The starship, Enterprise, was part of my childhood. The failed Gibraltar-based insurer, Enterprise, is part of my here and now.
I suspect that FSCS’ protection of policy holders when insurance companies fail is little understood, especially by the policy holders themselves.
Perhaps that does not matter. After all, much general insurance is either mandatory – like motor insurance – or a matter of common sense – like insuring your home. So FSCS protection is not usually a factor in deciding whether to insure or not.
And the news that a general insurer is in difficultly carries none of the liquidity risk that makes widespread understanding of FSCS’ protection of deposits so important. People are not going to surrender a valuable policy.
Protection of policyholders is, however, in some respects much more demanding for FSCS than the protection of depositors in a failed bank, building society or credit union.
Enterprise Insurance illustrates well exactly why that it is. Where protection for depositors is single-mindedly about returning deposits within our £75,000 limits, protection for policyholders is multi-faceted - as multi-faceted in fact as the policies themselves.
Enterprise has thousands of motor policies in the UK. There is some professional indemnity business. There are warranty policies for electrical and other appliances. And, most unusually of all, there are insurance-backed guarantees for home improvements and insulation under the Government’s Green Deal. A scheme which enables householders to borrow on favourable terms to fund work to insulate their homes and so reduce energy use and associated greenhouse gas emissions.
FSCS’ first obligation is to meet live claims under these policies. That is essential to getting businesses and individuals back on their feet after an insured risk, like a motor accident, has occurred. And many of Enterprise’s UK motor policies were sold to taxi drivers who can’t afford to be off the road.
So, working with the appointed insolvency practitioner, FSCS ensured that a claim handling service was re-established within a week of Enterprise’s failure. There were 11,000 live claims when Enterprise failed. FSCS paid out on claims within one week.
Then there is the issue of carrying on of cover for all those customers of Enterprise who do not have current claims, but expect their policies to safeguard them against important risks.
FSCS can achieve this by paying compensation to policyholders for the unexpired portion of their policy so that they can take out a new policy with a different insurer.
This is far from ideal, however, for either policyholders or FSCS and its levy payers.
For the policyholder, it involves the hassle of identifying and taking out a new policy. For FSCS it involves the significant cost of a case-by-case pay-out to return premia.
It is much better all-round if we can achieve continuity for policyholders by transferring policies to another provider or by helping to finance the brokering of new policies.
We are now actively engaged in exploring exactly these kinds of options in the case of Enterprise. I make no promises, but FSCS will always try, if it can, to protect policyholders through seamless (as far as possible) cover – provided, of course, we can justify the costs (as against the cost of the a return of premium).
And, finally, of course, whatever else we do, FSCS must ensure that policyholders are well informed about what is happening. It is critically important, particularly with motor policies, that Enterprise’s customers know in good time whether or not they will have to take out a new policy.
So the failure of a general insurer is the signal for FSCS to take swift and sometimes bold action.
Enterprise Insurance sold its policies in many jurisdictions. I am not aware that any has acted as quickly and decisively as FSCS in the UK to protect policy holders.
The Financial Conduct Authority website includes a searchable database of all firms authorised and regulated by the FCA and the Prudential Regulation Authority (PRA).