Blog: At a loss over market’s missed opportunity

15th November 2018

As the pressure on premium levels against a backdrop of significant catastrophe claims in 2017 continues, Andrew Collery a Director within Davies Insurer & Market Services says he is at a loss as to why the London market is not doing more to access dormant loss funds:

“In the past four years we have worked with our clients to return over $100 million from loss funds where claims have been paid in full and the money is now sitting redundant in a forgotten loss fund.

What makes the issue all the more alarming is the scale of the monies which are currently resting in redundant loss funds, we estimate that the total figure is around $500 million.

The London market is losing out on hundreds of millions of recoverable dollars, money which they have paid to a third party but are now reluctant to request back.

In what has been described as a new normal of low underwriting rates, ever larger exposures and a struggling investment market it’s a big concern that firms seem unwilling or unable to examine how they recover their own money which has been sitting in third party accounts for some decades.

Far too often we hear re/insurers bemoan the inability to drive forward technical rates and despite the significant losses of the 2017 North Atlantic hurricane season the talk of rate rises does not ring true.

The market talk is of the hardening of rates. However, while rates have held firm it has been at the expense of underwriters widening the cover they are having or willing to offer to maintain the premium level.

There remains pressure to pay claims quickly and efficiently, but underwriters continue to neglect or properly manage the loss funds they created via brokers and TPAs in order to meet the cost of these claims.

In our experience the fact remains that even with the pressure on both top and bottom line performance, there is a lot of apathy from re/insurers in the London market.  Very simply do they take the issue anywhere near seriously enough or believe there isn’t a problem.  If its not on the balance sheets, it does not exist.

We are happy to assist and everything we have learned during the past four years points to the fact that there is still a lot more cash to be recovered.

We have engaged with TPAs, brokers and lawyers and if we prove there is funds to repatriate they will settle.

The majority of what we have seen has been in the property and aviation markets, but it is clear that these loss fund issues are mirrored in other classes of business across the London market.

It takes a good degree of expertise and some determination to identify where these loss funds reside, but we believe that in terms of the amount to be recovered we are on an upwards spiral as long as the market takes a more focused approach in terms of its willingness to look to recover these funds.

An additional benefit is that when the funds have been identified, the recovered claim can be closed which will deliver greater certainty for underwriters when they are looking at their open cases and their reserving requirements.

It remains the case that very few Capacity Providers manage these funds and as such there are still hundreds of millions of dollars which neither underwriter, or their partner on the loss have chosen to record or action a recovery.

The market has an untapped reserve of loss funds which are no longer needed to meet the costs of claims, which could be better deployed elsewhere on the company’s balance sheet.

The frustrating issue is that despite the challenges the market faces there is no real effort or enthusiasm to tackle the loss fund issue and the benefits they would deliver.”

By Andrew Collery, Insurer & Market Services

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