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Quinn deal could pay off despite levy hike

NO-one likes paying extra charges, particularly in times like these, so news that the sale of Quinn Insurance could trigger yet another levy is likely to go down like a lead balloon.

The reality, though, is that things could have turned out an awful lot worse.

Under the deal being drawn up by Anglo Irish Bank and US insurance giant Liberty Mutual, the bulk of Quinn Insurance's outstanding claims will be taken over by the insurer's new owners.

This is good news for policyholders at large -- if the new owners are taking over some outstanding claims, those claims won't end up calling on the levy-sucking Insurance Compensation Fund.

Another pile of claims is indeed being cast adrift by Quinn and Liberty and will have to be looked after by Quinn Insurance's administrators for years.

This batch could end up triggering a call on the Compensation Fund if its cost outweighs the level of assets left with the administrators.

Crucially, only some of Quinn Insurance's outstanding claims will have recourse to the compensation fund, so the scale of any shortfall is limited.

Under another deal, the new owners of Quinn Insurance could have left the entire book behind, out of a not-unreasonable fear of the unknown, leaving a far greater potential call on the fund.

The other policyholder upside of the Quinn Insurance deal is competition. Many of the bidders fighting it out with Liberty/Anglo already have operations here.

If insurance giant Zurich, believed to have come in second or third place in the bidding war, had gotten Quinn there would have been one less insurer in the market. That's never good for prices.

Beyond the general wisdom of 'more players equals lower premiums' there are advantages to having Quinn, in particular, active in the market place.

Since the Quinn administration a year ago, other competitors have sharpened their claws and Quinn's downward pressure on insurance premiums isn't what it used to be.

RSA, for example, recently snapped up low cost online outfit 123.ie and begun offering insurance through them at a far lower rate than RSA's own brand.

But Quinn has always claimed a unique pricing advantage, a direct-settling claims model that allows the company to keep its cost base well below competitors.

It was this advantage that allowed Quinn to power through the industry when it first set up, and the insurer's loyalists insist its years of profitability were built on inherently sound principles.

How the new management team, soon to be parachuted in from Liberty's US operations, will deal with Quinn's "unique" model remains to be seen.

There will certainly be changes. Quinn was infamous for pricing its insurance policies without the services of a single actuary -- in most insurers a team of actuaries is responsible for setting prices.

Liberty is likely to impose that discipline on Quinn and other 'big business' practices may also sweep through an organisation that's always prided itself on being something of a maverick in the often-staid insurance world.

If Liberty can manage to balance those practices with the low-cost approach of Quinn, and the can-do ethic of the insurer's staff, then Irish policyholders will ultimately reap the benefit.

If Liberty do a really good job and manage to replicate Quinn's once breakneck growth, the insurer will fetch a decent price when it's ultimately sold and Anglo/the taxpayer will get a big whack of money back.

Against all that, the prospect of a couple of extra euro on an insurance premium actually isn't so bad, even these days.

Irish Independent