THATCHAM’S FORMATION WAS LARGELY DUE TO CAR INSURANCE SCAMS
Let us go back to 1969. There were a number of significant insurance scandals that arose in the 1960s…
The UK had had a triangle of law for some time… since the 1930s motorists had to be insured for third part damage by law, and as a condition the driver had to possess a licence and the vehicle had to be able to pass a Ministry standard inspection for roadworthiness. If any single component was missing, the other two are automatically voided.
Due to the significant increase in motor vehicle ownership as well as prosperity after the austerity of post war 1950s Britain, the 1960s became awash with insurance companies. Some of the financial regulations especially around honouring pay-out and what happened if an insurer had insufficient funds to meet all obligations, were not well defined.
Unfortunately, not for the first time, financially opportunistic companies, many from outside the UK, sought to get some of the profits. The result came to a head in 1966 when Emil Savundra, owner of “Fire, Auto and Marine Insurance Co, Ltd” after a very high -profile life with plenty of evidence to show he spent freely including associations to the Profumo affair, let his company collapse and leave 400 000 policies unsupported. This was after years of under payment or simply non-payment of claims.
The bonds on deposit? Fake.
The cash on hand? Spent.
The whole thing was a pyramid sales scam, where the incoming policy cash enabled Savundra, a now international fraudster, to take many, people to the cleaners. Live on television with David Frost, in 1967 he stated the policy holders were peasants, and showed no compassion at all for damage his company had needlessly caused. He went on trial and was jailed in 1968.
“Fire, Auto and Marine Insurance Co. Ltd” wasn’t an isolated case. By 1966 another company “Transway Insurance Co. Ltd” was in the process of failing, as had many smaller insurers. Some companies were honest, many were not. Concerned for the apparent mess and hardship this had caused, HM Gov collected the insurance company owners together to make it clear this was not ‘business as usual’ and either: Insurance, and especially motor insurance, would be completely regulated by law including price control or the sector could do the job for themselves.
The sector opted to self-regulate, but HM Gov were unconvinced. They proposed a mechanism:
An independent body not owned by any single insurer to regulate the broad principles of insurance. With regard to motor insurance this would eventually encompass losses due to collisions involving uninsured drivers, support across the trade should any single company get into financial difficulty, provision of reserves and so on.
Another independent body not owned by any single insurer, to establish the cost of vehicle parts and the cost of collision repair process. This, among other things, was the start of the Group Rating process, and long-term policies such as specifications of theft deterrent devices.
The insurance industry was represented in 1968 by a gaggle of trade bodies include:
British Insurance Association
Life Offices’ Association
Fire Offices Committee
Accident Offices Association
Industrial Life Offices Association.
Accident Offices Association (Overseas)
The collective insurance company rumbling went on, and HM Gov became impatient. It issued a deadline. By the way, George Darling MP was the Minister of State at the Board of Trade from 1964 until 1968, and was a former journalist. It was down to George and a few other MPs who shaped the hysteric outrage into meaningful law.
So, it came to pass the first officers of the Motor Insurance Repair Research centre (MIRRC) got into the insurance trade bodies collective panel van, and drove from central London along the motorway heading west in August 1969. The mission was to find a building, rent it and set up MIRRC ahead of the HM Gov deadline, translating to a matter of a few weeks.
The place they found? A building on an industrial trading estate next to the village of Thatcham. The company, MIRRC, was established in the time it took to drive from central London to Thatcham – in time to negotiate the building lease.
With the two parts of the mechanism in place, a highly sceptical HM Gov agreed to extend the deadline. The pressure remained ‘on’ and Lloyds decided from the outset not to participate – they relied on their history as an international maritime insurer as a sign of integrity.
HM Gov pressed ahead with legal reform, introducing revised or now laws to address the way insurance companies should behave – but the cost control of motor vehicle repair, the Holy Grail of motor insurance profit, remained in the independent world of the trade bodies (which merged in 1985 to form Association of British Insurers – still without Lloyds) and MIRRC Thatcham, now called Thatcham Research.
The remnants of the jaunty 1960s finance led to another major insurance company collapse by early 1971, ‘Vehicle and General Insurance Co Ltd’ which traded as:
- Automobile and General Insurance Co. Ltd
- General and Commercial Motor Insurance Co. Ltd
- Metropolitan General Insurance Co. Ltd
- Transport Indemnity Insurance Co. Ltd
- World Auxiliary Insurance Corporation Ltd.
At the time it was estimated around one million motoring policy holders either had their policies eliminated or were on the point of renewal with a non-existent company. At the time ‘never again’ was said – yet it did, in 2001 with ‘Independent Insurance’, affecting 400 000 policy holders. The policy holders were largely covered by the Policyholders Protection Act, passed in 1975 as a result of ‘Vehicle and General Insurance Co Ltd’ collapse in 1971.
If only the money counters could run straight …
Story by Andrew Marsh
