Japan tsunami costs hit Lloyd's

21 September 2011 Last updated at 07:05 GMT The tsunami in Japan was one of the events that made the first half of 2011 the most expensive on record Lloyd's of London, the world's largest insurance market, says major catastrophes made the first half of 2011 the most expensive on record.

It saw claims totalling £6.7bn from disasters such as the Japanese tsunami, floods in Australia and the earthquake in New Zealand.

Lloyd's reported a loss of £697m for the six months to June, against a profit of £628m last year.

However, Lloyd's said the market was "well-capitalised".

'Tough times'

This year already ranks as the second most destructive on record for catastrophe losses after 2005, with the insurance industry as a whole absorbing $70bn in claims, according to Swiss Re, the world's second biggest reinsurer.

Despite this, Lloyd's reported it was in good shape financially, with record central assets of £2.47bn, up from £2.23bn last year.

It reported a return on its investments of £548m.

Lloyd's chief executive, Richard Ward, said: "These are tough times for the insurance industry, but we are well positioned to handle them."

He warned the rest of the year ahead was likely to be "challenging", thanks to the uncertain economic environment and the crisis in the eurozone.

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Judge attacks car insurer's costs

16 September 2011 Last updated at 23:02 GMT By Bob Howard Reporter, Money Box Judge Platt has roundly criticised the way RSA recovers the cost of repairs from other insurers A judge has strongly criticised the way a major motor insurer recovers the costs of repairing vehicles.

Judge Platt says Royal and Sun Alliance has used a subsidiary which inflates charges simply to boost profits.

He found the subsidiary increased labour costs without carrying out any work itself and made other charges it could not account for.

RSA Insurance said it strongly refutes any suggestion that it has acted inappropriately.

Insurance agreements

When a car is damaged in an accident, the victim's insurer normally arranges for the vehicle to be repaired by a garage and then passes the bill on to the at fault insurer to pay.

In the case of RSA Insurance, the garage invoice is passed to its subsidiary, RSA Accident Repairs Limited, which then sends a separate bill to the at fault insurer. Insurers are not supposed to make a profit from repair work.

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The effect of these extra charges if they are paid by defendants is simply to boost RSA Group's profits ”

End Quote Judge John Platt Circuit judge However Radio 4's Money Box has learnt several insurers are disputing the size of claims being put in by RSA Insurance via its subsidiary RSA Accident Repairs Limited and are refusing to pay, claiming the subsidiary has added its own charges to the original garage bill which cannot be justified.

RSA Insurance is then taking these companies to county courts seeking payment.

One district judge estimates more than 100 such cases involving RSA Insurance are arriving at County Courts each week.

The claim Judge Platt commented on was published on 2 September and was heard at Romford County Court. It involved RSA Insurance seeking £1,825 for a vehicle repair from the insurer Equity Red Star.

Unjustified costs

Judge Platt says the hourly rate for the repairs was increased from £36 to £39.50 an hour without explanation.

£118 was added for a road test, cleaning and an environmental charge which was not on the original bill.

And £110 added for taking the car to the garage and back when it was drivable and the owner lived nearby.

Judge Platt said RSA Insurance was only entitled to claim £1,542 as that was the original bill submitted by the garage that had repaired the vehicle.

He added that he could find no evidence that RSA Accident Repairs Limited had incurred other costs which it was justified in claiming:

Judge Platt said: "In my judgment the effect of inserting RSA Accident Repairs Limited as an intermediary simply inflates the ultimate cost by increasing the hourly rate and adding extra charges, one of which I have disallowed in any event as a fabrication, and another as not reasonably incurred."

He added: "Since RSA Accident Repairs Limited is wholly owned by RSA the effect of these extra charges if they are paid by defendants is simply to boost RSA Group's profits beyond the actual cost of repair by the margins inserted by RSA Accident Repairs Limited."

He also sent out this warning for the insurance industry in general: "If RSA Insurance is correct in its argument there is nothing to stop every insurer adopting the same procedures which, if this case is a typical example, will lead to an overall increase of some 25% in the cost of minor motor repair claims. That cannot be in the public interest."

Claims disputes

RSA Insurance said it was restricted in what it could say as it was referring the case to the High Court.

It said: "RSA takes very seriously any suggestion that it has acted inappropriately and strongly refutes any suggestion that it has acted so. Our model remains legal and compliant.

"However, to ensure that this remains the right approach and to avoid the need for further County Court litigation, we put in train a test case in the High Court in May of this year. In the meantime we have suspended any proceedings currently underway pending the outcome of that case."

Several insurers are believed to now be refusing to pay out claims submitted by RSA Accident Repairs Limited unless original receipts are included.

A spokesperson from The Co-operative Insurance said: "We terminated our agreement with RSA Insurance earlier this year and as such we are only paying those claims submitted by RSA Insurance, where there is evidence presented of the cost of the repair."

Under scrutiny

David Creswell, a director of ABP Club which represents car repairers and insurers, says these disputes are proving very damaging.

He added: "The trust certain of the insurers have with RSA Insurance has gone to a very large extent.

And he said it was ordinary people who pay their car insurance premiums would ultimately suffer.

"It is shocking. The whole principle is recovering the cost outlaid, not making a profit out of it."

The car insurance industry is already under huge pressure to explain the recent rise in premiums.

The Office of Fair Trading has launched an investigation and the government has said it will stop insurance companies receiving fees from personal injury lawyers.

BBC Radio 4's Money Box is broadcast on Saturdays at 1200 BST, and repeated on Sundays at 2100 BST.

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Debate over riot clean-up costs

19 August 2011 Last updated at 23:02 GMT By Louise Greenwood Business reporter, BBC News Many businesses were damaged by nights of rioting in English towns and cities Riot-damaged businesses are claiming for clean-up costs to both their insurers and to a taxpayer backed fund, prompting debate over the final bill.

Some groups say that the use of the Riot Damages Act 1886 is an abuse of public funds, but insurers say it has worked well for years.

A number of English towns and cities were left scarred by nights of rioting, leading to looting of stores.

The government has promised financial support for those affected.

Rebuilding costs

Across the riot hit parts of England, glaziers and shop fitters are working to get businesses back to normal.

The cost of the clean up has been estimated at £200m but there are signs that some insurance firms may seek to recoup the cost of settling claims from the taxpayer-backed fund.

Surveying the wreckage of his Party Superstore shop on Lavender Hill in Clapham, south London, Duncan Mundell estimates that his business faces losses of £750,000.

But the business, which sells party goods and fancy dress items, as well as running the Street Kids Rescue charity raising cash for children in South East Asia, has received enough cash from its insurer to stay afloat.

Duncan Mundell says his business faced losses of thousands of pounds

Mr Mundell said that within 72 hours he had been given an interim payment to help him along.

He said he has been advised by his broker to claim twice for his losses, once through his insurer and secondly under the terms of the 1886 Riot Damages Act.

This piece of Victorian legislation allows businesses to levy claims against individual police authorities and ultimately the Home Office.

This week the Glasgow based loss adjuster Cunningham Lindsey was appointed by the government to act as an intermediary for those businesses seeking claims arising from the recent riots.

Misuse of funds?

The application period for claims has been extended from 14 days to 42.

But the Association of Police Authorities is among those calling for reform of the law, claiming it is a misuse of public funds.

The most recent case of a big payout under the Act followed the arson attack by asylum seekers housed at the Yarls Wood detention centre in Bedfordshire almost a decade ago.

Bedfordshire Police was sued for damages of £43m. At the time, local MP Alastair Burt, told BBC Radio 4's Today programme that the insurer had "found a smart get-out".

But in the industry, brokers and loss adjusters say the fund is helping to keep insurance costs low.

Bill Gloyn, of the insurance risk specialists Jardine Lloyd Thompson, said: "It was salutary that in the aftermath of the 1985 riots in Tottenham there was no increase in premiums because although insurers were able to pay out, in the main they were able to recoup from the compensation fund.''

Both the Federation of Small Business and the Forum of Private Business have flagged the use of the fund as a matter of concern for their members at a time of public spending cuts.

But the Association of British Insurers said the 125-year-old legislation had stood the test of time.

"The industry is working around the clock to help businesses and communities recover from the damage so the police compensation schemes can run effectively," a spokesman said.

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Rising costs hit Centrica profits

28 July 2011 Last updated at 12:25 GMT British Gas says it has been selling at a loss British Gas owner Centrica has reported operating profits of £1.3bn in the six months to 30 June, down 19% on the same period last year.

The results include a 54% fall in operating profits at its residential energy division, British Gas, to £270m.

British Gas says higher wholesale gas prices and lower energy use are responsible for the fall in profits.

The news comes as the firm prepares to raise gas prices by 18% and electricity prices by 16% in August.

Higher bills

The planned bill increases will push up the average bill for around nine million customers by £190 a year.

It comes as the group announces a 12% increase in its dividend to shareholders.

Richard Lloyd from consumer group Which? warned that customers would be angry.

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Pain for customers is a reward for shareholders. Now these are not two distinct groups: millions of people hold British Gas shares indirectly through their pension schemes. But, if asked, many of those saving for a pension would probably sacrifice the dividend for lower energy prices.”

End Quote Robert Peston Business editor, BBC News "These profits come at a terrible time for people who are being clobbered by these 18% rises in gas bills and 16% rises in electricity bills," he said.

British Gas says it has been selling gas at a loss since April due to the rising cost of gas on the wholesale markets.

"UK wholesale gas prices have risen by around 30%, reflecting unrest in the Middle East and North Africa and increased global demand for gas, in part due to closures of nuclear plants in Japan," the company said.

The company said that without the August price rises, it would have made a loss in the second half of the year, "wiping out" the £270m profit its residential business made in the first six months of the year.

Overseas investment

Centrica says it expects to invest £1.3bn to secure new sources of energy this year - much of this investment will be outside the UK.

The company has confirmed it will scale back its future investment in UK gas production partly due to new taxes on oil and gas production in the North Sea.

The new taxes cost the company £204m in the six months to June 30 according to its results. It has already mothballed some North Sea production.

Profits from its own operations, which include production in the North Sea and Trinidad, increased by 14% to £414m.

Some analysts have suggested the tax rise still allows Centrica to make a profit in the North Sea.

"Whilst none of these companies will like a tax rise at the same time it is still enormously profitable to invest in the North Sea and I think some of these companies may be overplaying how unattractive the tax rise makes it," said David Hunter, an energy analyst at M&C Energy.

Centrica also said it plans to slow down its investment in new nuclear power stations in the UK.

"Investors are putting pressure on them specifically around the nuclear project where they are a junior partner, some are saying they shouldn't touch it with a barge pole," said Mr Hunter.

Warm weather

In its core business of home gas supply British Gas lost customers and market share compared with the same period last year.

Customer accounts for gas were down 0.7% from last year and market share down 0.5%, though it picked up customers for electricity supply.

That helped overall customer numbers at British Gas, which trades as Scottish Gas in Scotland, to rise - up 159,000 to 16.1 million accounts.

Warmer weather also saw a big fall in residential gas use, down 18% on the previous year, and a 3% drop in electricity consumption, further hurting profits.

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