"Some of our competitors suck up to you when times are good, but during a hard market, they just disappear." So read one of the advertising slogans used by the now collapsed UK Independent Insurance company to win business from Irish firms. Others depicted competitors as clowns who weren't smart enough to offer customers a good deal.

But such neat slogans were ringing hollow following the sudden collapse of the British firm last week and, amid the chaos that followed, rivals were quick to explain to Independent's former customers the truism that those who under-price risks eventually go bust.

There is little doubt, nevertheless, that those Irish companies that switched to Independent for insurance cover - particularly employer liability cover - did not make that decision lightly given the requirement, in an increasingly litigious environment, for adequate insurance to guard against potentially multi-million pound claims.

Independent's Irish customers were mainly firms in the construction sector specialising in what insurers would consider the riskiest part of that business. The frequency of claims tended to be high and payments could be enormous.

Against this background, insurers set premiums to reflect their assessment of the risks involved or opt to leave the business to someone else.

It was in this context that Independent developed its niche in the Irish market. European companies were also keen to take advantage of a broader market base and the options for those seeking employers' liability insurance suddenly broadened.

On the face of it, Independent offered a viable and competitive option. Here was a UK publicly quoted company with impressive credit ratings and regulated by the Financial Services Authority (FSA), offering the same type of employer liability insurance at premiums that were 50 per cent less than anyone else. In some cases these premiums were guaranteed for three years.

The basis for its cheaper premiums, according to Independent, was its ability to view the inherent risks in the businesses of its potential customers in a different way to its competitors. It also boasted a stronger investment performance and could supply audited accounts to prove its case.

So why following its collapse are many Irish customer companies left with no insurance cover for claims that are due to be heard before the courts in the coming weeks?

PricewaterhouseCoopers which is handling the liquidation of Independent has estimated the company - that was only recently valued at more that £1 billion sterling (#1.65 billion) on the London Stock Market - would have run out of cash within two months.

The British Serious Fraud Office has launched an investigation into the company's affairs. Lawyers are preparing to take a class action on behalf of shareholders, employee shareholders, brokers and their policyholders. Actions are also being formed to sue Independent's directors, the auditors, KPMG and other professional advisers. The liquidators have said they will consider legal action against directors and professional advisers if such a strategy is deemed to be cost effective.

The FSA has been criticised for failing to recognise the warning signs in what is turning into a sorry saga for everyone concerned.

For Independent's Irish customers however, the consequences are much harsher than for their counterparts in Britain because they are not covered by the official compensation scheme which operates there.

About 70 per cent of those affected here are understood to have secured new insurance with the handful of insurers currently entertaining this type of business. But smaller companies are finding it particularly difficult to put alternative cover in place and the Small Firms' Association has warned the Independent collapse will eventually trigger company closures here.

Those finding it hardest to get onto another insurer's books were among the first to sign up with Independent a few years ago. Insurers are claiming it is more difficult to assess their risks, particularly given what we now know about Independent's books.

Insurers are "cherry picking" the best of the business now available with those left in the cold facing rising pressures, particularly those confronted by the prospect of compensation claims in the courts in the coming weeks and months. Even those who have managed to find alternative cover may have to deal with unresolved claims.

For the proponents of the single European insurance market, the Independent debacle raises serious questions about the lack of consumer protection. The Tanaiste, Ms Harney, whose Department has responsibility for the insurance sector, said last week that she was urgently examining the consequences of the collapse for Irish policyholders. The Irish Brokers' Association is to raise it at European Commission level through its international association.

It is cold comfort for those who must bear the brunt of this mess but it does send a warning signal to consumers about the risks of buying insurance from European-based companies. As well as comparing the different premium rates they should also factor in potential risks of default. And they can legitimately hope for the establishment of a pan-European linked policy holder protection scheme to ensure Irish consumers are not burned in this way again.