Independent collapse highlights Basel II op risk insurance dilemma

LONDON - Some of the concerns of banking regulators about the effectiveness of insurance cover when operational disaster strikes a company could be illustrated by the plight of Independent Insurance, the UK general insurance group that collapsed in June amid suspicion of fraud.

Independent apparently had an insurance policy covering fraud and negligence by the company's directors, but there has been no early payout and the terms of the policy seem uncertain.

Regulators with the Basel Committee on Banking Supervision have said they might accept a role for insurance in reducing the capital charges for operational risks, such as fraud, proposed in the Basel II bank capital adequacy accord.

But they remain concerned about whether insurance policies will pay out quickly