While the HIH drama has been the focus of attention in Australia, the British insurance market is also experiencing the collapse of a major insurer. And like the Australian situation, there are allegations that the company, Independent Insurance, was heavily under-reserved. Britain’s Serious Fraud Office has announced a full investigation into the collapse of Independent, which has appointed a provisional liquidator and closed its books to new business.

Independent had been trying to stay afloat by raising fresh capital, but gave that idea up when the Financial Services Authority stepped in on June 18 and called in the Serious Fraud Office. Its founder and CEO, Michael Bright, resigned from the company’s board “with immediate effect and without compensation”. Mr Bright also resigned from the presidency of the prestigious Chartered Insurance Institute.

It’s expected that a criminal investigation into possible wrongdoing by individuals connected with the company could take up to three years. The provisional liquidator, PricewaterhouseCoopers, is investigating allegations that as much as $150 million in claims never made it into the company’s accounts. Questions have also been raised about reinsurance contracts bought by Mr Bright to bolster Independent’s capital position.

Independent is also understood to have taken on new higher-risk business during the past year, including the underwriting of credit risks. It caused the company’s actuaries to issue a cautionary note that its claims reserves were massively under-recorded.

The company’s 2000 employees are expected to be paid out in full, and a scheme of arrangement for creditors is also likely to be developed.

The Policyholders Protection Board – funded by the British insurance industry – is expected to pay out 90% of claims for personal policyholders and 100% for statutory claims in such areas as CTP and employers’ liability. However, damage and PI claims are among the commercial lines policies that are not covered by the PPB. Some elements within the insurance industry have now called on the British Government to follow the example of Australia, and release public funds to settle outstanding claims.

Royal & SunAlliance, which accused Independent of under-pricing its commercial lines business by as much as 50%, has bought Independent’s personal lines business in a deal worth about $50 million.