An administrators’ report has shed light on the reasons behind Eric Insurance’s failure, ahead of a meeting of creditors on September 16. 

As previously reported, the insurer – which provided add-on motor vehicle-related products – decided to exit the market in July 2023 and stopped writing new insurance policies last year. 

The company had said it was well positioned to continue managing the run-off, but Kathy Sozou and Shaun Fraser from McGrathNicol were appointed voluntary administrators on July 28 this year. 

The Australian Prudential Regulation Authority is closely monitoring the process and today noted the date of the upcoming meeting, which will allow creditors to vote on a deed of company arrangement proposal as an alternative to Eric being placed into liquidation. 

The administrators’ report to creditors, released today, says the Hayne royal commission and subsequent reforms impacted the company's distribution model, and an overwhelming number of complaints led to the company’s failure.

It says directors blamed the “high volume of complaints from [fee-paid representatives] such as Claimo and Boomerang that were lodged with [the Australian Financial Complaints Authority]” in relation to add-on policies previously sold by Eric. 

Directors also noted “escalating AFCA fees and subscription costs” resulting from the increased number of complaints, and prolonged financial exposure after AFCA "effectively extended the timeframe for complaints". They said Eric was unable to sustain a solvent run-off due to the complaints and associated costs. 

“While the directors consider that Eric is presently not insolvent, the above circumstances led to the directors’ decision to place Eric into voluntary administration to preserve the available assets of the company for the benefit of active policyholders and creditors generally,” the report says. 

“The administrators do not dispute the directors’ reasons for the company’s failure.” 

APRA previously filed an application with the Federal Court to wind up Eric, but the hearing was adjourned to September 25 to allow time for the creditors’ meeting. 

More details on this story will be reported in our main Monday bulletin.