But from whatever school of thought you follow, what you would expect at the very least, is that your insurer would pay out on a claim when called upon. Unfortunately, this is not always the case, especially if your business takes a policy from an unrated insurer.
Last month’s investigation by the Insurance Times unravelled a myriad of mistakes that left customers from motorsport teams to restaurant owners fighting to recover what they could from the Financial Services Compensation Scheme (FSCS), with the collapse of UK-based Millburn Insurance Services.
Insurers are either regulated direct by the Financial Conduct Authority (FCA) to underwrite business in the UK or passported from other jurisdictions, which may not be subject to the same scrutiny. Many of these insurers do not have a financial rating.
In the case of Milburn, a firm called Klapton Insurance Company was offering 100% reinsurance on parts of the Milburn book, as well as a stop loss agreement on the whole book. In short, Klapton were incorporated off East Africa and regulated in Ukraine and not by the FCA. They could however, still provide reinsurance in the UK.
Unable to pay-out on a number of claims, it is alleged that money was funnelled via Cyprus and then kept by the Cypriot government during the bail-out. Millburn’s policyholders are now scrambling to retrieve lost premiums.
Generally, individuals and firms with annual turnover under £1m should receive 100% for compulsory insur-ance covers e.g. Employers Liability and Third Party Motor with other claims at 90%. For other firms, only compulsory insurance would be covered with no indemnity for other claims e.g. Professional Indemnity, Property, Public Liability etc.
This is one of many examples over the past year of businesses obtaining insurance from Eastern European countries such as Ukraine and Lithuania, on the basis that they are getting cheap cover. Other cases have arisen in Iceland, Gibraltar and Lichtenstein.
Insurance is worthless if it cannot fulfil its main task. Whilst many of Milburn’s policy holders may receive a portion of the claim, it is unknown as to ‘when’ a pay-out will arrive, which can cause short-term financial difficulties.
It is always best to use a reputable and trusted insurance broker who uses ‘rated’ insurers to ensure claims can be paid out – if concerned, simply ask your broker who their policies are through and whether the insurers they are proposing are FCA authorised or have an independent financial rating.