Losing Your Coverage
It may be a shock to you that your car insurance company is no longer in business, and that you’re now facing the prospect of being without insurance and the security it provides.
What may be even more alarming is that it’s not too uncommon for car insurance providers to go bust. Statistics provided by the Financial Services Compensation Scheme (FSCS) show that, in 2020 alone, over 70,000 insurance customers lost their coverage due to an insolvency – a 12% increase from 2019.
Insolvency can happen for different reasons, such as mismanagement of funds, or failure to pay bills due to cash flow issues. More often than not, it’s the fault of the insurer itself and can’t be attributed to customers.
There are several consequences of being uninsured, the most obvious being a potential financial penalty. Without an insurance policy in place, drivers may be liable to pay a hefty fine to their local authority in the event of an accident or if they’re caught driving without insurance.
However, this isn’t the only issue. Motorists may be exposed to other legal costs, such as court fees if their case needs to be resolved in court and any potential compensation payments they need to pay. Furthermore, those caught driving without insurance face the possibility of losing their license and the subsequent loss of employment that they may incur subsequently.
It’s also worth noting that, without insurance, drivers may be even more at risk on the roads. Even if financial penalties and court costs are avoided, motorists may still be liable for any damage or bodily injury caused in an accident.
Getting New Cover
Understandably, most want to avoid the hefty fines and potential legal investigations that come with not having insurance. Therefore, securing a new policy as quickly as possible is of utmost importance.
In the days or weeks following an insurer’s insolvency, the existing customers should be contacted by the FSCS, who then provide advice on finding a new policy. Consumers may encounter some difficulty in sourcing a new policy, as some insurers might be reluctant to provide a quote due to circumstances beyond the motorist’s control. The FSCS can offer more advice on this matter, and may even inform motorists of any additional financial protection they’re eligible for.
An honest and accurate insurance history must be declared when sourcing new cover; anything less than truthfulness may lead to a potential claim being rejected, or may even cause the policy to become void entirely.
Cover Gap Issues
While the FSCS offer protection to customers of bankrupt insurers, this doesn’t cover what’s called the ‘cover gap’ period. This is the time between lapsing of the defunct insurer’s policy and the start of a brand-new one.
The onus is therefore on the consumer to take out a short-term insurance policy in the meantime, typically lasting up to 30 days. This is needed to fill the cover gap in order to keep motorists safe and insured on the road.
Unfortunately, this type of cover can be considerably more expensive than normal insurance policies due to its short-term nature. This is because insurers will be risking a lot more as they won’t have an opportunity to asses the driving history or experience of the customer.
Assessing a New Insurer
In the event of an insurer’s insolvency, some customers may be apprehensive about the stability of their new insurer. On the one hand, there are certain advantages of smaller companies; they often have more flexibility and a greater focus on customer service, for example. On the other hand, they may not have as broad of a range of policies as bigger insurers and they may not have the financial stability that comes with size.
To find out more about a potential insurer, customers can search online databases, and read reviews, to find out the company’s background. It’s also recommended to use the Financial Conduct Authority’s (FCA) Register to view if the insurer is authorised, as this should provide an assurance of policy dependability.
Know Your Policy
Before setting off on the road, customers should thoroughly understand the cover that’s provided by their policy. Consumers should ask for a full description of their coverage and exactly what is, or isn’t, covered. Customers should pay particular attention to the excess amounts and any restrictions set out on their policy.
It’s also important to remember that policies may originally say one thing when taken out, and then change at renewal. It’s therefore important to check their policy’s terms every year to make sure they understand exactly what they’re covered for.
The cost of your insurance can, unfortunately, be affected by being a customer of a defunct provider. As part of their insurance history, motorists need to provide details of who their last insurer was, as well as when and for how long, and insurers may view this as a mark on their record.
This fact means drivers may be charged a higher premium at their next insurer than what they had originally paid, as they’re considered a higher risk. It is, therefore, important to use price comparison websites when looking at policies, in order to make sure you’re getting the best deal.
When determining who should be liable for a claim, the FSCS will investigate whether the original fault lies with the defunct insurer’s policy, or whether any additional damages occurred due to a delay in finding another insurance provider and the safety risks associated with it.
The policyholder may find comfort in the fact that extra protection may be provided in the event of an insurer’s insolvency through the FSCS. For those using an intermediary or broker, the cover gap period may be covered by the firm’s Motor Insurance Bureau (MIB).
Having an insurance provider go bust can leave customers feeling very exposed financially and from an insurance point of view. It’s important for motorists to understand the options open to them and to take out appropriate insurance as quickly as possible. Ultimately, the best defence against this type of eventuality is to keep up to date with the financial stability of your insurer, in order to avoid any further problems.