The failure of the Bermuda unit of British American Insurance Company Ltd. this week raises several questions about financial oversight in Bermuda. It's worth noting that there has been nothing publicly said about British American's local operations being poorly run.

Instead, the problems seem to have stemmed from problems that the company's ultimate owner, CL Financial Ltd., hit in February, 2009. But much of this is speculation. The paucity of public comment about this whole episode is conspicuous. What is certain is that by August, 2009, the Bermuda company was placed in receivership with the goal of placing its thousands of local life and health insurance policies with another insurer or insurers.

This week, it was announced that those efforts had failed for the life insurance book, and as a result, those policyholders will lose their policies and only get a percentage of their value back. This is shocking and unfair.

It is different from, for example, the Butterfield Bank fiasco, where the major losers were the shareholders and the depositors and borrowers were largely unaffected. Shareholders take a risk when they invest in any business, but people who invest in a product like life insurance should not fear losing their money, assuming they have kept their premium payments up to date. Indeed, it is ironic that the policyholders are being stung in the same week that it was announced that Bermuda will now get deposit insurance.

Nor is it the same as the fines meted out to First Bermuda Group recently for failing to carry out proper know your customer procedures. Regardless of how serious those breaches were, the fact is that no members of the public have been hurt as a result, at least not yet.

But in the case of British American, thousands of ordinary Bermudians have lost money and the reassurance that life insurance can provide. The question now is whether those losses could and should have been avoided. CL Financial was taken over by the Trinidad Government in February, 2009. At that time, British American Group said it was unaffected by the takeover. Crucially, it said the company was a separate entity with many branch operations and registered under the Insurance Act in each territory it operated in and was locally regulated, while maintaining a separate balance sheet from the other subsidiaries of the CL Financial Group.

And yet by September, British American companies throughout the Caribbean and Bermuda were being placed in receivership. It is impossible to believe that between the time that CL Financial was taken over in February and the time that British American was taken over in September, that regulators overseeing the company were satisfied that all was well.

In fact the receivers have been extremely circumspect about the scale of the problem. Just how much money was placed with British American and how much is now at risk has never been revealed. Nor has the state of British American's own finances, from the time it went into receivership until now, ever been revealed publicly.

What is clear is that the company must have been in poor shape, as no other insurer was willing to take on the book of business. It also took weeks to find out how many policyholders were affected. That number was revealed as 5,500, or roughly one for every 12 Bermuda residents. Although the statement from the Official Receiver this week claimed "the steps taken by the BMA to secure the interests of the company's Bermuda-resident clients" meant "funds available to those policyholders are likely to be significantly greater than those of most other jurisdictions", that will be of scant comfort to the policyholders.

Given Bermuda's expertise in insurance and its supervision, it is questionable that the regulators did not see fit to step in sooner. Bermuda can and should do better.