Important insurance lessons from the Cash Plus fiasco
QUESTION: My car is insured comprehensively through a broker. It was recently involved in an accident and was written off. The third-party insurers have accepted liability by word-ofmouth. In the meantime, my insurers have offered to settle my claim based on a 2014 valuation. The proposed net settlement is $524,000. Preaccident value less $36,000 deductible, minus salvage value of $160,000. Coverage on my car was provided under a policy for company employees. I do not have a copy of the contract. The summary of the policy that I have does not speak to situations like mine where salvage is involved. Can the insurer force me to the salvage? Do I have any options? INSURANCE HELPLINE: Are there any lessons to be learned from the Cash Plus fiasco in which 40,000 persons lost an estimated $19 billion in an investment scheme that the creators walked away from scotfree when the matter finally came up for trial in court? Yes. Plenty.
Can the experiences of the many victims that separated ‘investors’ from their money – in many cases, life savings – be applied to other transactions like buying insurance generally, and motor vehicle insurance in particular? Is there any relevance between these matters and the two questions you raised?
The starting point for understanding the lessons is an extract from a statement from Office of the Director of Public Prosecution. DPP Paula V. Llewelyn QC wrote: “the modus operandi of ... Cash Plus made prosecution difficult”. The mechanisms for collecting monies from investors were loan agreements.
“Under the carefully worded loan agreements which the depositors signed,” said the DPP, they “made loans to Cash Plus, which would be repaid with interest. Based on the rates of interest offered, depositors/lenders would actually or could, potentially, have been in breach of the Moneylending Act”.
Simply put, the way in which the agreements were written and agreed to by the investors ‘actually or could potentially’ breach the Moneylending Act. The beneficiaries of the scheme, however, were blameless!
Lawrie Savage, a former head of the insurance regulatory body in Ontario, Canada, provides in his 1998 paper, Re-Engineering Insurance Supervision, the context for this response.
In making the case for supervision of the insurance industry, he writes: “Because premiums are paid now, in return for a benefit which may not occur until many years in the future, the purchaser of insurance is entirely reliant on the expectation that the insurer will still be in business at that unspecified future date and that it will then have sufficient financial resources to discharge its obligation. In this changing and uncertain world, it is not a foregone conclusion that this will always be the case, particularly having in mind the difficult and volatile economic circumstances that are frequently characteristic of developing countries. Nor can one rule out the possibility that negligence or unscrupulous behaviour (on the part of management), rather than difficult economic circumstances, will be the cause of the company’s