Following yet another collapse of an unrated insurer in LAMP, as well as the recent struggles of Gefion, we ask if there should be any encouragement to stay away from this type of company?
Chris Kenning, managing director, Stubben Edge Group
A levy would seem appropriate but counterparties to unrated carriers also bear an additional capital charge under Solvency II.
As such there is a point at which the costs of being an unrated carrier become prohibitive. Would this therefore create a self-fulfilling prophecy?
Peter Blanc, chief executive, Aston Lark
A levy is not the answer, but following the failure of any unrated insurer there should be an element of pain for the brokers that benefited from placing business with that market, despite obvious risks.
As things stand, brokers can compete on price using clearly ‘unsafe’ markets knowing they face no direct consequences. That is unfair, both to financially sound insurers that lose out on business, and to brokers that choose not to use unrated markets.
Perhaps, in extreme cases, the FSCS should recover a proportion of losses from brokers that placed the business? Knowing they risk having to forego the commission earned from such placements would make them think twice about using these markets in the first place. A professional broker will withstand pressure and articulate the importance of decent cover with financially sound markets.
Paul Thompson, chief executive, Cavere Intermediary
Unrated doesn’t necessarily mean bad or high risk. The stability of an insurer is as much about who their reinsurer is as their own capital adequacy. From the brokers point of view, it’s virtually impossible to assess whether an insurer is a risk to consumers. Surely responsibility lies with the regulator? If it does not think they’re fit to operate, or are a risk to consumers, they should not authorise them.
I believe there is a place for smaller niche insurers in the market. Banning them or forcing them out of business by imposing a levy on their use will make it even harder for new entrants, creating less competition and higher prices for consumers. Regulate them properly, give brokers confidence rather than fear using them and we might achieve better consumer outcomes.
Vanessa Babington-Monegard, underwriting counsel, CLS Risk Solutions
It’s too easy to place the responsibility at the door of the broker. What we should be thinking about is the customer. If brokers pay a levy, is that addressing the issue and is it treating customers fairly?
Presuming brokers are transparent and compliant in their sales processes, then it is the customer’s choice to buy. If a levy is inflicted on the broker will that stop the customer being affected?
We wouldn’t ever consider unrated capacity, but there are some lines where unrated paper has its place. Rather than talking about penalising brokers, shouldn’t we be talking about ensuring customers are treated fairly? The issue for the regulator is to ensure that if unrated capacity is being offered, customers are made aware of that and receive the best advice, delivered compliantly.
Charles Manchester: chief executive, Manchester Underwriting Management
Lumping every unrated insurer together is unfair as there are some that are well-run and financed. There are many that are not. Occasionally, there are risks where it is almost impossible to get a quotation other than from a niche, unrated insurer.
My views on under-capitalised insurers with questionable strategies are well known. Brokers need a due diligence process when they use any insurer, rated or otherwise, and there is a strong argument for penalising those that have none.
Nick Hobbs, director of broker markets, Allianz Insurance
I’m not sure of the practical workability of a levy for brokers using unrated insurers. Anyone using an unrated insurer knows there is a higher risk of either the failure of that insurer, or the inability of that insurer to pay claims when they arise. The challenge is in explaining that to the irate customer when the consequences of them paying that cheaper premium becomes apparent.
A rated insurer is properly regulated and scrutinised and its rating is hard-earned. Allianz, as others, pride ourselves on a rock-solid rating and making sure we continue to be there for our broker partners and their clients now - and long into the future. We know however that means we need to trade at a margin slightly above unrated or lesser rated parties. As a responsible company we are comfortable that represents the best position for our current and prospective customers.
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