Alpha Insurance – one of the major home and motor fleet insurance companies in Europe- is bankrupt. The Denmark-based insurer admitted to be struggling financially when the company’s management released an official statement in early March 2018.
In the statement dated 18 March 2018, Alpha insurance highlighted that it would not be underwriting any new policies or renewing any expired policies or covers. Following this announcement, insurance intermediaries have been directed by the Danish Financial Supervisory Authority (DFSA) among other European supervisory authorities to cease marketing any Alpha Insurance products in all its areas of operation.
In addition to this, the company has been compelled by the Danish regulator to provide a recovery strategy that will safeguard the welfare of all its customers.
Alpha Insurance A/S was licensed to carry out business in the EU countries where it provided direct insurance in the form of professional indemnity, motor vehicle, construction, travel and home insurance among others.
The Danish Financial Supervisory Authority has revealed the reason for Alpha’s collapse as poor accounting practices that ended up reflecting a false financial position. This miscalculation arose because the insurer inflated the amount of money owed to it (receivables) in an attempt to balance the books. Without including these ‘receivables’ amounting to DKK 35.6 million (4.78 million Euros) Alpha Insurance will no longer be able to meet the minimum solvency requirements as provided for by the regulator.
On the other hand, Alpha Insurance is placing the blame squarely on its major reinsurers, New Zealand-based CBL insurance. CBL has been under instruction by the Reserve Bank of New Zealand to appoint an interim liquidator following concerns by the regulator about an offshore transfer of NZD $55 million (33 million Euros).
Apparently, this payment ($55M) was in favour of some ‘privileged’ creditors and this placed the rest of the creditors at risk of not being compensated. This once again introduced the solvency issue since the regulator claimed that CBL had not met the minimum requirements. The appointed liquidator has since publicly declared that the reinsurer is not in a position to pay out any claims.
Impact on policyholders
Despite whether or not Alpha’s claims are true this news has brought about huge repercussions across many sectors. Thousands of cab drivers, homeowners and even life insurance policy holders now remain stranded. They were advised by the insurer to reach out to their insurance brokers to find out if they would need to purchase new policies and covers or await further action.
Most drivers were on the job when they received the bad news, they were forced to drive around without insurance as they tried to find means to reach their brokers and ultimately resolve the issue.
Hundreds of unhappy cab drivers showed up outside the insurance broker Protector’s office in London. Calls went unanswered as thousands attempted to reach their brokers to find out their take on the matter. They were hoping to get their money back especially considering that most of them chose to pay their premiums up-front in order to avoid paying extra in interest charges.
Initially, it appeared as if only Danish nationals holding non-life policies would receive compensation from the Danish Guarantee Fund. The cab drivers have since accused the insurer of driving them to bankruptcy and called for the UK government to take stern action against Alpha Insurance.
Many drivers who camped outside the Protector offices seeking assistance claimed that they were losing money by the hour as their main tools of trade were grounded. Furthermore, their monies were also tied up in the annual premiums so it was not as easy as to just move on to a new insurer.
However, UK’s Financial Services Compensation Fund has since been a breath of hope to the afflicted policy holders following a recent development. In the announcement, the FSCS said that those who filed their claims just before Alpha went bust and only up till 5 June 2018 (four weeks after declaring bankruptcy) will be eligible for compensation.
While Alpha Insurance is on its way out, lots of insurance companies stand to benefit from the thousands of customers who have been left ‘exposed’. Two of the companies that have opened their doors to the motor fleet market are Aviva (through Carrot Insurance) and Zego which seem to have appealed to this market niche. The latter, astonishing, managed to launch a new 30-day private hire product within 48 hours of the Danish insurer bankruptcy announcement.
One of the most important things that customers will now seek to ensure is that the insurer is regulated and meets all the requirements stipulated by the regulator.