In our latest guest blog the Chief Executive of Manchester Underwriting Management discusses the role of unrated insurers.
Every now and then the insurance world gets very animated about the subject of unrated insurers.
The cause is usually an unrated insurer failing, leaving clients stranded with no cover, and insurance brokers running around the market trying to replace polices and praying they’re not in the firing line!
In recent years, excitement has often related to UK solicitors’ Professional Indemnity (PI) with passported insurers from Gibraltar, Latvia and Iceland providing plenty of entertainment. Now we have Gable, who say that they are in solvent run-off. I wouldn’t bet on it staying solvent.
And there are still plenty of unrated insurers still out there.
Both rated and unrated insurers can fail, but history has shown that unrated insurers have a higher propensity to fail than rated insurers. In such situations, a customer may be able to get some protection from the Financial Services Compensation Scheme (FSCS) but the FSCS is no panacea. Customers normally buy insurance for peace of mind after all, and shouldn’t have to rely on such schemes to protect them.
There is a place for unrated insurers, particularly in high volume, low value and short tail business. And some unrated insurers will have great reinsurance protection. But neither the customer nor the broker can ever really know the reinsurance position and be sure it doesn’t change; moreover, it is not a policy that the customer can claim from.
I really worry about the use of unrated insurers, especially for long tail business like liability or building warranties, when the insurer will need to be there years into the future.
What is a broker’s rationale when using one and is this communicated to the customer?
Is an alternative from a rated insurer offered to the customer?
Some brokers use “chicken letters” in an effort to avoid liability (or abrogate responsibility?). But if the insurer goes bust or just gets awkward with claims, it is the broker’s and the industry’s reputation that is tarnished, regardless of the legal liability situation.
And, honestly, is it really impossible to get a decent quote from a rated insurer in the softest market that any of us can remember?
This is a topic that will continue to be debated but perhaps the new focus on responsibilities in the revised Insurance Act 2015 will make clients and insurance brokers think twice about placing business with a provider that may be there today but possibly not tomorrow!
By Charles Manchester
Charles Manchester is the CEO and founder of Manchester Underwriting Management, a specialty underwriting agency. He has over 35 years’ insurance experience, both broking and with insurers, and is also chairman of the Managing General Agents’ Association.
Please Note: Every care was taken to ensure the information in this article was correct at the time of publication. Any written guidance provided does not replace the reader’s professional judgement and any construction project should comply with the relevant Building Regulations or applicable technical standards. However, for the most up to date LABC Warranty technical guidance please refer to your Risk Management Surveyor and the latest version of the LABC Warranty technical manual.