QBE EO head of legal: Cover story

For Esther Felton, head of legal at insurance company QBE European Operations, seismic regulatory and market changes are both a challenge and an opportunity

Esther Felton QBE European Operations

Title: QBE European Operations (EO) head of legal
Industry: Insurance
Reporting to: Chief financial and chief operating officer David Winkett
Turnover: QBE Insurance Group, £8.8bn to year-end 2010; QBE EO £2.7bn to year-end 2010
Employees: QBE Insurance Group 14,000; QBE EO 2,800
Legal capability: Seven in London
Main external law firms: Clyde & Co, Linklaters, Mayer Brown, Norton Rose, Pinsent Masons, Slaughter and May

Since her move to insurance giant QBE European Operations from ­Norton Rose in 2006, Esther Felton has made it her mission to grow a ­department that would work in partnership with the business. Hers is a model designed to be both commercial and innovative.

Unlike the banking sector, the ­insurance market scraped through the economic slump relatively unscathed. While losses have been suffered as a result of natural catastrophes in Thailand, New Zealand and Japan, overcapacity in the reinsurance market has kept the sector fluid, meaning the losses are manageable.

Rules rule

The biggest challenge facing the sector right now is the flurry of regulation being created on the domestic front, in Europe and, indeed, around the globe, as regulators crack down on the lavish behaviours that many believe led to the meltdown.

For Felton, regulation is a key issue for 2012, as it is for the whole market.

“In the next 12 months we’ll be horizon-watching, looking at the pipeline of legal and regulatory changes,” she says. “For example, the European Commission will be looking at whether there’s an appetite for an EU insurance contract law.”

That would represent a mammoth task for any company working across Europe, particularly for insurers that have contracts of all values cutting across commercial and personal ­sectors. Should the Commission choose to introduce such a law Felton says it would lead to a harmonisation of all data collated across the ­continent.

When it comes to a review of the corporate and commercial panel later this year the ability to offer cross-jurisdictional advice will be a necessity. The insurer’s legal demands are changing and it needs firms that can keep up.

“We set up the corporate and commercial panel two years ago and reaped rewards – there were tangible benefits,” Felton says. “But things change. For example, firms merge or expand and our needs change too. It’s a good time to review.”

Value judgement

Most in-house counsel are under pressure to get better value from the firms they instruct. Nowhere is this more noticeable than in the ­insurance claims market.

While claims management is not directly within Felton’s remit and QBE conducted a claims panel ­review last year, she recognises that the changes being implemented with Lord Justice Jackson’s reforms will have an impact on the non-claims panel.

Take Clyde & Co. The firm is a key adviser to QBE on the non-claims panel while its legacy firm, Barlow Lyde & Gilbert, sits on the claims panel. As a client there are benefits to be gained from these relationships – benefits that go beyond cuts to the hourly rate.

QBE, Felton says, “wants to get the best value” from its panel firms, ­dismissing talk of the hourly rate as old hat. “It’s not about beating people on price, it’s about getting value,” she ­insists. That means training tailored to the insurer’s needs; research ­facilities; ’know-how’ portals; and advisory facilities.

“That’s the support we need,” ­Felton adds.

For the firms that do muscle their way in the rewards can be lucrative. Felton says she has worked in partnership with her Australian counterparts on a $1bn (£630m) debt-raising facility across multiple jurisdictions ensuring compliance in Australia, Jersey, the US and the UK while ­considering the effect of the EU’s ­incoming Solvency II initiative. This work was done in partnership with her former firm, Norton Rose.
“It was a great example of getting things done,” she says.

Beyond commercial

Felton has come a long way in the six years since she left Norton Rose. When she arrived she was the second lawyer in QBE’s in-house ’team’ and wanted to move beyond her core focus of commercial work.

She now has seven lawyers under her command in London, split into two teams: M&A, capital markets and debt-raising; and managing material risk, outsourcing and distribution. Last year the insurer showed a degree of confidence in Felton’s ability when it transferred the policy wordings team to her control.

“In terms of lawyers we’re a lean team, but we have stellar credentials and a corporate approach,” she says.

The lawyers are required to work in partnership with their own divisions, but that does not mean they can be distracted from the business of lawyering.

Felton’s move in-house at QBE has allowed her to develop a practice of her own while getting her a step closer to the same legal challenges that she would have faced in private practice.

She now has her own corporate ­social responsibility scheme and will be bringing in school leavers as paid interns later this year, while sitting on the company’s diversity board and promoting women’s rights in the ­insurance market. Meanwhile, the panel review is underway and there are new compliance programmes to get to grips with.

Not that any of this will faze Felton. She simply says the key is getting the job done.

Nick Starling, director of general insurance, Association of British Insurers

Lord Justice Jackson deals with a lot of the issues we have concerns with [in regards to legal costs for personal injury claims]. He has struck the right balance. We’re a strong supporter of the report being implemented and think it will make a big difference [to reforming the dysfunctional legal system].

There does also need to be a substantial reduction in legal fees, including fixed fees for the motor portal level. I find it interesting that we are urged by [Law Society chief executive] Des Hudson and others to fight cases through the courts and then are told that high legal fees are because insurers will not settle quickly.

Mass [the Motor Accident Solicitors Society] and Apil [Association of Personal Injury Lawyers] argue that we settled the fixed fee issue four years ago when the [road traffic accident] personal injury portal was first discussed. However, it’s time to recognise that the portal has been
a major success for all parties and lawyers can no longer justify the kind of fees they have been charging. The environment has changed, things have developed and we need to change too.

I enjoy a vigorous discussion on all these issues with my lawyer friends, but what makes me really cross is when critics say that insurers are waging a campaign against injured people. We are not: at the heart of what we want, which I hope we can all agree on, is that people who have been genuinely injured or made ill through something which is not their fault should get proper redress quickly.

Charlotte Taggart, head of legal, Lockton International

The first challenge for insurance brokers is the new Financial Conduct Authority, which will replace the FSA as the regulator for intermediaries. What is uncertain is the style of supervision they will adopt. The FSA has changed its approach for the better, the anxiety for brokers is what that will look like over the next few years.

Another challenge – and it is a major one – is one that the industry has been dealing with for the past year, the Bribery Act. For brokers the current debate is how the Bribery Act impacts on how brokers get paid.

In the past few weeks Lloyd’s of London has issued a bulletin on the subject, and it is critical that brokers are transparent about how they get paid. The perception is that clients do not understand how brokers get paid. It is critical that we break that. The priority must be acting in the best interests of the client.

Another issue that is still vexing people is how you manage global risk. There is not a single firm in the City that can afford to take this off the agenda. We need to know who our business partners are, who we’re doing business with.

A phenomenal amount of work goes into it. You have to review it on an ongoing basis – it is not an option not to police the relationships.