Leader: How the mighty have fallen

You only have to look at Woolworths to understand how quickly good brands can fall from grace. It is often the indignity of exposure to a sale process that inflicts the most damage, as value is diminished under the scrutiny of due diligence. Royal Bank of Scotland (RBS) has watched this happen to its household-name insurance brands, Churchill and Direct Line, in recent months. Our tongue-in-cheek cover this week points to a hefty price cut. But the root causes of that potential reduction are changing market dynamics, a mismatch in the perception of the value of its assets and a little dose of old-fashioned pride.

We’ll never know whether the RBS management team could have sold its insurance division for £7bn eight months ago. And we will have to wait until the new year to find out whether the bank – now part-owned by the government – will accept a price closer to half of that. But when RBS fired the starting gun, the big boys were queuing up to take a look. Allianz, Zurich, Swiss Re and AIG (at the time) were all considered capable of gobbling up the business in one bite, while private equity funders were effectively bullied out of the game.

As with Woolworths, many will see enormous value in the RBS insurance brands and the business can still be viewed as an investment opportunity, as well as a positional play for a foreign giant. If the insurance operation is snapped up at a knock-down price, as expected, whoever mounts the bid will get a very good deal, especially if they are skilled enough to know where to take the business next.

Let’s tame the credit hire cowboys

The credit hire industry is the Wild West of the insurance market. It is unregulated and, when it comes to making a fast buck, anything goes (see page 30). Credit hire may have grown up in response to a genuine consumer need, but it has gone far beyond that.

Does a consumer really need a BMW for 10 weeks when their Ford Fiesta has suffered a minor prang? That’s an extreme example, but there is no doubt these companies are milking insurers – and it’s the policyholders who pay in the end. It is time for the industry to make a stand: take these companies to court, refuse to pay their claims and enter into bilateral agreements where possible. If all this happens, just maybe some sanity will return.