EXCLUSIVE: FSCS denies misleading policyholders in wake of Alpha collapse

The FSCS has denied that it gave policyholders incorrect information in the wake of the collapse of unrated Danish insurer Alpha after a policyholder claimed he had been misadvised by the compensation service.

Speaking to Insurance Times, Roger White said that he had started work on converting an old winery in 2016 and took out a latent defects policy through CRL for £3,000, with membership fees taking the total cost of the cover to around £3,500.

The work was close to completion in the Spring of 2018, but then disaster struck as Danish insurer Alpha collapsed and White was left without cover at a crucial stage of his construction project.

“The building work was progressing well and we had an interim report from the assessor. We got close to the completion of the work, and then I got an email from CRL saying something about an insurer called Alpha,” he said. “At first I ignored the letter because I had never heard of a company called Alpha, but then it dawned on me that it was the insurer that CRL had used to underwrite their warranty.

“The next week I contacted CRL and they told me they were trying to arrange an alternative policy, and they said to wait a couple weeks.”

After not having any luck in securing a refund or a replacement policy with CRL, White then moved on to contacting the Danish regulator regarding a compensation claim for his cancelled policy, after saying he had been told by the FSCS to hold off on completing the policy and lodge a claim in Denmark.

“I contacted CRL a number of times over the following months and they had no further information, and then on 19 November the Danish regulator came back to me and said I was not covered and I needed to place a claim with the FSCS as they were not able to do anything about it,” he said. “I then contacted the FSCS again, and they told me to leave it with them and the next thing I heard was an update from my MP, who I had already involved in the matter, saying that on 19 December the FSCS had placed an update on their website saying they were not paying any refunds unless building work had been completed by August.

“This is despite the FSCS telling me all along not to go ahead with my completion but to stay with the process of CRL finding an alternative policy and compensation from the Danish regulator.”

White said he was then left paying thousands of pounds for additional cover as a result of the advice given to him by the FSCS.

“I had to proceed with the building work, whether or not I was refunded for the Alpha policy, so I looked into alternatives and went for an architect’s certificate guarantee, which cost me £2,500,” he said. “The irritating thing is if the FSCS or anyone else had said go ahead and complete because you won’t be covered after 15 August I could have done that and been covered under the FSCS, but instead I listened to what the FSCS said and held off completion.”

A spokesperson for the FSCS, however, denied it had provided White with incorrect information:

“FSCS has at all times tried to help Mr White understand the Alpha insolvency process generally and how FSCS can or cannot help, in the circumstances described by him. Mr White claims that FSCS advised him to hold off on completing building works that were being carried out; we can find no record of such advice having ever been given to him by FSCS. In early January we asked Mr White for details of when, who and how this advice was given to him by FSCS, but he has not responded in any way on this particular point.

“While we appreciate the difficult position Mr White now finds himself in due to the Alpha failure, we do not believe that any incorrect information has been given to him, or any other Alpha customer, by FSCS.”

Possible Legal Action

White said that he is now considering legal action against CRL, who he bought the policy through, claiming they were poor in their communication efforts in the wake of Alpha’s collapse and are now trying to dodge their responsibility for the cancelled Alpha policy.

“CRL in my view are just trying to avoid responsibility,” he said. “They have promised to offer a comprehensive replacement policy, but that was never forthcoming. When that never materialised I asked for a refund and they sent me some holding emails.”

CRL chief executive Steve Mansour, however, says that his business is in not avoiding its responsibility to its customers, but does admit the task of handling the Alpha collapse was a challenging one from which it has learnt lessons.

“We were left in the dark for a couple months after Alpha was placed into bankruptcy, because it took them a bit of time to appoint the liquidator and the size of Alpha was very large, with around 700,000 policyholders across different jurisdictions and with different products,” he said. “The result of that meant that we didn’t have any guidance or interactions from the liquidators for a couple months, so we were quite limited in terms of what we could tell our customers.”

Mansour said that the process was made more complicated by the nature of latent defects insurance, which commonly sees premiums paid months if not years before a policy starts while customers wait for the building project to be completed.

“The problem we had is that there were customers who were issued insurance policies, around 24,500, and then 5,500 live construction projects where the customers had paid the premium, which had gone across to Alpha, but because they had not completed the building yet, were not actually on cover,” he said. “No one seemed able to get their head around which box those 5,500 customers fell into, and whether they could make a claim against the bankruptcy estate, or be covered by the Danish Guarantee Fund, or maybe even the FSCS.”

“The problem is nobody knew which applied,” Mansour added.

Mansour said that all of this meant that CRL was unable to provide policyholders with all the information they needed, as it simply was not available at the time.

“At the time, with the advice of PR people and lawyers we took the view to not say anything to our customers until we knew that what we were saying was correct, and the FSCS agreed with us [on that approach],” he said.

Mansour said that CRL has since requoted around 2,000 of the unfinished projects on its books after finding a new insurer willing to provide replacement cover, and is still in negotiations with the FSCS regarding the 24,000 or so policyholders whose cover with Alpha had already started.

“We have been working with the FSCS and our regulatory principal BCR for the better part of six months to see if we can get that transferred to a new insurer, and we have a new insurer who is willing to take transfer of those policies and incept them from August when they were cancelled so there is no break in cover for policyholders, but there is still negotiations ongoing around that,” he said.