Town halls hurled into cash crisis: Panic as insurers come close to collapse
Your support helps us to tell the story
From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.
At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.
The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.
Your support makes all the difference.BRITAIN'S councils face a financial and legal crisis because the company that insures almost all of them is on the brink of collapse.
Talks with the only prospective buyer for Municipal Mutual Insurance (MMI) have broken down, and the Department of Trade and Industry is likely to prohibit it from accepting further business.
The news has caused panic in councils throughout the country, because they will be without insurance cover and might find themselves liable for enormous claims dating back many years. It is feared that councils taking out fresh insurance - if other companies are prepared to take their business - could face greatly increased premiums that will lead to cuts in services and higher council tax bills.
One senior source at the Association of Metropolitan Authorities said: 'We are sweating. They represent 90 per cent of local authorities. They are the major player. If they collapse, claims will fall on the local authorities.'
MMI, which also insures several police forces, informed policy holders it was in trouble early this year, but in July it said that a French consortium, Eurosafe, had agreed to buy it out.
An MMI spokesman said last week that the company's survival depended on a deal with the French consortium because no other offers were on the horizon. He agreed that local authorities would have to pay compensation claims from their own funds if the company closed, but vigorously maintained that negotiations had not collapsed - a claim flatly denied by Eurosafe.
A spokesman for Eurosafe told the Independent on Sunday: 'We were studying the eventual possibility of them joining us, but it will not succeed. For economic reasons it is not interesting for us to get into such a joint venture. There will be no more meetings with MMI. This will be announced very soon.'
The DTI has allowed MMI to continue trading during negotiations, although the auditors Coopers and Lybrand said in their annual report that the company was operating below the statutory minimum margins of solvency, and could only be regarded as a 'going concern' if a buyer could be found to inject new capital.
According to the auditors' report, the company earned pounds 916.8m in premiums last year, with claims of slightly more than pounds 1bn. Its assets are listed at pounds 287.9m, but industry sources believe that these have been depleted to pounds 4.9m to shore up reserves and pay claims. It is estimated that a further pounds 1bn a year in claims would continue to arrive for several years after the company ceases trading.
Senior figures in the Association of Metropolitan Authorities - which is taking legal advice, and meets on 7 October to discuss the crisis - blame the Government for allowing the company to continue writing business when its solvency margins were known by the DTI to be well below the legal minimum.
MMI's problems have been caused by the unexpected size and number of claims from local authority policy holders, particularly on teachers' health insurance. In addition, the company has had to meet large claims from the Hillsborough football stadium disaster.
Even larger claims are expected from the growing number of child abuse victims emerging throughout the country.
Denis Parry, leader of Clwyd County Council - which faces more than 150 claims, some running into hundreds of thousands of pounds, from victims of sexual and physical abuse in council-run children's homes - said a collapse would leave 'every council in a mess'.
'If someone falls down over a pothole, they can claim against our insurance. When school buildings are set on fire, we claim insurance to pay for repairs. If MMI goes bust, we have to get new insurance immediately because of massive claims that may come through. Any increase in premium . . . would have to come out of the council tax. We would have to go to the Government for a discretionary bail-out.'
But one Clwyd source warned that new insurance could be hard to find: 'We tested the market and found most companies were not prepared to touch local authorities. If MMI does go bust, they won't touch us with a barge pole.'
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies
Comments