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Holiday insurance under a cloud

TRAVELLERS who have taken out travel insurance underwritten by HIH, FAI and CIC Insurance Limited should immediately check their cover.

According to the Australian Securities and Investments Commission full payment may not be guaranteed for those who are currently travelling or who have outstanding claims.

The provisional liquidator has agreed that for the time being, claims involving medical and hospital emergencies will be paid.

People who have not yet travelled but have purchased and hold current travel insurance through Jetset, Qantas, Air NZ, STA Travel, American Express, Harvey World Travel, Thomas Cook and any other AFTA travel agent should contact these organisations to determine whether the insurance was underwritten by any company in the HIH Group.

QBE Insurance (Australia) has advised that travel insurance policy holders will have their HIH policies automatically exchanged for identical policies underwritten by QBE In-surance.

Late last week HIH Insurance placed itself in provisional liquidation after the $2 billion company has been wiped clean.

The liquidators are estimating that HIH will deliver an $800 million half-year loss.

HIH suffered heavy losses through its $300 million takeover of FAI Insur-ance, in 1998.

When the HIH shares were suspended on February 27 they were trading at 21 cents compared with more than $3 three years ago.

HIH is not the first insurer to disappear. New Cap Re, GIO Reinsurance and ReAc have been other casualties.

Hartley Poynton financial services analyst Jamie Nicol said that if HIH had been fully reinsured then there would not be the same level of risk. But it’s unlikely that HIH did that, he said.

He said it was up to the company’s discretion to decide whether to reinsure and reduce risk.

“Some companies like Suncorp generally reinsurance all their risk but the more they reinsure the lower the return because they are taking all the risk off their balance sheet,” Mr Nicol said.

“The reinsurance or insurance market has been pretty tough over the past few years.

“This has encouraged some of the players to price fairly aggressively and that has now come home to roost both in reinsurance and HIH.

“What remains in Australia are now pretty good quality insurers. Both NRMA and Suncorp have huge levels of reserve. So the ones that are left are generally the quality end of the market and the insurance market has started to pick up in terms of profitability so I would not expect any other problems to emerge.

“The rest of the players in the Australian market are very sound, with good levels of liquidity coverage and financially very strong.”

Mr Nicol said AMP was mooted to be thinking about selling GIO for about $1.5 billion with NRMA or Suncorp being the most likely contenders.

Con Abbott, regional manager WA for the Institute of Chartered Account-ants in Australia, called on the regu-lators and the insurance body to combine to prevent any further out-break of “Insurance industry disease”.

“Whether it’s a case of accounting standards, prudential requirements or corporate governance being inadequate, the policy holders of Australia need to be absolutely assured that their risks are fully protected when they close the office door at night,” Mr Abbott said.

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