Insurance is like purchasing a promise — a promise that your provider will help you out financially should something go wrong. It can be a crucial safety net, whether you need to cover medical costs after an illness, pay out for legal costs if you’re sued, or replace an item after it’s been stolen.
It’s importance is no more apparent than when policies are unwittingly allowed to lapse. This often has devastating consequences, even beyond the direct impact of not having a policy in place. Here are three sorry stories demonstrating just what can happen in this scenario.
1. UK medical centers suspended services over lapsed policy
Back in October 2021, the Blandford Group Practice, a group of general practitioner (GP) surgeries in Dorset, England, was forced to close due to a lapsed insurance policy. The policy in question was public liability insurance, something that protects a business “if customers, suppliers, or members of the public suffer property damage or personal injury”.
Because the insurance policy was no longer in place, Blandford’s four medical centers couldn’t remain open as they wouldn’t be covered if a patient filed a claim against them. This led to cancelled routine appointments and COVID vaccines for thousands of people, a particularly disastrous scenario considering it was at the height of the pandemic.
Speaking about the debacle at the time, patient Sarah Self stated that people in the area were very worried about delayed flu and Covid-19 jabs, as well as other treatment delays. She said: “People could end up dying with missed diagnoses of cancer. How long is it going to take to fix? The backlog in the community will be terrible.”
Fortunately, the medical centers were able to re-open within a few days, but this demonstrates how insurance really can be a case of life or death.
2. Millions of homeowners lost coverage in fire-ravaged California
California made headlines worldwide in 2021 as wildfires tore through the state. Throughout the year, there were 8,835 fires in total over an area of 2,568,948 acres. The fires destroyed 3,629 buildings and tragically took the lives of three people, as well as injuring 22 others. All of this made it California’s biggest fire season in history.
Things worsened when a California moratorium guaranteeing insurance in wildfire-threatened areas lapsed in September 2021. This put up to 2.4 million homes at risk of losing protection, with many insurance providers leaving the state and those that remain opting to increase their prices. Many won’t be able to fund repairs to fire-damaged homes should more fires hit. To make matters worse, the likelihood and severity of fires are increasing in California year-on-year as a result of climate change.
3. Credit Suisse froze $10 billion in funds invested in Greensill after an insurance lapse
2021 was also a bad year for financial services company Greensill Capital. The company was forced to file for insolvency protection on March 8th after being unable to repay a $140 million loan to Credit Suisse and “hit by defaults” from Sanjeev Gupta’s GFG Alliance, one of its principal customers. A big factor in this financial meltdown? That’s right: a lapsed insurance policy.
Rewind to July 2020 when a group of insurers (led by Tokio Marine) halted its insurance coverage of $4.6 billion worth of Greensill’s working capital. The decision was a result of Tokio Marine discovering that an employee had provided coverage that exceeded its limits. Although Greensill attempted to re-gain coverage by both taking legal action against Tokio Marine and contracting other insurance companies, they were unsuccessful. This lapsed policy led to Credit Suisse freezing $10 billion in funds invested in the financial services firm, a decision that resulted in it filing for insolvency just a week later.
