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The perils of using unrated insurers

With Gibraltar based Enterprise Insurance being declared insolvent, less than two years after Malta based Setanta Insurance suffered the same fate, why are Insurance Brokers still recommending unrated insurers to their valued clients?

Written by Kieren Rai on 6th December 2016

The perils of using unrated insurers

With Gibraltar based Enterprise Insurance being declared insolvent, less than two years after Malta based Setanta Insurance  suffered the same fate, why are Insurance Brokers still recommending unrated insurers to their valued clients?

The Insurance Act and the Enterprise Act both became law this year, securing important certainty for insurance buyers, but UK legislation has no jurisdiction over these overseas based unrated insurers.  Add the uncertainty of Brexit into the mix with European based insurers and the position of unrated insurers looks even more precarious.

Any Insurance Broker that offers an unrated insurer would need to thoroughly vet their financial stability, but this is quite a challenge when any financial records obtained are likely to be 15 months, or more, out of date.

So why do Insurance Brokers recommend unrated insurers?  Probably to tempt a client with a cheap premium and to earn a generous commission, but fishing in this murky pool reflects badly on them when insurers go bust and Brokers could rightly find themselves being sued if they do not make the risks of using unrated insurers clear enough.

So can the client take comfort from legal redress against his Broker? Possibly, but such actions are unlikely to be covered by his Broker’s Professional Indemnity insurance as those insurers writing this cover increasingly include an exclusion of claims relating to  insolvent or unrated insurers.

Any risk which threatens the Broker’s reputation and even his business, or undermines consumer confidence, is surely a risk too far.
The Insurance Act places the Insurance Broker at the heart of the insurance buying process and it is imperative that cover is placed with a secure insurer.

If your Broker offers anything other than a solid UK-based insurer tread very carefully, better still give Franklands a call.

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