View from City Road: Government fails MMI customers

MICHAEL HESELTINE, President of the Board of Trade, has been looking over the shoulders of the directors of Municipal Mutual Insurance for most of this year. His department allowed the firm to continue trading, in the belief that a takeover by the Eurosafe consortium was imminent.

Yesterday's farcical series of contradictory statements about whether rescue talks were still in progress suggests the decision for Eurosafe to pull out has not been rubber-stamped by all its members, but that appears to be only a matter of time. A meeting next Tuesday will settle the matter.

Mr Heseltine has thus encouraged MMI to continue taking on new business on the basis of what was clearly the flimsiest of pretexts - a rescue plan agreed in principle but with no binding contracts. Eurosafe is backing out after a detailed examination of MMI's books showed that the problems were worse than it had expected. Customers who knew about the problems are bound to have been reassured by the Government's well-known view of the situation.

The volume of business taken on by MMI has declined as local authorities have got wind of its problems and diverted some of their insurance elsewhere. But since the seriousness of the solvency problem first came to light in Whitehall, many thousands of premiums have been paid into the firm. Some of those were paid during the summer, when auditors were increasingly doubtful that the insurer could meet all its claims.

The DTI therefore bears a heavy share of responsibility towards customers who may find themselves without cover if the worst happens. With hindsight it should have stopped MMI taking on new business months ago.

Looking ahead, the only honest course of action is for the DTI to publicly acknowledge its mistake. Taking responsibility for an orderly winding down of MMI is the least it can do. Considering the way it has handled the situation it should also provide funds to cover any shortfall on claims related to premiums paid this year.

As for the marketing links through the AA and Cheltenham and Gloucester, the charitable interpretation is that they felt they could not stop selling policies without bringing MMI down. They were wrong. They should have been worrying more about their own customers than helping an insurance company.

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