History shows that, at least since the 1950s, the likelihood that any authorised insurance company will not be able to pay its claims in full is reassuringly small. The level and composition of assets required by insurers, and their liquidity in particular, is carefully regulated by the Financial Services Authority (FSA), as is the standard of their management.
The FSA rigidly enforces its regulations because a problem with an insurer can result in disproportionate loss to its policyholders. Past examplesSuch stringent regulation is the result of some high-profile collapses. The failure of Emil Savundra’s Fire, Auto & Marine Insurance Company to pay debts owed to 400,000 motorists in 1966 led to a significant tightening of UK insurance legislation and responsibility for insurance supervision shifting to the Board of Trade under the Companies Act 1967. [Continue Reading]