When the tanker struck the Pollard Rock, thousands of gallons of crude oil started spilling from her ruptured tanks. Detergent was sprayed continuously to disperse the slick, but it was like trying to hold back the tide with a broom.
Eventually the RAF and Royal Navy bombed it, using it as target practice. The idea was to burn the wreck and oil still on the surface as a final solution.
But beaches were left knee-deep in sludge and thousands of sea birds were killed in what remains the UK's worst environmental accident and the minimal quantifiable cost, in other word insurance claim, was £14.24m, in today’s terms that would be some £249m. The losses were incurred on the hull, the cargo and the consequential losses a disaster can cause.
This massive claim threatened to put some Lloyds syndicates out of business, as Lloyds always paid claims. If an individual member, (a ‘name’),’ could not pay, their personal worth, along with all those others who invested in the risk-carrying syndicates, were expected to pay. If you could not, your business faced closure.
But, unlike IFAs, syndicate members' risk continued for a specified period and a specified amount.
Most syndicates would reinsure (spread) the risk on big bits of kit, like a tanker. A spread of risk with others who were not directly involved in insuring the vessel. But the complexity and size of the risk and the claim meant that reinsuring saw the risk spread back to the original insurer syndicates, with the reinsurers reinsuring their risk. So the risk was more manageable.
Learning from history
So how can we learn from history, spread the 'risk' fairly, avoid a flawed 'polluter pays' model and create more simplicity and certainty for firms?
Simply put, every regulated firm should pay a simple percentage of turnover to the FCA each year as a new type of regulatory fee structure to cover the cost of regulation as well as building a financial services fund to pay for when things go wrong (similar to the Pension Protection Fund?). The complete opposite of the polluter pays and in complete harmony with the Lloyds model of spreading the risk.
This clearly defined cash ocean is locked, and if need be in the beginning underwritten by the Treasury, rather like the FSCS is today. It should not see the Treasury doing a cash grab on surplus funds as it has done with fines. This would be to specifically deal with consumer detriment for regulated products and advice only.
