Why offshore insurance companies aren’t always the best option
In today’s tough financial climate, making cost savings is an essential for everyone. Insurance can make up a significant percentage of your home or business’ outgoings, so taking the time to find a better value deal is a great place to start to reduce spend.
Following the recent collapse of two offshore insurance companies, we help you find out more about offshore insurance, and if the risks are worth it:
Will opting for insurance underwritten by a company outside of the UK save me money?
Offshore accounts have long been looked to for tax efficiency. In the wake of the Solvency II directive, insurance underwritten by companies outside of the European Union (EU) allows access to companies that are not constrained by capital requirements, also helping to keep costs down in some cases.
What is Solvency II?
Solvency II is a Europe-wide directive issued by the EU and adopted by all member states, including the UK. It requires all insurers in EU member countries to be 99.5% sure they have enough capital to meet all claims, even if they suffered their worst predicted loss.
This overhaul of safety rules is good for consumers because you have the added reassurance that your insurer will be able to pay out for any claim. It gives you more peace of mind that insurance underwritten by a company in any of the EU member states is dependable, and the company is less likely to go bust leaving you without cover or your premium. But it can come at a price as these rules put a significant strain on insurances companies to be compliant. If rock-bottom premiums are your priority, and you’re prepared to take a risk, then you can look for insurance underwritten by companies outside of the EU.
Is it safe to buy my insurance from companies based outside of the UK?
Offshore companies are just as prone to failure as companies in this country, but sometimes consumers don’t get the same level of protection when the company collapses.
In October 2016, insurance underwriter Enterprise went into liquidation. In November 2016, this was followed by the collapse of Gable Insurance. From the moment of liquidation, any insurance policy underwritten by these companies became invalidated. That means that if your insurance was held with one of these companies you would have to look for a new policy.
Whilst customers of Gibraltar-based Enterprise were protected by the Solvency II directive, Liechtenstein-based Gable Insurance had not been required to offer regulators the same level of reassurance as it was based in a micro-state that is not part of the EU. Luckily, in this case, the Financial Services Compensation Scheme stepped in to protect most of the policies that were taken out in the UK with Gable.
Look for the FCA guarantee for reassurance
Insurance companies in the UK are governed by the Financial Conduct Authority (FCA), which ensures that consumers’ money is protected if the company goes bust. But this isn’t the case with all offshore underwriters. For peace of mind, the most important thing to check is whether your offshore insurance policy is covered by the FCA guarantee in the UK. If it is, you won’t lose your money if your insurance company goes bust. You should receive the balance of your premium back, but it will still be up to you to take out new policies to meet your legal obligations and risk strategy.
If you take out a policy with an offshore firm that is not covered by the FCA you will not be automatically protected if it ceases trading. This means your policy will become invalid and you won’t receive your premium back.
A home-grown, cash-saving alternative
Instead of taking the risk and going offshore, use a trusted independent broker like Park Insurance to find a better deal on reliable insurance. Our family-run firm has 30 years of experience helping businesses to succeed by finding the insurance you can count on at the best prices possible. We are preferred brokers for some of the UK’s biggest insurance companies, allowing us to negotiate great prices on comprehensive cover with no surprises in the small print.
Call our expert team today on 0117 955 6835.