Compensation fund ‘able to cope with Setanta Insurance fallout’

Central Bank advises policyholders to seek alternative cover after firm’s collapse

Malta: Setanta, a low-cost insurer, was registered here but traded only in Ireland. Photograph: Getty

Malta: Setanta, a low-cost insurer, was registered here but traded only in Ireland. Photograph: Getty

Sat, Apr 19, 2014, 01:00

The collapse of Setanta Insurance may leave outstanding claims but these are unlikely to trigger another insurance levy, like the one that arose from the collapse of Quinn Insurance in 2010, according to industry sources.

The Dublin-based insurer, which was licensed in Malta but traded only in Ireland, went into liquidation earlier this week putting some 75,000 policyholders, including many small business owners and van drivers, at risk of driving without insurance.

Amid calls for an overhaul of insurance regulation in the wake of its collapse, industry sources said yesterday the level of outstanding claims connected with the insurer represented only a fraction of the current number of policies.

The company, which has offices in Blanchardstown in west Dublin, had been selling mainly commercial motor insurance through brokers and was known as a low-cost operator.

On that basis, they said, the industry’s Insurance Compensation Fund (ICF), which is administered by the High Court, should be able to handle the financial fallout from out-of-pocket policyholders if called on to do so. The fund can pay out up to 65 per cent of the sum due to the policyholder, or €825,000, whichever is lower.

The €1.65 billion crater left by the collapse of Quinn Insurance in 2010 put such a strain on the fund that a 2 per cent levy was imposed on insurance customerse.

Alternative cover
In a statement on its website, Setanta said customers would be covered until they were notified of their policies being cancelled.

Although Central Bank rules require insurance providers to give two months’ notice of cancellation – which technically means that Setanta Insurance policyholders will be insured for another two months under the their existing policies – it and industry participants, have urged customers to seek alternative cover.

“If you have taken out a policy recently it’s technically valid from a road accident perspective,” said Diarmuid Kelly, chief executive of the Professional Insurance Brokers’ Association (PIBA) yesterday. “But in the event of a claim, it could leave you in an awkward situation, so we would say to anyone to get alternative cover.” Policyholders who do not seek alternative cover and are involved in an accident over the course of these two months may leave themselves open to being sued if the liquidator finds that there are not enough funds left in the kitty to cover any claims, or the ICF does not cover the cost of these claims.

The Central Bank, which has no jurisdiction over the insurer as it is regulated by the Malta Financial Services Authority, said Setanta was not in a position to confirm if claims will be met in full, since it will be subject to the relevant liquidation process, which will be overseen by the Maltese authorities.

According to the Maltese authorities, Louis Cassar Pullicino has been selected as liquidator. Creditors may ratify this appointment at a meeting of creditors on April 30th. Once the liquidation process progresses, further information as to the extent of outstanding claims and whether or not they will be covered by the ICF should become clear.
Policyholders who have had to cancel their policies may also apply to the liquidator for a reimbursement of their premiums, but the Maltese regulator warned the company is “not in a position to guarantee pro rata return of premiums”.

Big plans
Setanta was founded by Mike Matthews in Ireland in 2007 with the backing of individual investors. Mr Matthews left the company in 2011, claiming that investors had failed to back his vision to grow the business.

“I wanted to pursue a strategy of continued investment in the business in order to grow its market share in Ireland and to expand internationally,” he told insurance newspaper Post in July 2011. John Beatty, formerly of Allianz in Ireland, was appointed general manager of Setanta in 2012.

Industry experts say that while Malta and Ireland are subject to the same EU laws and regulations, capital and solvency tests may not be as onerous in Malta as they are in Ireland.