INSURANCE providers have raised fears that they could be landed with a hike in membership fees from the Association of British Insurers (ABI) following last week’s shock resignation by Legal & General.
Sources within the industry told Scotland on Sunday that the trade body faces a seven-figure hit to its finances as a result of L&G’s decision to quit by the end of the year.
Although no other firms have publicly stated that they will follow L&G in leaving the ABI, one source at a rival insurer said it would reconsider its position if membership costs were increased.
The trade body is funded by subscriptions from almost 300 members, accounting for about 90 per cent of the insurance market, and is rumoured to have received at least £1 million a year from L&G.
One source said: “How are they going to fill that gap? It’s a big loss for them. If the ABI tries to divide up that cost and push it on the remaining members, we would tell them where to go.”
Another industry insider said L&G’s annual subscription was in the region of £2m, but a spokeswoman for ABI said it does not comment on members’ fees. She added: “The ABI is not reliant on any one member for its financial stability and represents over 90 per cent of the UK insurance market. Our board has reaffirmed its full support in the light of this resignation – not least because we have reduced our costs year on year since 2011. The ABI is more cost effective and well run than it has ever been.”
L&G would not disclose its membership fee but a spokesman said the move was not a cost-saving measure by the firm, which recently posted an 11 per cent rise in first-half operating profits to £636m.
The group’s resignation follows the merger of the ABI’s investment affairs division with the Investment Management Association, and chief executive Nigel Wilson said the decision had been made “with great sadness”.
In a letter to ABI director-general Otto Thoresen explaining the group’s decision, Wilson said: “A large proportion of our business lines will fall outside of the remit of the ABI given that the business of L&G has significantly evolved and in 2014 our business is now as much investment management as insurance.
“We believe that increasingly engagement with government, regulators, quangos and other external bodies will be on a case-by-case basis… and will have to be more individually tailored to individual company situations as business models of sector participants become more diverse and less suited to uniform representation through one trade body.”
However, Thoresen said ABI’s board believed the industry “is at its most effective when working together to respond to legislative and regulatory change”.
He added: “Working with our members we will continue to drive the reform agenda forward to make markets work better for customers on policy areas as diverse as pensions, use of data, welfare policy, tax and regulation to ensure the UK insurance sector continues to contribute positively to the economy and society.”
Scots-born Thoresen took charge of the ABI in 2011 after standing down as chief executive of Aegon UK, the life and pensions provider formerly known as Scottish Equitable.
Current Aegon boss Adrian Grace would not divulge how much it costs to be a member of the trade body, but said: “If it ever got to a situation where the price we pay didn’t represent the value we got back, then we’d exit.”