Northern Ireland Affairs Committee - Minutes of EvidenceHC 51

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Oral Evidence

Taken before the Northern Ireland Affairs Committee

on Thursday 27 June 2013

Members present:

Mr Laurence Robertson (Chair)

Kate Hoey

Naomi Long

Nigel Mills

________________

Examination of Witness

Witness: Christopher Jordan, Managing Director, Bureau Insurance, gave evidence.

Q469 Chair: Mr Jordan, you are very welcome. Thank you very much for joining us. We are almost at the very end of the inquiry we are doing into applying the Armed Forces Covenant with particular respect to Northern Ireland. We are very grateful to you for joining us. Would you like to introduce yourself and tell us a little bit about what you do?

Christopher Jordan: My name is Christopher Jordan. I am the managing director and creator of two insurance organisations-Bureau Insurance and Orbis Insurance. We deal with the uncomfortable risks, the risks that most insurance companies decline. Bureau, for instance, on household insurance, deals with houses that had subsidence, flooding, people with criminal convictions. Orbis deals with impaired life travel and life assurance. We are members of BIBA, British Insurance Brokers’ Association, which accounts for virtually all brokers in the United Kingdom. We are very energetic members of BIBA because we actually solve-or attempt to solve-the problems. I have given evidence to the flood committee, and I think we have come up with a reasonably practical idea on how to solve uninsurable houses in flood. About two and a half years ago I was contacted by BIBA, who in turn had been contacted by Ian Paisley, with a question along the lines of, "Could the private sector intervene to improve the Armed Forces’ lot?" I have read the Covenant, not all 78 pages-I do apologise-but those relating to financial products. The gist of it is that we are here to try to improve the lot of the Armed Forces, and part of that relates to the financial products that are available to them and at what cost they are available to them. That was my remit.

I met with Oliver Letwin about nine months ago and produced a report for him, which I have updated, and I have copies here that I will leave at the end. He was also interested in another idea that had come up. Apart from just insurances, could the private sector administer the MOD compensation scheme cheaper than is happening at the moment? The answer, without being derogatory to anyone, is probably yes, because it is their job to do so. Secondly, I have been reading reports in the press that under the MOD compensation scheme, there are now a number of claims that are lawyer-led. The litigation culture is now creeping in everywhere in our society; insurance companies with whiplash claims are very much aware of that.

I have a very major-probably the largest-insurance company in this country that would like to tender for that position and give a fixed amount for it. You can either say yes or no, but it would not diminish the quality of administration. We think it would probably improve it. That is really my background, and that is where I am up to at the moment. Ian suggested coming along to this meeting, and Edward very kindly gave me all the points that you would like to raise. I have tried to be as prepared as possible.

Q470 Chair: Thank you. You say the companies you are involved with deal with the more difficult end of the market. Is there any implication in what you said that members of the Armed Forces may struggle to get insurance through the ordinary channels?

Christopher Jordan: Probably not. There are some instances, but probably not. I was asked to give my comments on it because we have been quite well known in the industry for solving problems. First of all, with regard to the access to insurance products by the British military, there is now huge access to insurance for everybody in this country through various channels, either through a broker, an insurance company direct, or the proliferation of comparison websites like GoCompare and comparethemarket.com-that kind of thing. That is open to everybody, including the Armed Forces.

There are a handful of insurances that are more difficult and more expensive for the Armed Forces to access. It is not discrimination as such; it is what the insurance company would call "risk assessment". The two major ones are life assurance and personal accident insurance. Most of those covers exclude the war risk, and there is no point in going to Afghanistan if you do not have the full cover. The insurance companies will either exclude it, basically saying they do not want to quote for it, or they will quote for it at very, very high margins, because of the perceived risk, and I think it is probably perceived, although we have all seen the harrowing stories. There are other minor ones like travel insurance, because if someone from the British military books a holiday nine months in advance, he may get injured in the meantime or he may get called up, which would evoke the cancellation. There is a very minor insurance called weddings insurance, where again both those things may come into play and you may have to cancel or postpone.

For the rest, the major insurances like motor and household insurance and gap insurance and all the other insurances are not rated dissimilarly from anybody else in this country, but they are for life and personal accident. When I saw your remit and the questions you had, I tried to go one better and provide the insurances that the military want but at a cheaper price, and that is what the report here says to do on a non-profit making basis.

Chair: That is interesting.

Q471 Naomi Long: You mentioned issues like life insurance and personal injury insurance being more difficult for the military. You talked about the exclusions when people are engaged in active service and so on. Would there be a disparity between the rates for someone resident in Northern Ireland and someone resident in GB as their normal place of residence?

Christopher Jordan: None at all.

Naomi Long: That is something that we would experience more generally in terms of insurance. Obviously the terrorist threat in Northern Ireland would generally be seen as higher; therefore, there may be a perception that people are more at risk even when they are not on active service. In Northern Ireland for example, people who have retired from the Army might still be seen as a bigger risk to insurers.

Christopher Jordan: We have never come across that. I worked with Linsey Farrell in Northern Ireland on four occasions to make available household insurance for people who have been involved in the Troubles. We have a very large scheme in this country called Fairplay, which is for people with criminal convictions. We were invited over there to find out if we could extend that particular cover to people in Northern Ireland, which we did. In this country, the proposal form asks what I think is a bit of a dubious question: "Have you ever had a criminal conviction?" I think that is quite unfair. The question should be, "Have you ever had a criminal conviction that has not been spent?" We give a chart that says what you have achieved. If it has been spent, we do not want to know. The one thing we had a problem with in Northern Ireland was the insistence that we could not call it a criminal conviction; we had to call it a political conviction. To me it was semantics, but as long as I got the information I wanted, I did not care what kind of thing you called it-political, criminal, whatever. We agreed to do that, and we have insured people who have been involved in the Troubles. As I said, I met with Linsey on about four occasions to overcome that kind of problem.

Q472 Kate Hoey: Do you not distinguish between the kinds of trouble that they have been involved in? If someone has been involved as a member of the Armed Services or someone has been involved as a member of the IRA, it would not make any difference?

Christopher Jordan: No, it is the conviction itself. When we first started the scheme, we took advice from a probation officer, who said, "Yes, look at the conviction," which is what the insurance industry does. If you answer yes to the question, "Have you ever been involved in a criminal conviction?" the probability is that you will not get insurance. One in four working adults in the United Kingdom has a criminal conviction, a non-motoring criminal conviction, which is 8 million people-it is staggering.

Chair: Really? One in four?

Christopher Jordan: Yes, one in four working adults. There are about eight people in this room.

Q473 Chair: We will not go into that. I think you mentioned in your submission that you are looking to try to reduce the costs of insurance to the Armed Forces. You briefly touched on it, but would you like to give us a bit more information?

Christopher Jordan: Yes. At the moment, with the exception of life and personal accident, the costs are very similar to what would be available to anybody in this room or anybody walking past Parliament. The insurance companies do not discriminate; they risk-assess, and life and personal accident is one of the areas where the risk assessment says we need to charge higher. They are private companies and they have to make a return for their investors. I believe that if you cut out the brokers’ commission, which is cutting my own throat, and reduce the profit element of the insurance company, we could probably save about 40% of costs on every single insurance for the Armed Forces, which is a huge amount. I am launching Military Insurance Services here in the Commons on 16 or 23 October. That is my organisation and it is a broker-led one, and it will offer 11 products from life right through to gap. It is a precursor to launching a full-blown, not-for-profit insurance company. We will be working on the smell of an oil can for it, and it will all be technology driven, quote and buy. We believe that we can get premiums reduced by about 20%.

For us, the larger the market force, the more attractive it is to the insurance industry. The British military-the military family-is the Armed Forces, the reservists, the veterans, the cadets, civilian workers of the MOD and all their families, grandparents, parents, children etc. The problem with the Military Insurance Services insurance company is that it needs to be funded by about £40 million. It is basically a mutual-a co-operative; it is owned by the members, for the members. The members would be anybody who insures with it. The profits would then go back into the company to help reduce commissions or, shall we say, level the playing field with regard to life and personal accident.

The problem is that commercial lenders are not interested in organisations that do not make huge investment and returns on their money. It is possible that normal commercial lending avenues will not be available, so we are going to have to seek elsewhere. We may even seek the money from the insurance industry itself or outside investors-people who are patriotic enough in this country. It could even be, and I will mention it in a report later on, a possibility that the Government might consider. It is money that will come back, but it has to be there to reserve the possibility of claims in the first place.

Our long-term aim is to form a not-for-profit insurance company, which will offer 11 forms of insurance at up to about 40% cheaper than is available on the market at the moment. Some of the profits will go to subsidise life and personal accident insurance so they are the same for everybody within that military family.

Q474 Nigel Mills: Forgive my ignorance on this topic, but if I am in the military, the time when I have a much bigger life insurance risk is when I am deployed somewhere, presumably, in the line of fire. Do the Ministry of Defence actually provide insurance when you are there?

Christopher Jordan: Yes, there is the Ministry of Defence compensation scheme, whose headline figures I believe are £570,000 for loss of life and what we call capital benefits, which is loss of limbs or permanent disability. In addition to that there is an extra £1 million as an income stream over several years. Somebody totally disabled could expect up to £1.5 million. I recently interviewed the wife of a rugby player who was completely and totally paralysed playing his last game of rugby; £1.5 million would have gone nowhere. They have spent about £500,000 on a house with lifts and all the rest of it. It is purely a parliamentary decision as to how much money you would pay, but £1.5 million is not a lot. If the individual wants to top it up, that is where life assurance and personal accident comes in under the private sector. However, I think it has to be borne in mind that the risk is probably greater in the line of fire and in war, but it is also fairly high in this country because of accidents that happen on the defence range. Life assurance should be for 365 days a year, not just for that period in Afghanistan. I used to get people phoning me up at the airport saying, "I am flying off to America; can you increase my personal accident to £5 million?" I would say, "If that is what you want to do, I’ll do it, but why die rich in the air and poor on the ground?" Life insurance should be for life; you are protecting your family irrespective of whether you are in Afghanistan or Aldershot.

Q475 Nigel Mills: I have no idea-I have never done it-but how much more expensive would a life insurance policy be for somebody serving in the military that excluded while you were in theatre?

Christopher Jordan: The loading would be quite substantial, but what is the point of having it? Life assurance is life assurance. Your commitments to your family do not disappear just because you happen to be at war. You either have it at its fullest or it can be quite worthless otherwise. There is, as I say, the military compensation scheme, which has a headline figure of £570,000. This is the scheme that we talked about with Oliver Letwin, about bringing in private industry, which could save a very considerable amount of money in administering it and looking at the kinds of claims that ambulance chasing lawyers tend to bring forward at the moment-whiplash and all the rest of it. It is part of the fodder of insurance companies now.

Q476 Nigel Mills: We are here looking at the Military Covenant in Northern Ireland as compared with the rest of the UK. It is not your experience that you would be saying to a serving soldier from Northern Ireland, "When you come back, the support you get at home is a bit less than you get elsewhere in the UK, so actually you need extra things in your insurance to help you sort out housing or help you get the health treatment you need." That is not something you have ever seen a need for.

Christopher Jordan: I would see the need for it if it existed. Insurance companies-looking at domestic insurance like household and motor insurance-do postcode underwriting, which has been slated for various reasons. If you have a BT postcode, you may be paying higher for your household insurance because of the incidence of malicious damage and theft in those particular areas. If you have an NW postcode, you will be paying twice as much as if you had a BT postcode because there is so much shrink-swell London clay; insurance companies will tap in your postcode and see a high subsidence area. There are various factors that go into insurance. BT is unfortunately one of those areas that are looked upon as being a high risk for claims, and of course they had a lot of problems with flooding last year in the BT areas.

Q477 Chair: That is very close to my constituency in Tewkesbury, where we have the GL20 postcode and that tends to be a disqualifying factor in getting flood insurance unfortunately. Going back to PAX insurance and Service Life Insurance, they provide products exclusively to members of the Armed Services, as I understand it. What is your view on that?

Christopher Jordan: In a way they are slight competitors, so it would not be fair of me to really comment upon them. When you say it is exclusive, PAX is administered by Aon, which is the second largest insurance brokerage in the world. It is actually underwritten by AIG, American International Group, so it is not exclusive; PAX is part of the Aon group. People will say, "Oh, you are Fairplay insurance," but Fairplay is part of the Bureau organisation. My feedback and hearsay is that they are very, very good at what they do. I do not have any negative comments on it at all. It is necessary and I think they have been very successful schemes, which shows how necessary they are. It is just that I wanted to take a different tack.

Q478 Kate Hoey: Is there room for more insurance companies dealing in this way?

Christopher Jordan: At the moment there are some that specialise in it. There are some retired people from the military who have set up their own insurance brokerages. Aon has probably had the largest slice of the market with their PAX scheme. What I am saying is that there is possibly a radically different approach, which is to recognise what the Armed Forces have done for this country and to start cutting profits to give back to the Armed Forces. That is what I really would like to do.

Q479 Kate Hoey: Just so I am clear, do you deal only with people who have left the Armed Forces?

Christopher Jordan: No.

Kate Hoey: You insure people through life assurance policies when they are in the Armed Forces. Don’t the Armed Forces have insurance when they are serving?

Christopher Jordan: No, it is a purely voluntary scheme to insure your own life.

Kate Hoey: But aren’t you covered in the Army?

Christopher Jordan: Yes. They have the MOD compensation scheme.

Q480 Kate Hoey: Is yours better?

Christopher Jordan: No. You cannot knock the MOD compensation scheme; it is a very good scheme and very worthwhile to the Armed Forces. What I was saying about it was that the insurance industry could probably administer the scheme. I did mention to Oliver Letwin that there is a possibility that the insurance industry could insure, and he felt that self-insurance was probably the cheapest way to go. I am not sure if that is right, but it depends on what claims you are going to get in a year, and one cannot predict that.

I was suggesting that the insurance industry administer the scheme on behalf of the MOD and possibly save the money in two ways. Firstly, they would bring the insurance industry’s expertise to bear on administration; and secondly, they could start looking at lawyer-led claims and whether those are being inflated. They certainly are in the insurance industry-whiplash, £3,000. We all know that in parts of this country there are gangs going around deliberately ramming into cars for personal injury claims. If you watch daytime TV, it is not all Jeremy Kyle; it is all about InjuryLawyers4U and what have you. It is a whole culture that we have unfortunately imported from America. It has grown and grown and grown. Look at any daily paper: the claims management companies for personal injury and PPI have huge adverts, so it is obviously very profitable for them.

Q481 Chair: Is there anything else that you could help us with in terms of providing extra security for members of the Armed Forces, and indeed veterans?

Christopher Jordan: We include the families because, from an insurance point of view, if you insure one person and they have a claim, you are going to lose money. If you insure 100,000 people, then you can absorb the claims. You reach critical mass. We decided we would extend it to anybody who has been in the Armed Forces-veterans, cadets, territorials, civilian workers-because you increase the market from a purely commercial point of view, which gives pressure on costs.

There were three strands to the report I presented to Oliver Letwin. One was insurance, which we have covered. The second one was the administration of the MOD compensation scheme, which Kate brought up. The third one was banking. I have been rather usurped by what has happened with guaranteeing deposits, but my aim was to ask the Government to fund a scheme whereby somebody in the Armed Forces could borrow, as a deposit, their salary. If somebody was earning £30,000 in the Armed Forces, they would borrow it from the Government at, shall we say, 1% to use purely as a deposit on the purchase of a property. Armed with that £30,000, they could then go along to a commercial lender, Santander or whatever, and say, "I want to buy a house for £150,000 and I have a 20% deposit," so the rates would come down commensurate with the size of deposit. That is one thing I have put forward. The second thing, and I am talking to one of the major clearers now, is to get an affinity card to go alongside the Barclaycard but to be called the Military Insurance Services card, either to have a cheaper rate or to go back into charity or go back into the non-profit organisation. They were the three strands: insurance, MOD compensation and banking. I have enough here to leave everybody a copy.

Chair: Thank you. That is a very, very useful short session and very interesting. Apologies for the small number of people here, but it has been very useful to us. Thank you for your written submission as well. Thank you very much indeed.

Prepared 16th July 2013