Brendan O'Connor: Quinn's pot of our rainy day money full of holes
The self-styled wronged hero used the money held in trust for us to pay off his gambling debts, writes Brendan O'Connor
There is a concept in insurance called uberrimae fidei, or utmost good faith. Essentially utmost good faith means that if you are looking for insurance from someone, you should disclose to them any facts that might be relevant to the insurance contract, whether they specifically ask you or not.
The rather archaic terminology perhaps harks back to the origins of insurance, when it was conducted by gentlemen in coffee shops, but it does contain in it the very important notion that insurance is a bond of trust. And just as the insurer requires full disclosure from the client, so too should we be able to trust the insurer.
Because, when you think about insurance, in the wrong hands, it could be a class of a ponzi scheme. The insurance company gets in your cash now, but pays out only if and when, so its payouts are always in the future. So really, if you were unscrupulous, you could make false promises to people about unrealistic returns, and then, when you did eventually have to pay them off, you could just pull in some of what Breifne O'Brien called "more suckers".
Which is why insurance is such a highly regulated industry. The people who do it need to be watched so that they don't give into the temptation of abusing all that lovely steady stream of cash they get in. We need to ensure that they are putting away plenty of it for a rainy day. Because that's what insurance essentially is -- putting money away for a rainy day. And we trust the insurer to do it for us.
Not that most of us were thinking of the rainy day when as young motorists, who couldn't get affordable insurance anywhere else, we got our first insurance from Quinn Direct. No one plans on ever having a car accident. But legally you have to have insurance to drive, and Sean Quinn allowed many young drivers to fulfil that legal requirement cheaply.
We didn't think about whether Sean Quinn was putting enough away for the rainy day. We didn't care really. We assumed someone was keeping an eye on that. They wouldn't just let any gangster collect insurance money and mess around with it, would they? There were regulators for that kind of thing. And besides, Sean Quinn was a man you could trust. He was a very 'umble man, a conservative type who didn't bet more than a few shillings on a game of cards.
The next time that Sean Quinn or his supporters come out 'cnaimhseailing' about how he was a decent man, with a thriving insurance company, who would have been fine, if it wasn't for the city clickers and sophisticates who did him down, remember that bond of trust that insurance is.
Remember that while Sean Quinn, to some people, including himself, is an innocent man who provided much-needed jobs in an economic blackspot; in reality, like other economic miracles we could mention, Sean Quinn's miracle was an illusion. In fact, Sean Quinn was allowed to collect our rainy day insurance money and abuse it. He didn't put away enough for our rainy day. He used our rainy day money as if it was his own, to cover gambling debts. And then he proceeded to go into the UK and collect up more money from more suckers, purely to keep the cash flowing in, but with no real eye to the future, when that money would have to be paid back.
Sean Quinn still claims that he was running a profitable insurance company. But given that insurance is a licence to collect
money from people, it's not hard to look profitable in the short run. As long as you get more suckers in, you can keep it looking good.
It's when it comes to payback time that the real profitability of an insurance company will show. And now, you and me and everyone we know, are going to pay back one and half billion or more to balance out the huge profits Sean Quinn claims he was making by collecting money off people.
Blinded by greed and perhaps a gambling addiction, Sean Quinn raided this pot of money he held in trust for us to pay off his gambling debts in Anglo Irish Bank. Furthermore, this money, our money held in trust, was used to guarantee debts run up by other parts of the Quinn group, which included a huge property punting arm at this point.
When the Financial Regulator put an administrator into Quinn, he reckoned that the reserves of the company -- the pot of our money that Quinn held for the rainy day -- had been depleted by about half a billion, due to other Quinn Group creditors having a lien over it. In the end, €200m of the one and a half billion we will now pay back for Quinn is money to pay off banks and bondholders to buy off their claim over the assets of Quinn Insurance.
At one point, Quinn was finding it hard to keep pulling in new suckers to keep his quasi ponzi scheme going, so he headed to the UK, and in what seemed like a stunning coup, grew his business there fast and furious, offering insurance at prices other insurance companies couldn't match.
In just three years from 2005, he increased his UK business tenfold. But then, when the actuaries were sent in to look at the UK business, they discovered a €400m hole there. One example of Quinn's eagerness to collect money in the UK is that the company sold €65m in professional indemnity insurance there on which it will pay out over €300m in claims. The proper practice, as you could imagine, would be that insurance on which you were going to pay out €300m, should be sold for €310m. But that would have required realistic prices, and when you're anxious to get in new suckers, you don't charge them realistic prices.
The messing in the UK is rather kindly put down to a misunderstanding of the UK market. But bear in mind that the Quinns would have had plenty of actuaries working for them too, who should have been just as capable of working out that the UK business had a €400m hole in the rainy day pot. But somehow they didn't. Sean Quinn, for his part, puts it all down to the rest of us not understanding his business model.
Quinn now professes to be shocked by the €1.65bn-and-possibly-more hole in Quinn Insurance. He says that if only he had held onto the business back in 2010, none of this would have happened. He claims that our rainy day pot, held in trust by him, was not affected by the fact that it had been offered as security against €1.27bn in loans on property and other Quinn Group activities.
In other words, Quinn seems to believe that this €1.65bn is a bit of an illusion. Like all guys who borrow money at work to gamble, he believes he could have paid it off if only he had a chance.
But the illusion, he will find, was the notion that you could keep collecting money off new suckers and that you would never get caught up with.
Perhaps now Sean Quinn should gracefully accept that the scam and massive breach of trust that was Quinn Insurance has been well and truly caught up with. And that given that the rest of us are paying the price for it, he should maybe show some remorse.
But then, perhaps it is difficult for Sean Quinn to accept this. Because to do so would go against his self-image as a wronged hero. For Sean Quinn to accept the truth about Quinn Insurance would be to accept that he was a liar who broke the trust of everyone who placed their faith in him and his insurance company.