THE FRIDAY INTERVIEW:INSURANCE CLAIMS are among the few things that go up during a recession. Andrew Langford, chief executive of FBD, the State's third biggest insurer, says that the industry's experience in any economy, in any recession, is that more people look to underwriters to pick up the tab for their misfortunes.
“We’re definitely seeing more claims for smaller items at the property side that we would not have seen before. Someone gets a bump in the car park and a year or two ago they might have said ‘it doesn’t matter, because I’m changing the car in a few months’ and they would have left it. Now they claim for it.”
Along with this, insurers have to deal with more fraud. Langford is at pains to stress that this is not the sole driver of the increase in claims, but he makes it clear that the firm’s antennae are up for anything suspicious.
“Money is tighter and people do get tempted,” he observes. The company has put in extra safeguards. If staff begin to doubt the basis for a claim, they are trained to follow particular lines of questioning.
The claim can be passed on to specialist investigators and, if they turn up an attempt at fraud, the company refuses to pay and the matter is passed on to the Garda. Specific crimes of insurance fraud and attempted insurance fraud were introduced into Irish law in 2003. That move was part of a series of legal and structural changes, such as the introduction of the Personal Injuries Assessment Board (PIAB), penalties points and road safety initiatives, designed to cut insurance costs, which had hit such high levels that they were damaging competitiveness.
The reforms delivered in terms of the cost of claims, and Langford says that the savings were passed on to customers.
“Rates have come down every year since 2002,” he points out. “We’ve reached a point where the average premium for a vehicle in the country is now lower than it was at the turn of the century, despite the fact that cars are worth more and cover is far more generous.”
But the cycle has turned and rates are going back up. The Irish Insurance Federation recently said that it believed house and car insurance was being sold at a loss. Last year, FBD began to push up rates, even while competitors continued to cut theirs.
The company added another slight increase this year, and now that its competitors are following suit, it sees further increases coming down the line. However, Langford says any further price hikes will be low, as it does not have far to go to bring its charges into line with costs.
The reason is not just cyclical. The number of claims has increased, he says, and it’s not just the recession. The bad weather of the last two years has had a big impact on the property side of the business. Floods, storms and a freeze-up in January have all contributed.
In March, FBD blamed rising claims costs and the turbulent financial markets for a €38.6 million loss it recorded last year. When insurance premiums became a political hot potato at the beginning of the decade, some argued that the industry was increasing its charges to compensate from equity losses that stemmed from the collapse of the dotcom bubble.
Langford agrees that you cannot get away from the fact that insurers do rely to a certain extent on investment income, and points out these returns are going to be lower than in the past.
“That will feed into premiums, but it’s certainly not the main component by any stretch of the imagination,” he says. “The increase in claims costs is the biggest driver of premiums, the financial income side of it is secondary.
“The change is not going to be catastrophic in any case. We are looking at investment returns coming up at three, 3.5 per cent, whereas before they were 4 to 4.5 per cent.”
At the time of its results, FBD said it had not taken part in a recent Irish Government bond issue, as the yield at the time was volatile. However, since then, the company has converted €120 million worth of shares into cash, and placed €80 million of this in the Irish bonds at 4.3/4.4 per cent. “We see that as an excellent return for what is a very safe investment,” Langford says.
As a result of its origins 40 years ago, FBD – which is 25.68 per cent-owned by Farmer Business Development – has strong links with the farming community and it is the market leader in much of rural Ireland. But next week, it is launching another campaign targeting the urban market, where it has far less penetration.
“We have grown into urban markets over the last four, five or six years, and we have grown to the stage now where we have maybe 4 per cent of the market in Dublin,” Langford says.
“What we’re doing is we’re launching the new-look FBD. There’s a new look and feel to the brand, there’s a new logo, and there’s a new advertising campaign on TV and radio.
“The purpose of this campaign is to make sure that when they [urban consumers] are changing their insurance, or taking out insurance, that we are as relevant to them.”
The bid to broaden its customer base is the latest in a number of changes over which he and his management colleagues have presided since he took over a year ago. The group slimmed down its office network from 47 to 34 and centralised its house and car insurance operations in a call centre in Mullingar.
The offices now focus on the business and farming insurance, which are driven by customer relationships. The areas on which the call centres are focused are more transaction-based, Langford says.
He is quick to acknowledge the role that other executives play in the business, and says that the company’s position as one of the few insurers here not owned by multi-nationals means that it attracts good quality management because it has the autonomy to make its own decisions.
Langford believes that being master of its own destiny is an advantage.
However, this status was briefly threatened last year when Eureko, which owns life assurance and investments specialist Friends First, made an approach valued at €36 per share.
The deal offered FBD’s existing shareholders a minority stake in the new combined entity. The board rejected the proposal and Eureko walked away. Langford argues that the approach was vague and offered no certainty of cash to shareholders.
Langford acknowledges that staying independent cannot be a goal for a plc, if that clashes with delivering value to shareholders. But he stresses that he believes independence has thus far been very generous to shareholders.
“We have given €550 million to shareholders over the last five years between cash and buybacks,” he says.
On The Record
Name:Andrew Langford
Age:39
Position:Chief executive of insurance group FBD Holdings
Family:Married with four children
Why is he in the news?FBD is rebranding and launching a campaign aimed at growing its business in urban centres.
Career:Joined the group in 1996 and became executive director of finance six years ago and joined the board in 2004. He became group chief executive on May 16th last year.
Something you might expect:He qualified as a chartered accountant after studying commerce in UCD.
Something that might surprise:Says he plays golf badly.
