Grup As - there's a lesson to be learnt

The Insurance Supervision Commission (CSA) has decided to put Grup AS out of its misery and withdrew its licence. A one million-dollar injection had given the debt-ridden company a breath of fresh air this spring, yet could not stop it from falling. What has the insurance market learnt from the Grup As lesson?
The banking collapse has been an almost yearly experience ever since 1995. And every time it was obvious why: either the shareholders or the bank management had granted loans to their own businesses or had lent money on a whim, in total disregard of the prudentiality norms or they simply took off with the money. Therefore somebody did steal.
Why would an insurance company fall then? Does somebody take off with the money collected from the insurance premiums? This was not Grup AS’ case. The company, that had registered a powerful growth from 1997 until 2000 simply fell apart because it got greedy and sold a great deal of policies at prices lower than they should have been. When the time came for claims to be settled the company had nowhere to get the money.
“To the clients of the insurance companies, the Grup AS lesson is simple: when one picks out an insurance company, one wants to be sure it can pay, therefore do not fall for the cheapest offer on the market. To insurance companies, the lesson is that dumping is no good. Two or three years of dumping and down the drain you go, because claims come ganging up on you and you have no way to settle them,” Ovidiu Demetrescu general manager of London Brokers says.
The business of the insurance companies is based on the risk-spread system; they take money from everybody (that is their clients) and pay only to those that incur the damages. What is left  – if there is something left, is used to cover the expenses and in some cases, the company’s profit. Nothing was left at Grup AS. Why?
“We kept premiums low and commissions high for a long time. People were thrilled about the ever increasing sales,” one of the former members of the Grup AS team recalls.