The U.K.’s Financial Services Administration (FSA) will ask Britain’s general insurers to pay a levy of 0.66 percent of their premium income in order to raise £150 million ($216 million) to pay the claims of policyholders of Independent Insurance and Chester Street, both of which are insolvent.
Under the provisions of the Financial Services Compensation Scheme (FSCS), established in the 1970’s, the insurance industry as a whole assumed primary responsibility to meet the unpaid claims of the policyholders of insurers who are unable to pay them. The FSA took over the administration of the fund when it assumed the responsibilities of the Policyholders Protection Board in December.
Independent collapsed in spectacular fashion last June, leaving policyholders and investors scrambling to be paid. So far around £2.3 million ($3.3 million) has been paid to policyholders, but estimates of the claims deficit run as high as £200 million ($288 million.)
Chester Street operated as a runoff vehicle for Iron Trades Insurance, and assumed liability on numerous claims related to asbestos, mainly diseases contracted by workers exposed to the product in Scottish shipyards. It announced that it was unable to continue paying the full amounts on claims last February, as the numbers began to increase dramatically
The FSA, which could have imposed a levy of up to one percent of premiums, apparently feels that the 0.66 percent figure is sufficient for the moment to satisfy their liabilities to policyholders. Most UK insurers have been expecting the charge, and have set aside reserves to pay their share.
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