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Can you claim compensation when an insurer goes bust?


As Quinn Insurance is hit with an administration order banning it from writing new UK business, we look at possible consequences for policyholders and claimants when a UK insurer goes into liquidation.

Crucially, will there be money to pay the claims?

In the case of Quinn, the Regulator petitioned the High Court in Dublin to put the company into administration on the basis of alleged breaches of the solvency rules - in simple terms they have not set aside enough money to cover claims made against their policy holders.

Although Quinn is a Northern Ireland-based company regulated by the Irish Financial Regulator, the majority of the work at the Enniskillen headquarters involves the underwriting of UK insurance policies, and the failure of the company could have consequences for UK residents.

So who pays up when a UK-based insurance company fails?

In 2001, when the Independent Insurance Company was declared insolvent leaving 500,000 customers without home and motor insurance cover, the answer came in the shape of the Policyholders Protection Board (PPB), an organisation set up under the terms of the Policyholders Protection Act 1975 to enforce the Act and provide a safety net for individuals in such situations.

Under the terms of the Act the PPB was able to cover, when the insurer had no money, the total cost of settlements for claims relating to compulsory insurance - that is, third-party car cover and employer's liability.

Valid claims made by individuals under non-compulsory insurance, including other liability claims, claims for own damage under comprehensive motor policies, buildings and home contents policies etc, were payable at 90%.

Claims by businesses, except for claims under compulsory insurance policies, were generally categorised with other creditors of the company to be paid in due course by the provisional liquidator if funds were available.

In addition, claimants whose compensation related to road traffic accidents also have the added protection of the Motor Insurance Bureau (MIB), which deals with claims brought against uninsured drivers.

"Access Legal from Shoosmiths has the experience to manage and deal with the consequences our clients may face if there is another failure."
Paul Ashurst, Solicitor

When the Independent went into liquidation, policyholders were told by the Financial Services Authority (FSA) to direct all their enquiries to the Independent, which, under the control of the Provisional Liquidator, established a helpline for policyholders, where staff of the company and/or the liquidator provided assistance.

Policyholders, particularly those whose policies are not covered, or are only partially covered under the terms of the Policyholders Protection Act, were told to consider seeking advice from the brokers - or other organisations through which their policies were bought - about whether to take out new insurance with another provider. No new business was written and claims were eventually settled.

Those customers who continued to hold cover with the company subsequently saw the transfer of their policies to the RSA, which, with the approval of the court, liquidator and FSA, took on the bulk of the risks.

Insurance companies in the UK are regulated by the FSA, which from November 2001, via the Financial Services Compensation Scheme (FSCS), took over responsibility for providing policyholder protection in the UK.

Under the terms of the Financial Services & Markets Act 2000, Financial Services Compensation Schemes cover is:

In other words, the cover from the FSCS is very similar to the old PPB protection and so we could see, if the worst happens, a similar situation to the one that applied when the Independent failed.

So while in the long term there is protection in place for victims of accidents, a failure of an insurer does still lead to a period of uncertainty and adds delay to the claims process.

Access Legal Solicitors from Shoosmiths, having seen and dealt with the consequences of past insurance failures – for example Iron Trades and MMI – has the experience to manage and deal with the consequences our clients may face if there is another failure.

For Quinn Insurance, what happens next will depend on the financial report being prepared by the two High Court-appointed administrators.

It is expected the report will be given to the financial regulator by the end of this week, in advance of the High Court case in Dublin on 12 April.

The Irish regulator has confirmed that existing UK policyholders will continue to be covered. Quinn customers can continue to make claims and should continue to pay direct debits and premiums in the normal way.

In the meantime, we are likely to see responses from Quinn and/or its solicitors delayed, possibly significantly, and quite possibly delays in being able to obtain payments. We will keep clients updated.


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