Premiums '50% below mark' in insurance scandal

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Independent Insurance, the collapsed financial services group, underpriced premiums in its commercial-lines business by up to 50 per cent, it emerged yesterday. The revelation suggested that the failed company's liabilities may be greater than previously thought, and its commercial customers will struggle to obtain new cover.

Royal & Sun Alliance, the blue-chip insurance group, yesterday confirmed it was in talks with PricewaterhouseCoopers, the provisional liquidators, to assume £60m worth of Independent Insurance's £440m commercial-lines business. The talks concerned granting fresh cover to policyholders, but not taking on retrospective claims.

Paul Spencer, RSA's UK chief executive, warned that the policyholders RSA was adopting faced premium increases of 25 to 50 per cent once it had priced the risks involved.

"Independent appears to have been very seriously under-reserved," Mr Spencer said. "There is a fair amount of [commercial-lines] business that we wouldn't want to touch. This is very bad news for the industry." RSA urged Independent Insurance policyholders to check with their insurance brokers to check whether RSA was taking them on.

Separately, PwC reached agreement with RSA on a deal to assume the policies of Independent Insurance's policyholders who are council tenants. However, they represent just 250,000 of the firm's 600,000 policyholders, not 450,000, as indicated on Thursday by Daniel Schwarzmann of PwC.

RSA, which is guaranteeing to pay retrospective premiums in full, said the deal was worth £11m a year. It was not paying for the business but will be able to reclaim just 90 per cent of the value of retrospective claims from the Policyholders Protection Board.

It was also in talks about assuming other Independent Insurance personal-lines busi- ness, including some of its 50,000 motoring policyholders within schemes covering isolated categories such as classic cars.

PwC is paying RSA £1m for help it is providing in assessing the scale of Independent Insurance's liabilities. RSA would be taking on about 10 per cent, or 200, of Independent Insurance's staff.