Leading Article: Hidden costs of Lloyd's offer

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THOUSANDS of financially ruined Lloyd's underwriters should be extremely cautious about the proposed pounds 1bn compensation package offered by the insurance market. The amount may be too small - 50p for each pounds 1 lost may still leave many names bankrupt. The plan, shrouded in secrecy and obscured by an injunction (served on this newspaper), also looks like another Lloyd's attempt to hide deep-seated problems.

Lloyd's desperately wants to appear to be accountable, modern and conforming with best business practice. The market would like to be rid of litigation that could run on until 1995: hence the proposed pay-off. A clean break with the recent crash is vital if Lloyd's is to attract outside corporate investment and maintain its pre-eminence as the world's largest international insurance market.

But there is a lingering bad smell about the conduct of this affair. The Independent has been served with an injunction preventing it from reporting vital matters that are of concern to the existing hard- pressed names. This information has already been distributed to many people but not to the wider Lloyd's membership. Such restriction does not inspire confidence: Lloyd's should cease hiding behind injunctions and let all its names, who have suffered enough, know precisely what is going on.

The nature of the settlement being offered is also worrying. It is clear that, if names accept the compensation package, they will have to give up their legal rights to sue those responsible for their financial ruin. At a stroke, all sorts of bad practice could be closed to public scrutiny. Such blanket indemnity would also fail to distinguish between the various reasons why losses were incurred. These range from bad management to incompetence and dishonesty and even possible fraud in extreme cases.

Should the Serious Fraud Office find that some underwriters had been bankrupted by criminal behaviour, it would be unfair if the injured parties no longer enjoyed the right to sue for all losses. Those who may have committed fraud or exploited the nave must be exposed publicly and not be allowed simply to pursue business as usual.

In its 305-year history, Lloyd's has enjoyed a reputation for acting in the 'utmost good faith'. Even the scandals of the Seventies and the most recent debacle have not wholly destroyed that reputation. The market understandably wants to leave the past behind so that it can compete in what promises to be a buoyant few years for insurance. But it cannot afford to avoid public scrutiny of past mistakes. Such examination is vital if Lloyd's is to renew international respect and make changes necessary to bring the institution up to date.

So until the full story is told, ruined and bankrupted names should be wary of accepting the Lloyd's deal. They would be ill-advised to sign away their legal rights, however tempting it may be for them to cut their losses.