Unrated insurers keep hitting the headlines, Insurance Times digs deeper into why brokers use them
By Saxon East
We’ve all seen the film.
Rat-faced TV journalist Bill Murray wakes up to the nightmarish same day over and over again in the Groundhog Day film. Eventually, he decides to use each day to learn new skills, help people and become a better person.
This ultimately leads to his escape from Groundhog Day. Now let’s take brokers.
They wake up each day knowing the terrible risks of placing their clients’ business with unrated insurers.
The unrated insurer eventually collapses, but instead of learning from their errors likes our anti-hero Bill Murray, they find a new unrated insurer to partner up with. The cycle of destruction begins again.
As yet another unrated insurer Gefion finds itself in trouble with solvency issues and premium credit providers pulling out, the simple questions begs: why do brokers take risks with unrated insurers?
Unrated helps the needy
There is an argument, albeit a thin one, that unrated insurers provide markets for risks that other insurers don’t want.
Solicitors’ professional indemnity, taxi drivers et al are warned of the unrated risks, but decide to take a policy they can afford.
The bad guys are large incumbent insurers who won’t offer acceptable prices for these risks.
But how many taxi drivers actually couldn’t afford a policy from Aviva? How many solicitors really don’t have the money for an A-rated insurer? Probably not that many.
The uncomfortable truth is that too many brokers convince themselves they are helping these professionals, when it’s really about making money.
They can price-beat the market using unrated paper, pile on some volume and pull in the profits.
If the whole thing goes belly up, the Financial Services Compensation Scheme will step in.
Furthermore, a lot of these brokers probably aren’t even giving their customers a true warning of the risks of unrated markets.
If brokers were held liable for compensating customers, you would see far fewer brokers using unrated markets.
That’s not to say all unrated insurers are awful.
There is a higher risk to almost all unrated insurers - but at least some have decent brands, have been around a while and also shown their capitalisation.
But brokers generally have a good idea of which unrated insurers are the most risky.
Perhaps one good thing to come out of Brexit is the UK having full control of its market access.
This will stop unrated and poorly capitalised insurers using the EEA passporting scheme to gain a foothold by the backdoor.
In the meantime, let’s hope Gefion, which has a window to fix its premium financing issues according to Bollington, can come through this episode for the sake of their customers.
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