How are HomeServe still in business

Hi Homeserve Representative.

My parents have been sold various Homeserve products over the years - by their water company I think. Certainly the water company's name is emblazoned on two out of four of the current sets of documents.

I have just been astounded to find that they have been paying your company £430 a year, yet last year they discovered a slow leak or seepage from their hot water tank which apparently wasn't a claim.

They ended up paying the engineer £700+ cash for a new tank.

I don't trust review sites mainly because the internet provides far too much anonymity to be able to trust most sites irrespective of whether they use "trust" in their name, and in any event, there is no way of measuring the relevant qualification of a reviewer to make the judgement they make. On this type of product I far prefer to make my own informed judgements.

So can we discuss some basics please? Your kind of business with standardised off the shelf products lends itself to some pretty simple analysis techniques. I have looked through your policy wordings and conclude they were not designed with good value to the customer for their money foremost in mind.

I can see that Homeserve is not an underwriter. Homeserve is a middleman. You need not confirm. Your company's accounts already confirm as much. Homeserve takes on no material risk in the products it sells.

MSE is a website UK customers do trust. It is why you are here in an official capacity. It would be useful to a great number of MSE members and readers if you could give us some simple figures about your company which tell us what your company collects in total premiums for its UK insurance business and what gets paid out by underwriters in claims, please? I can see that in the financial year ended 31 March 2016, Homeserve netted for itself approximately £200M from the premiums it charged UK customers. That's rather a lot. I think I read somewhere that the 5 year deal with Aviva as of November 2015 was worth £1.3BN? I am guessing that would mean it yields £1.3BN net premiums to Aviva so approximately £260M a year or perhaps projections are more like Y1 £200M, Y2 £220M, Y3 £250M Y4 £290M and Y5 £340M?

To those of us who understand insurance, the claims amounts underwriters have to typically pay out in a period, and the premiums they can expect to receive are naturally the first two figures which need getting straight in an underwriter's head before deciding if the business looks profitable enough to get involved in. Insurance has never required rocket scientists, which is why it is has been staffed over generations by lesser types like me. Unfortunately in recent decades it has nevertheless attracted some lesser types whose main motivation is spotting opportunities to get rich quick without worrying too much about the morality of their offer.

From the numbers I can see in published accounts, it looks to me that of the premiums charged to UK Homeserve customers, perhaps a whole 50% goes to Homeserve (£200M in YE31.3.2016?) and perhaps £200M reached underwriters? So approximately £400M premiums were collected from customers? Is that right? If I have guessed about right, how much of Underwriters £200M in YE31.3.2016 got paid out in claims I wonder?

Clearly in 2015 Aviva asked Homeserve questions about what the Homeserve cut of premium would be and what the typical claims levels were before closing the 5 year deal to become Homeserve's main underwriter. I thought I heard that Aviva bought a share of Homeserve too? Can you confirm if they both own a chunk of you and underwrite most of your business? Might be interesting if they did, but no matter if they didn't.

If the business is extraordinarily profitable year-in / year-out both to underwriters, and (as it most obviously is) to those like Homeserve as middlemen who cream their less than well understood profits off the top as "net policy income" before passing a significant lesser "net" policy premium to underwriters, then clearly your products will be an extraordinarily bad deal for customers.

Have I got that right? Do Homeserve actually earn that £200M or has Homeserve just cornered it as a golden goose primarily from legacy sales to water company customers who never really understood what they'd been sold? We just don't know, do we? We can see you can write plenty of old flanel as you did to Naied but the best test of the quality of a scheme of standardised off the shelf annual insurance products like yours is what you take in premium from customers versus what is paid out in claims each year. Don't you agree?

Therefore please give us some numbers, and an indication please of how many claims are paid in full, and how many claims are declined at first notification and ultimately.

Aviva are the underwriter for £370 pa of the £430 pa total Homeserve premium charged to my parents.

However I see that some outfit named Ultimate Insurance Solutions Limited is referred to in at least one of your standard insurance products as an underwriter on behalf of a Gibraltar company and some unnamed others. Am I right in thinking that Ultimate is also not actually an underwriter but an intermediary, and that the Gibraltar operations referred to are not FCA or PRA regulated?

I can see Aviva probably now underwrites the lion's share of Homeserve UK business, but if that is so, then why are Homeserve messing about with small-time no-name underwriters from hard to pin down places to sell very basic personal accident (PA) type cover? Aviva has I think for some years sold a lot of PA cover through high street banks. Is Gibraltar a better known venue for buying PA? Or by using a circuitous route to named and unnamed ultimate risk carriers out there does that provide another interesting conduit for further extraordinary profits to be tapped off at various nodes in the food chain?

Like many here I had Homeswerve for about ten years for plumbing & drains having received the papers with my water bill. A couple of years ago they sent a pamphlet offering to fit a remote stopcock switch above the worktop.

This would have been ideal for me, as the internal stopcock here is seized, and the external one requires a particular spanner.

Finally the guy showed up to do the work, but had no spanner for the Thames Water meter stopcock! He said it was up to me to call them to get the water switched off!

I asked what would have happened in an emergency. Would they also have shown up with out a spanner, and required me to call Thames Water? He confirmed that would be the case!

In view of that, the 'cover' seems pretty pointless, and I cancelled my policy.