Insurance group urged police to hide size of inquiry

BRITAIN'S ninth largest insurance group, on the brink of collapse, pressured two county councils and a police force to cover up the scale of the country's biggest child abuse scandal.

Solicitors for Municipal Mutual Insurance told senior police and council officials in North Wales that they would lose their insurance cover if they 'generated an atmosphere which encouraged claims' from more than 300 victims of child abuse in North Wales children's homes.

Municipal Mutual Insurance, which insures almost all local authorities in Britain, faces collapse after a spokesman for the French consortium Eurosafe said negotiations had failed. An auditors' report in August said the company could be regarded as a 'going concern' only if a buyer could be found to inject new capital. The company had failed to meet the statutory minimum margin of solvency, the report revealed.

The company's free assets have dwindled to under pounds 5m, compared with its minimum surplus requirement of pounds 130m. Coopers & Lybrand, the auditors, blamed the rising number and size of claims from councils.

A report by Touche Ross, the accountants, has warned that MMI is unlikely to be able to meet claims from local authorities fully if ordered to stop trading by the Department of Trade and Industry. Payments may be deferred for many years. Individual policy holders may also lose part of their claims. The Automobile Association said more than 300,000 of its Homesure contents policies were insured by MMI.

The company's problems have been known since January, but fears were alleviated when an agreement in principle was reached for MMI to be taken over by the French consortium in May.

Negotiations continued throughout the summer despite payouts of more than pounds 2m to pin- down child abuse victims in Staffordshire. Far more claims are expected from 80 victims of sexual abuse and regression therapy in Leicestershire children's homes.

But on 4 September, North Wales Police said that it was investigating the 'biggest ever child abuse scandal in Britain', involving 300 victims. MMI summoned representatives of North Wales Police, and the two counties under investigation, Gwynedd and Clwyd, to a meeting on 9 September. An MMI solicitor told the three policy holders that unless they denied the scale of abuse in North Wales, they could lose their insurance cover. They were told that all public statements must be cleared with MMI.

One senior social worker complained that MMI had blocked the publication of an independent report on sexual abuse at one home in Clwyd and demanded an explanation for comments made by Clwyd officials in the Independent On Sunday last December which revealed the scale of sexual abuse in the children's homes.

Councillors were told that if insurance cover was withdrawn because of their statements, they could be surcharged to pay child abuse claimants.

Clwyd, like all councils insured with MMI, has suffered 40 per cent increases in premiums, and has had to accept to pay the first pounds 100,000 of any claim on policies issued since April.

MMI's chief executive, Brian Wright, strenuously denied last night that there was any connection between the state of negotiations with the French consortium and the warnings issued to North Wales police and council officials. He said he was planning to meet Eurosafe officials this week and that a statement by a spokesman for the French company that negotiations had collapsed was untrue.