Mendelsohn says change terror rules or face astronomical prices

Royal and SunAlliance's (R&SA) worldwide chief executive Bob Mendelsohn said insurers will be forced to raise motor insurance premiums by "astronomical" levels.

R&SA's group chief executive is lobbying the government after facing mounting pressure from reinsurers demanding protection from unlimited third party motor claims.

"Reinsurers are saying to us, not unreasonably, why is this the only class of business anywhere in the world where you are asking us to take an unlimited exposure for a fixed price?

"The government has to change the regulations surrounding war and terrorism. I have to sit here and ask myself do I want our UK companies to write a motor policy that could cost us £50m to £100m.

"The price you are going to have to charge is multiples of the existing motor insurance price," he said.

R&SA has joined the Association of British Insurers (ABI) and fellow insurers in its negotiations with the Treasury over whether Pool Re's remit should be extended.

Mendelsohn went further by claiming that if the government did not take rapid steps, customers would suffer.

"We will see motor insurance prices going up astronomically and that will create a crisis for the government," he warned.

Duncan Boyle, R&SA's new UK chief executive, said the talks, which have included the company's major commercial clients, were based on the lack of reinsurance available.

"When the reinsurers withdraw cover, you have no choice but to exclude it. The FSA would not be very happy if we put ourselves under that kind of exposure," he said.

But Boyle said the misconception was that it was the government which ultimately funds Pool Re, when in fact it was the insurance industry.

"The government comes in when Pool Re becomes exhausted, because there is no reinsurance to support the market.

"There must be a massive loss for that to occur and in fact Pool Re is very well funded," he added.

Read Insurance Times' exclusive interview with Bob Mendelsohn