I'm sure it's all very simple really, but..

What exactly is the difference between ‘self-insurance’ and ‘no insurance’ then? Since, that is, the Australian owners of the Northern Bank have said they will bear the cost of a £20m robbery in Belfast. They are, however, keen to stress that customers will not be affected [financially, I assume] by the theft – I should bloody well hope not.. but we’ll see.

  • Lafcadio

    Self-insurance is in essence “no insurance”; it will be absorbed by NAB. £20m is a sizeable chunk of cash, no matter how you look at it, but in the grand scheme of things, it’s not a huge amount, in the context of a sale price of around £1bn (I think) for the Irish banks that NAB are selling.

  • peteb

    That question was (a little) rhetorical, Lafcadio. It’s bugging me that the media is simply parroting the statement on ‘self-insurance’ from the National Australia Bank without querying it.

    As I understood it, there would normally be external insurance against major theft.. in which case either the Northern Bank didn’t have that insurance… or something about the robbery invalidated it.

  • slackjaw

    No expert on insurance, but I’m sure it depends on the cost of insurance against major theft. If the bank works out that it’s not worth paying, then you can be pretty sure it’s not worth paying.

    As for if something about the robbery invalidated an insurance policy – the chances are that if they did have proper insurance, the security would have been a lot tighter so as to ensure that the policy could not be invalidated in the event of a robbery.

  • Pat Mc Larnon

    For self insurance read, ‘the next time you are overdrawn and we usually charged you £100 for a £2 letter we are going to charge you £150 in future’.

  • Young Fogey

    Really big firms often don’t bother insuring risks as it’s cheaper for them simply to carry their own risk – the bigger the firm, the closer it comes to resembling a statistical universe in its own right.

  • peteb

    YF, which makes the ‘self-insurance’ line nothing but PR spin.

    The readiness of the media here to parrot that line is part an all too familiar pattern.

  • Lafcadio

    pete – it would appear that NAB simply chose to self-insure against theft in this case; which doesn’t mean they simply forgo insurance, rather they would have performed an appraisal of the risk, decided it was uneconomic to insure, given they had the financial wherewithal to self-insure, and presumably set aside a reserve to this end.

    I don’t imagine it’ll affect customers directly – NI banks don’t need an excuse to gouge their “valued customers”…

  • Young Fogey

    YF, which makes the ‘self-insurance’ line nothing but PR spin.

    Oh, of course, I’m just pointing out that it’s quite normal practice rather than something a bit dodgy. Northern Ireland banks save their energy for doing dodgy stuff to gouge their customers with.

  • peteb

    I know you are, YF, I’ve just got my language radar working overtime this morning.. 😉

    It’s the use of the term ‘insurance’ in the statement by NAB (and propagated by the media) which is winding me up.

  • Beowulf

    If they use the word ‘insurance’ they’ll have to have posted a chunk of cash with the local government and gone through all the normal regulations governing insurers. Self insurance is possible if you have enough cash.

    If you’re a an organisation with enough risk to bring down most insurerance companies then self insurance may be your only option, never mind being a better option.

  • Beowulf

    And it was a million one in bearer bonds, they ignored the loose change…

  • willowfield

    I agree with Pete. The media should be querying this term instead of accepting it at face value.

    The bank obviously assesses that it is more cost-effective to bear the risk itself rather than pass it on to an insurance company. In other words: no insurance.

  • peteb

    Here’s my point, Beowulf..

    Their statement actually means..

    “£20million? that all? We can cover the theft of £20million from the profits we’ve set aside”

    And, just in case anyone doesn’t get.. I do understand why they don’t say that.

  • Beowulf

    It means the bank undertook to license themselves as an insurer, either because no-one could take on their risk, or because it was better value to do so.

    If the media explaned every term that the masses don’t understand we’d need a truck to deliver a single paper.

  • Beowulf
  • Beowulf

    Just in case anyone remains confused, to say ‘self insurance’ equates to ‘no insurance’ is like saying that ‘self employed’ equates to ‘unemployed’.

    Self insurers undergo every legislative hoop that a specifically set up insurance company does. The cover is there, it’s guarenteed by law, it’s not some cavalier “we have loads of money, let’s just do as we please” attitude.

    The psuedo media webloggers should probably do at least a portion of the research the real media does before it opens it’s gaping maw.

  • peteb

    Beowulf

    In plain language then..

    They decided, after calculating the risk and potential premiums, that they should, and could, deal with the impact of such a theft themselves.. and then set aside enough money to do that.

    BTW I’m not actually criticising them for doing that. Just pointing out that is what they did.

  • Beowulf

    So you’ll concede it’s not “PR spin”, “no insurance”, and that “the use of the term ‘insurance’ in the statement by NAB” is quite correct?

    🙂

  • peteb

    I’ll concede that they, legitimately, have the losses covered by their own resources.. and that they have used the correct technical term – “self-insurance” – to describe that procedure.

    🙂

  • Beowulf

    Already you’ve been around political types too long.

  • armaghman

    Beowulf’s definition of self insurnace is the correct one. However when you set up a separate legal company to insure risks which is 100% owned by you unlike the rest of Joe Public when the time comes to present a claim one tends to find that they pay up.

    Contrast this with other situations where when an ordinary member of the public wants to claim on house insurance they will try every trick in the book to slither out of paying a claim

  • DCB

    I agree with Beowolf. It’s not some sort of cowboy behaviour, in fact it is often the only think that can be done. Insurance market liquidity can be very volitile. I doubt if any large auditing outfit can get third party cover anymore.

    Another advantage is that you can legitimatly put your self-insurance company, or Captive as they are known, in a tax heaven. You can then take a charge to your p&l for the insurance premiums that go to your captive, so you get tax releif on the payment but of course the income in Burmuda is not taxed. Also the funds of the captive can be invested and grow away for years without the interferance of the tax man.

  • James

    How about another question here?

    Who actually SAW the cash?

  • smcgiff

    What DCB said –

    The term Self insurance was actually intended so the ‘common man’ would understand it. Captive would indeed be the term used within the industry.

    It’s being increasingly used in Ireland and not just to avail of tax benefits, but because companies were sick of insurance companies paying out on claims as it was/is cheaper for the insurance company to settle out of court with the plaintiff and just hike the insurance premium of the insured.

    So ‘self-insurance’ also provides control over payments for spurious claims.

    Sory ye asked?