Failed insurance companies – what happens next?
When an insurance company becomes insolvent (e.g. enters ‘liquidation’ or ‘administration’), policyholders may have a lot of questions, such as:
- What happens to the money I paid for my policy?
- Am I covered? If so, how do I make a claim?
- What happens I have a claim in progress?
- Who’s going to sort this out, and where can I find more information?
Here's what to expect:
Once an insurance firm becomes insolvent, policyholders usually find out from the insolvency practitioner (IP) who is appointed to sort out their financial affairs. The IP may ask the broker(s) to do this, however. Learn more about the different parties that might get involved.
Regarding the policies that customers hold with the failed insurer, there are two potential outcomes:
- The policies will be replaced by a new insurer, so customers have uninterrupted cover.
- Customers may receive a refund based on the cost of the insurance premium portion of their policy.
It can take a while to determine whether customers’ cover will be replaced or refunded, during which time, we will be working with the insolvency practitioner (IP) and brokers.
When either the broker, the IP or FSCS has an update that affects you, you will usually be contacted directly. We also provide progress updates via our website, which you can sign up to receive by email: simply search for the firm that you are interested in following at the top of any page and enter your contact information.
Replacing policyholders’ insurance cover with a new insurer
When an insurance firm enters administration, the broker(s) who sold their policies may try to find another insurance company to issue replacement policies. This might be relatively straightforward if the failed insurance firm provides only one or a few types of insurance cover.
The benefit of this is that customers don’t need to find a new replacement policy themselves: they are simply provided the details of their new insurer and policy once it’s arranged, with an ‘opt-out’ option if they are not satisfied with the arrangement.
If the broker – working with the IP, FSCS and other parties – is successful in arranging this replacement of cover, FSCS can pay our compensation towards the cost of all the polices for eligible policyholders.
Returning policyholders’ insurance policy premiums
If there is no suitable insurer to replace the failed insurance firm’s policies – perhaps because they sold a complex range of policies – FSCS can pay eligible policyholders a partial refund of their insurance policy premium, which can help with arranging new cover on their own.
The court-appointed insolvency practitioner determines the amount of the policy premium refund, which is generally less than the initial cost of the insurance policy. This is because:
- The overall cost of the insurance at the time of buying includes other fees, such as administration costs, and FSCS can only protect the insurance premium portion of the policy.
- The policy premium refund reflects how much time was left on the policy.
- For most types of general insurance policy, we cover 90% of the remaining policy premium.
Once the IP calculates the value of the refunds, they pass this information to us. We then run some simple eligibility checks, and finally, we pay for the policyholder refunds via cheque or bank transfer.
Most UK customers of failed insurance firms that are regulated by the PRA will be eligible for compensation: including individuals and small businesses with turnover of less than <£1 million. Risks based in the UK are normally covered. Find out more about eligibility.
What happens with policyholders’ claims?
If you are a UK customer of a regulated insurance firm that has failed, unless you have been informed otherwise, your policy is likely still valid and claims against your policy will generally proceed as they would have done with the insurer.
While we don’t handle claims under insurance policies, we do fund the payment of valid claims against policies for eligible policyholder. Claims are handled from start to finish by the run-off agent that the insolvency practitioner (IP) appoints; however, the IP oversees and approves their decisions.
What happens if you had a claim in progress
If you have an existing claim with an insurer that has become insolvent, please check the insurer’s website for details of how to claim. You can also search for the firm on our site, using the search box that is located at the top of any page. Usually you will simply contact the claims handling company or agent that you were dealing with before they ran into trouble.
What happens if you have a new claim
Follow the instructions set out in your policy documentation, unless you have received instructions telling you otherwise from your insurer, broker, or the IP.
If you aren’t sure who’s handling claims for the failed insurer:
- Check the insurance company’s website and use the contact information that is provided there.
- If you still can’t find what you need, your broker should be able to help.
- You can also usually find this information here on our site. Simply search the name of the failed insurer in the box at the top of any page to be directed to a dedicated page for the firm.
- You can also provide your contact details on this page to register for updates as the insolvency process progresses.
Find out more about claiming compensation for a failed insurance company, or who gets involved in insurance failures.