Tax cuts will help ailing insurers

The Association of British Insurers (ABI) insists that the proposed reduction in VAT from 17.5% to 15% will save the insurance industry at least £70m a year. As many insurers have been struggling in the hostile financial climate this could make all the difference to troubled companies.

The ABI stated that in 2007 the insurance industry was hit by £495m in irrecoverable VAT costs; if VAT was cut to 15% this figure would have been reduced to only £424m.

With so many institutions struggling to stay afloat during the current economic crisis caused by the credit crunch, this move may be enough to save jobs and keep premiums down.

Struggling Direct Line and Churchill insurance owners look for rescue package

The insurance arm of Royal Bank of Scotland (RBS), the struggling parent company of top UK insurance brands Direct Line and Churchill, is subject to an advanced bid valued in excess of £3 billion. If successful private-equity group CVC and Swiss Re, the world’s largest reinsurance group would take a 51% stake in the business, according to The Times.

This could affect as much as half the population as, with 26 million policies, RBS Insurance is the second-largest general insurer in Britain, the largest motor insurer and the second-largest home, travel and pet insurer.

Like most other banks RBS has been hit hard by the credit crunch, and recently lost chief executive Fred Goodwin who resigned after the bank was forced to sign up to a rescue deal likely to make the British government its controlling shareholder in the short term.

Watchdog set to demand loan insurance crackdown

Last year the Office of Fair Trading alleged that banks were harming customer interests by loading cheap loans with expensive insurance policies and now Britain's beleaguered banks are set to receive another blow when the Competition Commission announces a crackdown on the huge profits lenders make on insurance products, according to the Financial Times.

The commission, which has been probing the sector for over a year and a half, plans to impose strict limits on the £5.5bn market for lending-linked sickness and unemployment insurance, which could slash the reported £1.4bn of excess profits the banks are claimed to earn through the sales, and possibly lead to a rise in the already soaring price of credit as lenders pass the costs on to consumers.

The commission wants to ban lenders from selling insurance at the same time as loans, giving customers a few days to shop around for better deals. It will also demand an end to the banks' practice of charging customers an up-front lump sum, on which interest is then levied, rather than staggering payments as with most other types of insurance.

The banks, already feeling the strain of the current economic climate, are expected to fight the plan.

AIG Insurance fights for life

The ailing insurance giant American International Group (AIG) has been granted permission by New York State to gain access to $20bn (£11.1bn) of assets in subsidiaries to stabilise the parent company which has posted losses totalling over $18.5bn (£10.3bn) in the last three financial quarters.

AIG, is the latest victim of the credit crunch which has already sent Lehman Brothers into bankruptcy and forced the sale of Merrill Lynch.

This intervention should now ensure that policyholders of the world's largest insurance company are protected.