U.K.?s Norwich Union Warns of 'Fronting' on Auto Policies

LONDON, Sep 24, 2008 (A. M. Best via COMTEX) -- NUNPF | Quote | Chart | News | PowerRating -- An issue that has long existed in the personal automobile insurance market in the United Kingdom has surfaced on the commercial side, according to U.K. insurer Norwich Union.

The insurer has warned holders of fleet insurance policies against the practice of ?fronting,? the inclusion of people who are not connected with a company on a business?s motor fleet insurance coverage.

Fronting, Norwich Union said, is an improper use of a policy and can put the motor vehicle insurance of a company in jeopardy. The practice will invalidate policies, creating financial pressures on businesses. Companies also would be exposed to potential civil damages as a result of accidents.

The chief offenders on the commercial side are company owners and managing directors, Norwich Union said. The most common extension of the cover is to the teenage children of these executives.

Norwich Union offered no figures on the extent of the practice in the United Kingdom. Brian Bridges, underwriting development manager on the personal lines side for Norwich Union, said it is difficult to say how widespread fronting is in personal auto insurance.

?It used to be far more prevalent in personal lines,? Bridges said in a telephone interview.

According to Emma Parker, a spokeswoman for the U.K. Financial Ombudsman Service, the ombudsman receives 150 to 200 complaints a year form motorists who have been denied coverage on the grounds that they had carried out fronting.

?It is essential that consumers understand the importance of providing accurate information to insurers about who is the main driver of a vehicle,? Parker wrote in an e-mailed response to a query. ?However, insurers also have a responsibility to treat customers fairly and ask clear questions, so that the consumer understands what information they are being asked to provide.?

A parent might be tempted to include a son or daughter on a personal lines auto policy to take advantage of a no-claims discount, Bridges said. ?It comes down to misrepresentation of the risk at the time of the inception,? he said.

Along with some other insurers, Norwich Union has increased the premiums for young drivers when they are added to policies, he said.

Other insurers may either refuse to insure young drivers at all or charge them as if they are the vehicle owners, Bridges added. Norwich Union has put various system checks in place that can identify risk fronting ?to a degree,? he said.

Younger drivers can cause headaches for insurers. Not only do they have more, and higher, claims than older drivers, Bridges said, but they may operate high-performance cars, which carry their own dangers. The money these drivers save on insurance as a result of fronting, he suggested, could enable them to buy more horsepower and spend more time on the road, increasing their chances of mishaps.

Fronting is less common on the commercial side, Bridges said, because it would have to be authorized by someone senior enough in an organization to have access to its fleet insurance policy.

Norwich Union Insurance Ltd., which is part of Aviva plc, has a current Best?s Financial Strength Rating of A+ (Superior). Norwich Union will change its name to Aviva in the summer of 2009.

(By Robert O'Connor, London editor: Robert.OConnor@ambest.com)

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