Independent reserving falls under trial spotlight
The reserving practices of Independent Insurance came under scrutiny as several of the company’s former claims staff testified in court last week.
The Independent’s former chief executive Michael Bright, the colourful co-founder of the company, and fellow defendants, ex-deputy managing director Philip Condon and erstwhile finance director Dennis Lomas, are currently on trial at Southwark Crown Court in London.
The three are accused of “conspiring together, and with others, to defraud directors, employees, auditors, actuaries, reinsurers, shareholders, policyholders, creditors and others”.
The court heard that in Bright’s view the company had often over-reserved and that he wanted reserving to be correct.
Prosecution witness Michael Watts told the court of Bright’s opinion, based on Gross Case Development (GCD) figures, of an unexplainable gap between savings on paid and settled claims and the increases in reserves for outstanding claims.
Watts said: “It is too simplistic to just look at the savings and say it was over-reserved.”
According to Watts, Bright had exerted pressure on senior claims management, particularly ex- group claims manager Patricia Clarkson, to visit the company’s regional offices and audit them where the gap between pending and closed claims reserves was deemed to be too wide.
Later in the week Clarkson herself took the stand and explained that the issue first arose in January 1997 when the claims team was presented with GCD forms to calculate whether the correct level of reserving was being applied.
Clarkson told the court of a memo she sent in 1999, which said: “I do not want to give the impression that reserves are over the top as I do not believe this to be the case.”
She added that sometimes cases were left on the whiteboard instead of being entered into the system, which was also referred to by other witnesses.
Clarkson said: “Sometimes there was a difference of opinion on the true value of a claim, but other times, no reason was given as to why some claims were not put in the system.”
Another memo written by Clarkson and read out to the court revealed that she did not agree with Bright about evidence of over-reserving based on GCD reports, referring to a “continuing ban on all reserve increases”.
Clarkson added: “Whatever we did in claims and reserving was on the basis of instructions from senior management.”
The case continues.