Insuring for a more profitable future

Published on Monday 28 September 2009 23:13

DON'T glibly mention the stereotype of Scottish thrift to Maggie Craig. The pocket dynamo director of Scottish Affairs at the Association of British Insurers doesn't buy it.

"I would love to say we are much better at saving in Scotland. We have a reputation for being particularly thrifty. But there is no evidence of that from our surveys," Craig says.

Pensions reform has inevitably moved out of the spotlight amid the global financial tumult of the past two years, when it seemed the collapse of the whole system at times threatened hole-in-the-wall money, never mind long-term savings and insuring against house subsidence.

But, a glass-half-full person by nature, Craig thinks it would be myopic to forget the medium and long term amid the cataclysm, and says Scots could even benefit disproportionately from the government's pensions reforms pencilled in for 2012.

With a decent line in self-deprecation, Craig, who is also director of life and savings at the ABI, says while most people don't know about these important reforms "tekky, nerdy people like me know about it." Among the most seminal changes will be "auto-enrolment" in pensions from that date.

To overcome notorious pension apathy, people will be automatically enrolled in a company's pension scheme as soon as they take up a job. People may later opt out, but at least they will be automatically opted into a scheme in the first place.

There will also be automatic enrolment for an alternative government-sponsored default pension option if the private sector company does not have its own scheme.

Says Craig: "There is a myth that pensions are a preserve of the upper echelons. But these reforms are aimed at low to middle earners, and national average earnings are lower in Scotland than across the UK."

Her views carry some weight as the ABI is the voice of the insurance and investment industry, speaking for 90 per cent of the UK insurance market. The lobby group's members also control assets equivalent to a quarter of the UK's capital.

Craig said recently that big insurers such as Standard Life, Scottish Widows, Aegon, Aviva, and so on had been unfairly tarnished by the downfall of the banking sector. Unfair because insurance is a different business model, with little of the liquidity issues and none of the crazy subprime lending that brought the banks down.

But Craig, who wearing her third ABI hat is the group's consumer affairs director, is realistic enough to know perception is all. "It's a fact that insurers are not banks. But perception is reality.

"I think consumer confidence has been dented. It's difficult to get people to look at financial services and differentiate banks and insurers. They don't wake up every morning and study the capital markets."

Despite the sector's woes, Craig says sentiment in the insurance sector is currently buoyed by the fact that it has demonstratively weathered the storm better than its banking cousin.

Furthermore, she adds, insurers know they have got through very difficult periods before. She cites the three-year stock market downturn from 2000 to 2002 triggered by the dotcom boom that crashed to earth as a burnt investment stick.

That led to Britain's financial services regulator, the now-increasingly vocal Financial Services Authority, insisting on far greater levels of capital adequacy in Britain's insurers. "We are not complacent, these times are not good, but we are in a better place than we were in terms of capital back then," Craig says.

Scots-born Craig joined the ABI as director of life and savings in July 2007 from Standard Life, where she served two stints, as press spokesperson on pensions from 1989-2000, and head of public affairs from 2003-7. In between she was pensions manager for another famous Scottish financial name, Scottish Equitable.

She believes the ABI's strength in opening doors and getting the ear of the politicians on a range of issues is based on "the total is more than the sum of the parts, the power of the (insurance] collective." Craig says the ABI gets some of the best minds in the insurance industry around the table to hammer out an approach on contentious issues, be it capital gains tax changes or an over-prescriptive regulatory approach.

However, it doesn't stop Craig, who describes herself as "married with three daughters and a variety of animals", as wryly remarking that her efforts to corral the panoply of views of those insurance luminaries as "a bit like herding cats at times."

Some have wondered whether it will take a generation or more for the public to forget the financial nightmare that unfolded on us, starting with the collapse of Northern Rock in 2007, and the step-change in the move towards the abyss with the failure of Lehman Brothers last year.

Craig says it won't be returning or improving profitability in the finance sector that will restore consumer confidence, but the ordinary experience of customers at the front-end. "Deeds not words will do it, just how smoothly things go when you are dealing with your motor insurance or pension," she says.

As an example she gives the work the insurance industry has done in reducing the time it takes a customer to transfer a pension from one provider to another. It has come back from 51 days in 2007 to 11 days in 2009.

The ABI is also pressing the FSA to allow insurers to offer less wealthy people "cheaper, more streamlined" advice when the cost of the full-Monty advice option, Craig claims, is putting off many people from taking out savings products in the first place.

There are also moves afoot, she says, to get the regulator to agree to more use of the internet to facilitate such policy transfers between companies to cut down the bureaucracy that drives punters to distraction.

Of course, some believe the UK recession that could eventually throw three million out of work will lead many consumers to put long-term savings on the back-burner to focus on more immediate financial necessities.

There is a limit to what insurers can do about this. But Craig reckons that negatives can be exploited. She cites one of the political hot potatoes of the day: soaring university student debt. She says insurers can see why it is totally logical for students leaving university with many thousands of pounds worth of debt to give priority to paying that off.

"Yes, but when they have paid it off, we should be saying in the industry, 'look, you have got used to this amount going out, why not save it as a start to a pension instead.' It's a case of making behaviour work for you," Craig adds.

One change in behaviour she approves of is the "growing up, maturing" of the independent financial adviser market.

Previously lambasted on issues such as the pensions mis-selling scandal and commissions that to many of the public compromised the advisers' "independence", Craig says it is now less of a "linear relationship" incorporating product provider, adviser and customer.

"It is more of a partnership now, particularly as the industry moves away from commissions to transparent advisor charging," she says.

And, with that, she is off to yet another meeting. No doubt to proselytise and cajole by turn.