Irish motor insurers urge action on Setanta liability

Motor insurers are growing increasingly concerned at the lack of Government action to tackle pressure on premiums due to the €90 million collapse of Setanta Insurance two years ago.

Major insurance firms are now pressing for urgent steps to settle serious legal questions over their liability for any future failures after two court rulings found the industry-funded Motor Insurers’ Bureau of Ireland (MIBI) should bear the cost of 1,750 outstanding claims by and against Setanta clients.

It has now emerged that the 10 largest insurers wrote to the Minister for Finance Michael Noonan late last year, calling for urgent action and saying the affair left the wider industry facing an "unprecedented exposure" to irresponsible insurers.

‘Cross government’

The insurers argue that the outgoing Government has known for several months about their anxieties.

A Department of Finance spokesman said it has engaged extensively with insurers, adding that a "cross government" approach was being taken.

Citing a reply from Mr Noonan to a parliamentary question, he said a review was under way and was being conducted quickly but thoroughly.

“Recommendations for government are expected in the coming weeks.”

The matter centres on Setanta’s collapse in April 2014. The Maltese-registered firm had been a member of the MIBI, which was established 61 years ago to compensate the victims of accidents caused by uninsured drivers.

On foot of an action initiated by the Law Society, the High Court ruled last September that the MIBI was obliged to assume Setanta's liabilities.

This prompted anxiety that motorists would be hit with higher premiums as insurers pass on the increased cost of funding the MIBI’s work to their clients.

The MIBI challenged the High Court ruling in the Court of Appeal in January but lost the case.

The matter remains unresolved as the MIBI has sought leave to challenge the Court of Appeal ruling in the Supreme Court.

The MIBI and the insurance industry argue that outstanding Setanta claims should be borne by the Insurance Compensation Fund, a separate industry-funded entity which makes payments mandated by the High Court for insurers in liquidation or administration.

Under MIBI’s responsibility Setanta’s costs must be borne immediately, with implications for its members over the course of three years in respect of Setanta and in respect in any potential future failure.

Within a different funding model under ICF responsibility, however, costs would be borne by the industry over 20 or more years.

In a letter to Mr Noonan last November, 10 industry chiefs said short-term impact on policy-holders’ premiums would be “negligible” if the IFC dealt with insolvencies.

The letter was signed by Kevin Thompson, head of industry group Insurance Ireland and the Irish chiefs of AIG, Allianz, Aviva, AXA, FBD, IPB, Liberty, RSA and Zurich.

Poor practice

“A priority issue from our perspective is the urgent need to put in place remedial measures to address the current market challenges and potential market failures that exists as a result of of the High Court decision against the MIBI,” it said.

“Beyond Setanta, this judgment means that every motor insurer, no matter how prudent, will be underwriting the least prudent motor insurer in the market.

“Not only does the judgment reward poor commercial practice, it encourages a regime which actively incentivises such practices.”