality, downloads / uploads of vehicle schedules etc.)Available now for practice and experimentationFlexible and will adapt to Brokers requirementsSimple pricing modelFree for Carraig and some other Insurers

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MIDASMIDAS

Clients providetheir vehicle information

Claims Handling -Verify that vehicles

have been added

Claims Handling -Verify that vehicles

have been added

MDSProvide full UserSupport Helpdesk

MDSProvide full UserSupport Helpdesk

MIDInformation is sent from MIDAS to the MID overnight. Problems are returned and notified to Users

Broker Office / Branch Offices

Broker Office / Branch Offices

Broker downloads reports for internal management, declarations, accounting and finance, delinquency etc. into Excel or on paper or email

Broker providesa service to enter the

information

Broker providesa service to enter the

information

fax

Phone

Internet

Insurer verifies14 day rule and other

business rules

Insurer verifies14 day rule and other

business rules

MIDAS – a broker-basedMIDMID solution© 2002 Motor Data Solutions Ltd

MIDAS – a broker-basedMIDMID solution© 2002 Motor Data Solutions Ltd

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Next StepsMDS happy to provide Brokers with access, free until Jan 2003 to evaluate and can present at seminars etc.In return, would welcome feedback and comparison with alternative Insurer’s approachesMDS will use “Broker Mass” to strengthen position with InsurersIf Insurers accept data, then

MDS will agree pricing with Brokers Brokers will be able to offer a genuine service to their clients and

will avoid the issues identified earlierIf Insurers don’t accept data, and there is no legislative “stick”, then

Brokers will be obliged to conform to Insurer methods Work within the constraints Accept the consequences