The Financial Services Compensation Scheme (FSCS) is set to compensate Alpha Insurance customers following the collapse of a proposed deal to provide replacement cover for its policies.

Danish company Alpha was declared bankrupt in May 2018, and while the FSCS has worked to secure replacement cover for Alpha’s customers, negotiations have fallen apart.

The FSCS said that Alpha’s customers “cannot be expected to wait any longer”, and decided to instigate compensation proceedings directly to around 14,000 policyholders with 10-year latent defect/structural damage insurance policies, while the remaining 6,500 policyholders will be instructed on how to submit their claim. 

However, the FSCS is unable to provide ongoing cover for Alpha’s clients, which means self builders and homeowners of new developer builds could be affected. 

Why are Self Builders and Homeowners at Risk?

The FSCS has warned that Alpha policyholders may be in breach of their mortgage terms and conditions following the compensation scheme if they do not have a valid latent defect policy for their property. 

In most instances, developers are required by UK mortgage lenders to take out insurance on new-build properties to cover the property for 10 years following completion.

A latent defect/structural damage policy provides cover if a defect becomes apparent once building has been completed. 

If your mortgage terms and conditions require there to be a structural warranty, then you will be in breach of your mortgage conditions and need to seek a new suitable and lender approved warranty. 

This scenario is the same for those looking to or who are already in the process of remortgaging. If a lender requires a warranty to support the remortgage then homeowners will have to source a suitable alternative. 

Peter Richardson, director at Sennocke International Insurance Services, urged caution for those who will need to find a new lender. He said: What is unclear is how the lenders will react in the event their borrower is unable to secure a new warranty.”

Seek Professional Advice

The FSCS has advised all Alpha policyholders to obtain professional advice on seeking replacement cover as soon as premiums have been repaid.

Jimmy Barber, chief operating officer at FSCS, said: “Despite exhaustive efforts of FSCS and other parties, it has not been possible to transfer these Alpha latent defect policies to another insurer. Therefore, FSCS is paying return of premiums to eligible customers.

“We are very disappointed that on this occasion we have been unable to reach the desired outcome for our customers due to the complexity of the issues around obtaining replacement cover so will be paying return of premium.”

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