Picking the right insurer – Close Brothers

Where to place your customer’s business can be tricky, especially in classes such as taxi, minibus or some construction risks, like scaffolders, where there is high claims incidence.

Some underwriters are reluctant to write this kind of business at all, while other insurers don’t inspire much confidence among brokers that they tick the right boxes.

Over the past two or three years, the news pages have covered numerous insurers from outside the UK going into administration. Most recently, Danish insurer Gefion lost a lengthy battle to stay afloat and went into voluntary liquidation in July 2020.

This unrated insurer followed other Danish insurers Qudos (2018) and Alpha (2019) into closure. Brokers will also remember Gibraltar-based Gable and Enterprise going bust in 2016, and even further back, Irish insurer Quinn closed in 2010.

My point is that insurers going bust is not an unusual phenomenon, but each time it happens, they leave distressed customers and a lot of mopping up to do.

Close Brothers Premium Finance (CBPF) keeps a very close eye on insurer performance. We were well aware of the problems at Gefion many months prior to 2020 and worked closely with brokers to de-risk the prospect of policyholders being without cover, by helping them to move elsewhere.

We advised our partners to reduce volumes backed by Gefion as early as 2018. Some of our broker partners made it very clear to customers at point of quote that Gefion was under scrutiny from the Danish regulator, and offered each customer the next best quote.

Gefion, and indeed other non-domiciled or unrated insurers, are often a market of last resort for customers who cannot find cover or affordable prices with more traditional UK insurers. These lightly-capitalised insurers are first and foremost opportunists.

They enter the UK market selling products in high risk areas like taxi, or minibus, thinking they’ll be able to make a quick fortune, and before too long, as the claims pile up, they realise that they don’t have deep enough pockets to pay claims.

However, I sympathise with brokers who write business in these classes. They know that price is overwhelmingly important to clients, and fear that those clients will move their business elsewhere if they can’t match the price offered, and place the risk accordingly, crossing their fingers and hoping there’s no meltdown.

It is also true that higher risk customers, such as taxi drivers, do find it difficult to get their insurance because so many providers, including those with stronger solvency ratios, have pulled out of the market.

Brokers, therefore, feel they are between a rock and a hard place, but it is important that they manage their customers accordingly. That not only means doing your homework beforehand, so you know what you’re getting into, but I would also advise active communication with customers, to explain the situation and make it clear that a lower premium is not without risks.

Brokers who have been clear all along about the risks will be better served reputationally than those who choose not to speak to their customers. It is also important to have a plan in place to move those customers onto alternative cover should the concerns about an insurers’ solvency become apparent.

Insurers going bust is a fact of business life, but most of those failures have been predictable. I hope that lightly-capitalised insurers will steer clear of the UK market, after many high-profile failures, but no doubt a new player will enter the market looking to try its luck, so it’s vital to be prepared.

Read more…The Insurance Times Top 5 insurer collapses

Not subscribed? Become a subscriber and access our premium content