Home insurance insolvency

It’s unusual, but home insurance companies can collapse. Find out what to do if your home insurer goes bankrupt.

Kim Jones
Kim Jones
Updated 24 January 2022  | 3 mins read

Can a home insurance company go bankrupt?

Thankfully, it’s rare for a home insurance company to go bust.

Legislation and regulation requires insurance companies to have efficient systems and controls in place, as well as sufficient capital and adequate liquidity to cope if a large number of insurance claims are made simultaneously. For example, if extreme weather affects multiple areas of the country at one time.

But like any business, in certain circumstances insurance companies can collapse. This can be a worrying time for policyholders, especially if they have a claim in progress.

Key points

  • It’s rare that a home insurance company goes bankrupt, but it can happen
  • In most cases, the Financial Services Compensation Scheme (FSCS) can pay out 90% of any refund or home insurance claim due to you
  • To be protected by the FSCS, your insurer needs to have been authorised by the Prudential Regulation Authority (PRA)

What happens if my home insurer goes bust?

When an insurance firm collapses, the court appoints an insolvency practitioner (IP) to deal with the company’s financial affairs.

The IP recovers debts owed to the company and sells its assets to generate funds that can help repay the company’s creditors - those they owe money to or who have been left out of pocket due to the firm’s closure.

The IP, or your broker, should get in touch with you to let you know that your insurer has gone out of business.

If you have queries, want to discuss securing replacement insurance, apply for a refund or have questions about claims that are already in progress, you can usually find the contact details of the IP on the insurer’s or Financial Services Compensation Scheme (FSCS) website.

The good news is that, if your home insurance provider was regulated by the Prudential Regulation Authority (PRA) then the FSCS can pay towards refunding your policy and meeting any claims that are underway.

The FSCS is a free, independent service set up by the government to protect customers and pay out compensation when financial firms fail.

Will I be transferred to a new insurer?

In cases where you purchased your insurance through a broker, they’ll usually try to find you a replacement home insurance policy with a new company.

If you bought your insurance independently, in some cases the FSCS can step in to help find you a new, replacement policy.

The broker or FSCS will aim to provide you with a policy that offers similar levels of cover as your original home insurance.

You’ll simply need to accept if you’re happy with it.

The FSCS will then pay towards the cost of the new policy if you’re eligible under their criteria.

Will I be refunded if I’ve paid for my premium in full?

If a suitable replacement policy can’t be found (perhaps you had specialist cover), then the IP will calculate the pro-rata refund (minus any applicable fees or administration costs) that you’re eligible for.

They’ll pass this information on to the FSCS, who will pay you back 90% of the calculated refund.

What should I do if my insurer goes bust during a claim?

If you’ve made a claim that’s already underway, you’ll need to contact the IP.

Usually, they’ll put you in touch with the claims handling agent (also known as the ‘run-off agent’), who’s been assigned to handle policyholders’ claims. If not, you can find their details on the insurer’s or FSCS website.

The claims handling agent will examine the claim, arrange for any repairs that may be necessary and if the claim is eligible for payment by the FSCS, will contact them to arrange for payment to be made to you.

The FSCS will pay 90% of the value of your home insurance claim. (Some other types of insurance claims are entitled to 100% compensation from the FSCS, including third-party motor insurance, employers’ liability and whole of life assurance claims).

How can I avoid buying a policy with a home insurer at risk of insolvency?

It’s wise to check that any insurance policy you’re looking to take out would be covered by the FSCS if the insurer went out of business.

The FSCS can protect you if your insurer has been authorised by the PRA.

You can find out which UK insurance companies are authorised by the PRA on the Bank of England website.

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