Libor scandal could have knock-on for insurers

The Libor rate fixing scandal that has engulfed the world’s banks in recent weeks could be set to spill over into the insurance industry.

Libor is used to determine inter-bank borrowing costs for trillions of dollars in financial products, including mortgages, credit cards and student loans.

Barclays is facing investigation for inflating the interest rates it submitted for Libor to cream off excessive profits from lending. It is also under scrutiny for depressing the Libor figures to project an image of a strong bank that could borrow at low rates itself.

But now experts have warned that the scandal could result in billions of pounds worth of losses for insurers stemming from payouts on Directors’ and Officers’ cover, which protects firms against shareholders suing for negligence.

They are concerned that the resignations of more executives following former Barclays chief executive Bob Diamond’s exit would provide targets for shareholders to bring cases against the companies involved.

Should customers be able to prove that Libor manipulation has caused them a personal loss, insurer may face a flood of claims.

Another potential impact of the Libor scandal could be the adjustment of rates on insurance companies’ investments and whether they lost out or profited as a result.

Motor rates down … again

Consumers, however, will have been buoyed today with the news that the average cost of comprehensive car insurance has dropped by £47 so far this year.

The Confused.com/Towers Watson car insurance price index revealed that the cost of comprehensive cover fell by 2.3% between April and June to an average of £797, a fall of 7.1% compared to 12 months ago when the average was £858.

As competition in the motor space continues to remain high and prices are squeezed even harder, that trend looks set to continue for the rest of the year.