An insurance industry insider has pulled together this fascinating tale about the dodgy history of FAI and its founder, the late Larry Adler.

1. One might have to ponder why anyone would want to purchase an insurance company. To get a company’s business you just have to go along to a few “pet” brokers and tell them you will write the decent stuff at a discount. Then you just pick the eyes out of it.

It clearly wasn’t the management expertise that HIH wanted – Rod was shown the door effectively and in any event FAI’s performance had been patchy after the demise of Adler pere.

2. If one does actually want to merge another insurer’s portfolio into your own, a prudent management would usually send a team of experienced claims staff, adjusters and solicitors (usually mostly retired guys with no axe to grind in respect to their careers) to go through each claim file and make their own estimate of the quantum. This is expensive, slow and tedious but there are no nasty suprises later. It would be interesting to know if this was done by HIH in respect to FAI and if not why not.

3. HIH’s collapse was not the first in 30 years. VIP happened in the eighties. Meckler Esq. (prop) still lives in good style in Israel beyond the reach of the NSW DPP.

Most of this was written in relation to the Alpine Offset Fire – you will have to edit it.

Up to the mid eighties at least FAI wrote crap business and their net retentions were very low ie. they laid off most of their written risks with re-insurers, living off the investment income made before having to pass on premiums to the RI companies and the RI exchange commissions.

They also had until the tightening of the Federal Insurance Act very low running expenses. In fact they only had one person in their NSW underwriting office who was actually in any way qualified – and he was both very savvy and well qualified. The rest were (gentile) monkeys paid peanuts. In regard to claims though they employed a very cynical and resilient bunch of operatives who would “underwrite” the claims – that is look for loopholes to avoid providing indemnity under a policy. Nobody ever got fired from FAI for rejecting a claim.

Up to the eighties at least and possibly beyond, FAI had a monthly claims budget. If the payouts for claims had reached the budget for the month then it did not matter what the merits for the claim were, they did not pay it. They became very adept at this. For example they would unilaterally invoke a policy’s arbitration clause. Arbitration is a complex thing to set up and there are not many arbitratrators around so it would take months for the arbitration session to be arranged. Then at the appointed time FAI’s representatives would fail to attend, meaning that the exercise would have to be gone through again with many more months delay. It eventually became such a scandal that the law in NSW concerning insurance arbitration had to be changed to permit it only if both parties agreed. But for years after FAIs claims people would try to say that they had the right to ask for arbitration on a claim (the policy wording was unchanged despite the change in the law) and if the insured’s solicitor wasn’t awake then they would delay payout.

Well into the eighties prudent insurance brokers would obtain comparison quotations from FAI and if the client wished to effect the coverage with FAI rather than another (usually significantly more expensive) insurer, ask their client to acknowledge in writing that the coverage with FAI had been arranged against the broker’s advice. It was a standing joke in the industry that FAI stood for “Fuck All Insurance”.

Would it be fair to speculate that the way Adler files, Rodney, more or less suddenly bailed out from the management of his father’s pride and joy, FAI and its sale was due to the RI companies coming down hard on FAI and refusing, for some reason, coverage unless there were changes in mangement? I don’t think so.

What, not that they were, would have prompted them to apply such pressure? Well real RI companies (the German ones and to a lesser extent in Australia Lloyds underwriters) essentially write what is called moral hazard when it comes to re-insuring insurance companies. As discussed above they have to be sure that the front company is being, for want of a better term, fair dinkum with them. A book of business with big but clearly fortuitous claims they can live with but an organised fraud or even the suspicion of one causes them to become quite stern.

FAI’s early history is interesting. It was founded by Rodney’s father Larry Adler. Larry was no doubt a charming and wonderful human being but should have never been allowed to be adjacent to an insurance policy let alone become a leading insurance magnate.

Arriving in Sydney in the late forties, and not being too good a mouth organist this Hungarian Jewish emigre/refugee identified the hunger for four wheeled private transport in post war Sydney and set up a used car dealership. In this he was bank rolled by a fellow Hungarian Jew Louis Moss, (nee Moskovitch) late of Bellevue Hill.

In order to encourage punters to buy from his yard, Adler offered cheap car insurance as an agent for an insurance company. After a while he got sick of passing on the premiums and kept them, still issuing the insurer’s cover notes and paying any claims out of the retained premiums. Eventually the insurer got tired of complaints and withdrew their cover note book.

Adler and Moss then formed a proprietory company called Car Owners Mutual. They may have owned cars but it was never a true mutual insurer . But, “hey ‘mutual’ looks good in an insurance company’s name”. In those days to set up an insurance company, you needed 10, 000 pounds assets. Actually you only had to say you had it – nobody ever checked. COM then issued policies for motor insurance for low premiums. (Again a standing joke was that FAI/COM policies included a “sympathy clause” – if you had a claim they would write to you telling you that they were sorry to hear about your loss but at the same time deeply regretted having to advise you that it fell outside the scope of the policy.)

Identifying that they could rort the “Knock for Knock” agreement quite easily, they then set up the Fire and Allrisks Insurance company (not being native English speakers the boys didn’t know that “all risks” is two words).

One of the two companies in the group applied, and was accepted, for membership of the Knock for Knock agreement. The policy documents were then printed with both company names appearing on them (the specific insurer supposedly (but never actually) being identified by a check mark on the policy). When there was a claim, FAI’s clerks would determine if their insured was at fault and if he was they would then process the claim as if it was insured by the “group” K for K member meaning that they were liable for only own insured’s loss. If the third party was at fault then their insured’s cover was found to have been issued (surprise surprise) by the group’s non-K for K insurer meaning that the third party’s insurance company would have to meet the full cost of both parties’ claims. It took years for the other insurers (being at the time mostly gentlemanly British companies) to wake up to this.

Over the years Moss who was mainly into property ownership and the rag trade had less and less to do with Adler’s business but they remained good mates. This was despite the fact that the aging Mrs Moss used to drive her Bentley around the eastern suburbs as though it was a dodgem and the claims were a significant proportion of FAI’s claim budget, straining the relationship somewhat. Moss’s son, Ron, is a solicitor whose practice (now delightfully known as Moss Krouk & Associates) used to be in Macquarie Street in the FAI head office building.


Feedback: Larry knocked back my dad’s claim


I well remember Car Owners Mutual. In the 1960s, Dad insured his FE Panel van with COM. At the time the initial policy was issue I was 12. When I was 18, I had an accident in the car.

Larry Adler denied liability as Dad had answered “No” to the question “Would anyone under 21 be a driver of the car??”

At least Insurance Companies have a controlling body which tries to keep them honest now.

Regards, Jim