Motorists warned about bogus insurance cover: Government alert on unauthorised firms that offer low premiums

RISING insurance premiums have spawned a new menace for car drivers.

The Government has warned of bogus companies offering worthless motor insurance policies. Young people are thought to be most vulnerable since they are bearing the brunt of rising premiums, creating an opportunity for unauthorised companies to offer tantalising-looking deals.

Last week, Neil Hamilton, the Trade and Industry Minister, issued a list of six companies (see below) alleged to have been selling policies without authorisation, and said four others were under investigation. Any company wanting to underwrite insurance must be authorised by the DTI.

In an answer to a parliamentary question, Mr Hamilton said: 'Recently, there has been an increase in the number of illegal motor insurance operations coming to the attention of the Department. Many of these cases have involved targeting particular groups of motorists who have been affected by rises in insurance premiums. For example, young drivers and those with convictions may be attracted by the unusually attractive rates offered.

'Those running illegal operations will usually advertise their products in a very limited way. Thus, advertising may be restricted to particular local areas or limited to distribution of leaflets to domestic premises.

'Such approaches should be treated with some caution.'

A spokesman for the Association of British Insurers (ABI) said it had been receiving inquiries about unauthorised companies. 'Sometimes, people have bought from agents selling in the local pub, and they have then disappeared.'

The ABI's members include most authorised insurers in the UK, and the organisation can confirm whether particular companies are on its books.

A spokeswoman for the DTI said she believed that in one of the cases investigated, consumers had handed over hundreds of pounds in premiums.

Motorists are particularly vulnerable to the activities of unauthorised firms, because they risk prosecution if they do not have valid insurance. The Motor Insurers' Bureau (MIB) administers a fund for people hurt in accidents caused by uninsured drivers. If it has to pay out on a claim, it might then pursue that individual for the money. All this is in addition to losing premiums to the company that sold the dud policy. Roger Snook, claims manager at the MIB, said he had received inquiries from members of the public about Westbridge Corporation, one of the companies named by Mr Hamilton.

Mr Snook said one person had apparently been told by the company that it was backed by an Italian firm operating from Spain, so under new European Community free-trade arrangements, it did not need UK authorisation.

It is the case that insurers can now sell many policies throughout the EC without obtaining authorisation from the country they want to sell in. But according to the ABI, they do have to be members of local uninsured loss schemes, such as the MIB in the UK.

Jim Potts, chief trading standards officer at Lancashire County Council, said that consumers should generally be wary about approaching unknown insurers. And they should be particularly wary about answering invitations from companies advertising out of PO Box and 'accommodation' addresses. These are offices, normally temporary, that can easily be rented by fly-by- night operators.

These addresses may not be immediately obvious to unsuspecting consumers, but they will often be familiar to the local trading standards officers.

Consumers can check on authorisation by telephoning the DTI on 071-215 3167. The MIB (0908 240000) should also be contacted since motor insurers are legally obliged to belong to the bureau and to register promptly. So the MIB may be able to shed light on the claim of a company that it does not show up on the DTI register because its authorisation has not come through yet.

The ABI can be contacted on 071-600 3333.

The companies named by the DTI were:

Westbridge Corporation, 72 New Bond Street, London, trading through Red Rose Insurance Consultants in Bolton;

Westbridge Corporation, 72 New Bond Street, London, trading through Paul Rogers Insurance & Financial Consultants in Hove;

Sterling Motor Securities (UK)/Sterling Union Assurance, 72 New Bond Street, London, trading through Nationwide Insurance Bureau;

Royal Lytham Insurance/Royal Lytham Holdings, Lytham St Anne's;

Sunrise Insurance (Co) UK/L&G Security, Neath;

Crest Motor Securities (UK), trading as Springwood Insurance Services, Ipswich.