Friday: RBSI deserves better

Let’s not beat around the bush, The Royal Bank of Scotland is a poor home for its insurance division.

RBSI deserves a better home, and the fact that it has recently shed the bank logo for the Direct Line brand, could be a sign that better times are ahead.

Direct Line and Churchill were brilliant groundbreaking companies founded by Martin Long and Peter Wood in 1985. They cut out the middle man and gave customers cheap deals. Business boomed.

By 2003, the acquisition-hungry bank had thrown Churchill, Direct Line, Privellege, NIG and UKI under one roof. Despite some good, skilled people leaving, RBSI continued to make healthy profits until the whiplash storm hit in 2009.

Now get this: RBSI needed the best part of a billion pounds – that’s right – nearly a billion pounds in reserve strengthening to stay operating. Moreover, it was the hard-pressed taxpayer that effectively bailed RBSI out thanks to the 85% ownership in the beleagured bank.

Even if we account for the fact that RBSI is the biggest personal lines insurer in the country, those reserves are huge, huge sums. The only comparable experience is the miserable last few years that have plagued Equity Red Star.

Both companies failed to get their fraud detection, claims management, and reserving in shape. As AXA commercial underwriting director David Williams succinctly put it, other insurers knew that legal reforms would surely lead to much higher claims experiences.

Added to all of this, the bank failed to sell the company in 2008 and is only now doing it under the duress of the European Commission.

Fast forward to the present day, and chief executive Paul Geddes has taken some tough decisions by closing offices and sacking senior staff to bring in his own team.

RBSI is once again back on track and making good money.

That’s all well and good, but looking at the wreckage of RBSI’s recent history, it’s clear the bank-insurer ownership structure hasn’t worked. As a floated company, RBSI will have greater transparency and the City will be watching its financials like a hawk. That can only be a good thing if history is not to repeat itself.