Sunday, April 17, 2011

Motel Insurers Take A Dive

Some moteliers may be aware that the motel industry's "preferred insurer", Western Pacific Insurance Limited was placed into receivership earlier this month.

With a lot of Christchurch earthquake claims reportedly yet to be assessed, Western Pacific currently has creditors and unsettled claims worth $5.8 million against assets of less than $4.7 million.

Like us, moteliers will be currently receiving unsolicited phone calls from insurance agents that are kindly inquiring if they can be of any assistance.

The phone call that I received this week (I will not name the insurer) was quite up-front and wanted to know if we had the misfortune of being insured with Western Pacific Insurance. The caller seemed to be disappointed when I said we were not and was surprised when I took over the line of questioning.

Until recently, Queenstown based Western Pacific were targeting motel businesses and we can only second-guess that a hard core of moteliers were lured into purchasing cover. Many moteliers were introduced to Western Union via their trade association and were attracted by the offer of  low premiums and monthly payment options to smooth out cash flow.  

Western Pacific's "preferred insurer" moniker may have provided a measure of comfort for those moteliers that may not have carried out the necessary due diligence before transferring insurance cover.

During the sales process with Western Pacific, moteliers were often pleasantly surprised after they faxed through their rates schedule from their existing insurers by being consistently quoted fees that were substantially lower than their current insurer.

Was the demise of Western Pacific the victim of unfortunate circumstance by a series of "unpredictable" natural disasters or was the company a train-wreck waiting to happen by mismanaging risk?

With the benefit of hindsight, it is easy to find reasons why the motel industry shouldn't have been associated with Western Pacific.

For the last 3-years, Western Pacific Insurance Limited had only achieved a poorly "B" claims paying rating as issued by the Standard and Poor's rating agency. Why would anyone wish to have their risk covered by an insurer that was assessed as "weak?"

We were unable to find the required disclosure of the Standard and Poor's "B" rating on the Western Pacific website, however much is made of the company's unrelated agreements with "A" rated reinsurers. The level of this cover is not disclosed.

After the fact, insurance industry insiders have been reported as claiming that they were wary of Western Pacific's risk due to their low rating and their MO to "buy business" by offering below market premiums. It has also been claimed that brokers were encouraged to sell Western Pacific's cover by being enticed with high commissions.

In addition there are the rumours that the Insurance Council rejected two applications from Western Pacific to join its association and it is interesting to speculate why this may have been?

Could one of those reasons have been accusations of Western Pacific director Jeffrey McNally being accused of dodgy dealings in his former insurance career in Australia?

Hindsight is all very well, however we feel the pain of those moteliers that have been exposed and are experiencing a period of worry and uncertainty. We trust that they are being well advised and supported.

I guess there have been valuable lessons learned; however a few questions remain unanswered...

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