Hard-to-place risk is going to be more expensive for some businesses following the liquidation of New Zealand-based Western Pacific Insurance, which has failed following the second Christchurch earthquake.
The insurer went into voluntary liquidation on April 1 after last month suspending new business while it reassessed its risk exposure.
The company has about 7000 policyholders in New Zealand.
Major Lloyd’s coverholder SRS Underwriting says it has seen a “dramatic increase” in recent days in the number of hard-to-place slips requiring urgent cover, and Underwriting Director Paul O’Leary attributes it to the collapse of Western Pacific.
“In the past we lost business to Western Pacific at prices that were less than half our terms and excesses, so we would expect that any of this business that comes back into the market would likely see significant premium and excess increases on what they were previously paying,” he told insuranceNEWS.com.au.
“Clearly this business was being underpriced.
“Generally speaking, where clients opt for a cheaper product and inferior security they have done so because they don’t value their insurance coverage and take out insurance because it is necessary.”
He says SRS will provide quotes for brokers seeking to place such business, “where we believe fair terms and conditions can be achieved and the risk meets our selection criteria”.
Western Pacific Insurance started in 2005. Its CEO is Jeff McNally, who is also a shareholder. He is understood to usually be based in Melbourne.
In 2002 Mr McNally was bound by Federal Court orders not to sell policies on behalf of unauthorised foreign insurer Atlantic & Pacific. The orders also applied to two companies associated with Mr McNally, Allied Asia Holdings and Allied Asia Underwriting Agencies.
The Australian Securities and Investments Commission (ASIC) refused to renew the registration of Allied Asia as an insurance broker after finding the company had failed to discharge the ordinary obligations of an insurance intermediary.
Western Pacific’s Chairman is Mr McNally’s brother-in-law Graham Smolenski, a former property developer and an investor in several New Zealand businesses. Western Pacific is headquartered in Queenstown, where Mr Smolenski lives.
Mr McNally told insuranceNEWS.com.au last month that Western Pacific was confident about its future in the market and had been working hard to look after clients in Christchurch, many of whom were family-owned retail businesses.
The company is understood to have received 78 claims from the September quake and 77 from the larger February 22 event.
Liquidators David Ruscoe and Simon Thorn of Grant Thornton are checking all insurance policies and reinsurance, and an industry source told insuranceNEWS.com.au that they are now trying to sell the company.
Insurance Council of New Zealand (ICNZ) CEO Chris Ryan says Western Pacific would have found it hard to comply with the tougher requirements for insurers that come into effect this year.
He says Western Pacific had applied for membership of ICNZ but had been declined.
New Zealand Finance Minister Bill English says the Government will not bail out Western Pacific, despite stepping in over AMI Insurance’s difficulties.
He says the Government recognises AMI is a special case and needs help because of the two earthquakes, but Western Pacific faces different issues “and is of a different scale and significance to the rebuilding of Christchurch. In this case, there is no compelling case for taxpayer intervention and this commercial failure will be handled in the normal commercial manner.”