Insurers might have to find the money for a proposed €150 million fund...
Motor insurance companies look set to create a €150 million fund to deal with compensation surrounding the collapse of insurers, with the costs likely to be passed onto the customer.
According to The Irish Times, it is part of a new Government framework being established to avoid another Setanta Insurance-style scenario, which saw the fallout of the Maltese-registered company drag on for three years.
A resolution was reach on Thursday, with the Supreme Court ruling that the State’s Insurance Compensation Fund should be liable to compensate motorists affected by the collapse not only of Setanta, but other failed entities not regulated here.
This overturned a previous High Court ruling that the industry’s Motor Insurers Bureau of Ireland, a fund established to cover the actions of uninsured drivers, should pick up the bill.
That High Court decision angered Irish insurers, who blamed it for the sharp rise in premiums here over the past three years.
While the higher court verdict would, therefore, seem to benefit drivers, there is a sting in the tail – the State’s Insurance Compensation Fund will only be liable for a maximum of 65% of the costs associated with a failed insurance company.
It means the balance will have to be met by a proposed new fund established by all motor insurers.
The Irish Times reports that this will involve a 2% levy on the gross premiums underwritten by all companies here and that these costs could be passed on to motorists in higher insurance prices.
The contrasting view is held by Jonathan Hehir, managing director of Insuremyvan.ie. He told Newstalk Drive on Thursday that the ruling could eventually see reductions in premiums.
“I think [insurance companies] initially would have reacted by putting prices up had it not gone their way,” he said.
“They would have put a levy in themselves to pay for the Setanta policy holders claims and also to protect themselves from future insurance companies going into liquidation or going bust.”
“The fact that that hasn’t happened is good for everybody and I think the fact that the insurers have stated that this was contributing to the increased premiums means that I think we will start to see slow reductions in premiums.”
Ciaran Phelan, CEO of the Irish Broker Association, said of the Supreme Court call:
“Although we welcome this clarity after 3 years, we are conscious that while claimants should now be paid, they will only receive 65% of their claims.
"We would hope that, following this ruling, the liquidator is in a position to expedite and pay many of the outstanding claims over the next few weeks and months.
"This ruling brings some clarity to the issue of insolvent insurers, which is in the best interests of the insurance sector and ultimately the motorists.
"Hopefully, this resolution will give consumers improved confidence in the system, but there remains a definite need for greater certainty for consumers regardless as to where companies operating in Ireland, are regulated in the EU."