The recent collapse of two major Gibraltarian insurance companies, Hill Insurance Company and Lemma Europe Insurance Company, can teach us some valuable lessons.
Industry experts suggest the collapse of the two companies may have resulted from a lack of sufficient capital, leaving UK customers seeking the help of the Financial Services Compensation Scheme.
Lemma underwrote a range of lines, including household, and has frozen claims payments and entered into liquidation since its collapse.
The company is the second insurer to fail in this region, following on the heels of Hill Insurance. Both failures have left some UK policyholders unprotected. These failures have brought into question the security of insurers regulated by Gibraltar, and should raise serious questions for brokers as to their viability.
Solvency II rules, which are scheduled to come into force within the next few years, will require all insurers to hold sufficient capital to cover their risks. In the meantime, brokers should be aware of the risks of using non-UK domiciled insurers on their panels that are unable to demonstrate financial viability.
You can’t rely on the fact that an insurer is a member of the FSCS and has a license to write business in the UK – a successful application to the FSCS will only cover a percentage of a claim.
Consumers trust their broker to arrange the best policy for them that’s also secure.. Clearly, pressure from consumers to hunt down the best possible price could tempt brokers to arrange GI with a non-UK domiciled provider, but as with anything in life, you generally get what you pay for…and a cheap policy is not always the best policy.
