The flood insurance dilemma


Taoiseach Enda Kenny has refused to rule out the introduction of a levy to help flood victims secure adequate insurance protection. A 1 per cent charge on non-life insurance policies has been suggested. Mr Kenny has said that people who invest in houses and businesses have a legitimate expectation that they can insure their premises. The recent flooding has resulted in many thousands of householders being denied insurance, a problem the Government may well decide to address by imposing yet another levy on holders of non-life insurance policies.

For a Government unwilling to raise taxes, levies are often viewed as a means of raising revenue while incurring a less adverse public reaction to what is taxation by another name. Already non-life insurance holders are paying a 2 per cent levy arising out of the failure of Quinn Insurance, an imposition that is likely to continue for the next 25 years. And that is in addition to an existing 3 per cent charge on non-life insurance polices. A further 1 per cent charge would, if introduced, bring the total of non-life insurance levies to 6 per cent.

Financial levies, far from being exceptional measures applied in limited circumstances, have – for this Government – become the new normal. And some- such as the pension levy – have been ill-advised and quite arbitrary in their effect. In the latter case, the levy proceeds have been used to finance the Government’s job creation programme, but at the expense of another policy objective, that of ensuring adequate pension provision, and of encouraging pension investment. The levy has cut the income of pensioners, and greatly added to the financial difficulties of private sector defined benefit schemes, most of which are in deficit, and some of which have been wound up.

The insurance industry has expressed surprise and disappointment at the prospect of a further levy being introduced to deal with the insurance problems of flood victims. Insurance Ireland, the umbrella body of the industry, has said it would be willing to offer policies to homeowners before next winter in areas where the Office of Public Works (OPW) had carried out permanent flood protection measures. And Kevin Thompson, chief executive of Insurance Ireland, has said that agreement on an insurance deal was near.

Is the Government’s very public refusal to rule out a levy designed to influence negotiations with the insurance industry, or does it signal the Government’s intention to introduce the levy regardless of the outcome of those discussions? Certainly, there is need for much greater clarity on the issue, given that a levy on all non-life insurance policies to help pay for the protection of a minority of householders – some of whom have taken a calculated risk in buying property in areas subject to periodic flooding – is likely to be hotly contested by the public.