When risk insurance becomes a risk in turn

A wise man once said that “time and unforeseen occurrence befall them all” when referring to how unpredictable life can be. And, of course, we all know the expression of “being in the right place at the right time”, or even worse “being in the wrong place at the wrong time”, depending on the sort of event that might befall us. This naturally brings us to the topic of risk and the need to manage it by protecting assets and covering legal liabilities with the right insurance cover – and how recent events in the New Zealand insurance industry highlight just how unforeseen things can be when it comes to managing risk.

How the unforeseen can even catch a provider of risk insurance off guard
Until very recently, CBL Insurance Limited was one of the largest and oldest providers of financial risk products for property finance, credit insurance, reinsurance and financial surety in New Zealand, with strong relationships with international re-insurers, and a large portfolio of clients in New Zealand and all around the world.

So, no wonder then that it came as a bit of a shock when last month the New Zealand High Court ordered CBL Insurance to be placed in interim liquidation on an application by the Reserve Bank of New Zealand as the insurer’s prudential supervisor.

CBL Insurance’s many years of carefully scrutinising the financial risk profile of their clients and customers didn’t, it seems, extend to themselves. Consequently, they have now fallen victim to that “unforeseen occurrence” that they prided themselves on being able to protect others against.

So, what’s been the fall out of the CBL collapse?
Given the fact that CBL Insurance specialised in offering the insurance that thousands of builders take out in order to offer property buyers a 10-year builder’s “guarantee” against the risk of shoddy building work on newly built structures, it quickly becomes apparent that there’s a huge potential for CBL’s collapse to have left many, many residential, commercial and property investors in the lurch.

In the residential market, for example, thousands of homes built since 2007 alone in New Zealand are ‘covered’ by CBL-backed 10-year Homefirst Builders Guarantees. To owners of these homes, CBL’s collapse will definitely not be welcome news.

The phones to brokers and financial advisers have been running hot with clients seeking advice on how to deal with unspecified risks and whether they need to buy replacement cover – and if they are unable to, how to deal effectively with the uncertainty that this brings.

Elsewhere, the fall-out has been even direr as CBL had a substantial international operation with business in many countries. As a result, a number of insurance companies and providers of interim finance, even as far away as Denmark, who relied on CBL for credit surety and financial risk insurance have had to close their doors. And policyholders and beneficiaries of CBL Insurance are being advised to seek cover elsewhere.

A specialist insurance broker for the New Zealand market
Bonded NZ Limited provides specialist insurance services for the New Zealand market, offering clients expert advice on risk and the appropriate and cost-effective options available. In today’s modern, unpredictable world it’s vital to ensure you have adequate insurance cover to protect you in case the unforeseen should occur. So, get in touch with one of the team members at Bonded NZ today to find out more about our personal tailored approach helping you manage risk in your business.