Irish motorists will pay for road-crash that was Setanta

Heads you lose, tails you lose. This is the reality for Irish motorists from the collapse two years ago of Setanta Insurance, a company that was registered and regulated in Malta but which sold some 75,000 policies exclusively in this market.

Setanta left behind some €90 million in outstanding claims, and there have been lengthy legal arguments here as to who should foot the bill. We know the answer, the question is merely around the time frame.

The Court of Appeal last week upheld an judgment from the High Court that the cost of these claims should be met by the Motor Insurers Bureau of Ireland (MIBI), which was set up in 1955 under an agreement between the government and insurers to compensate victims of road incidents caused by uninsured and unidentified vehicles.

MIBI has 40 members, and pays about €60 million annually to cover the cost of its claims. This cost is met by the members who ultimately pass it on to policyholders, adding about €30 to each motor policy. Policyholders However, in the case of Setanta the industry has argued that the costs should be met by the Insurance Compensation Fund (ICF).

This was established in 1964 to facilitate payments to policyholders in situations where an Irish authorised non-life insurer or a non-life insurer authorised in another state went into liquidation.

A key difference between the two is that there’s a ceiling on payments from the ICF of 65 per cent of the claim or €825,000, whichever is the lesser amount.

The ICF’s payouts are also made over a longer time. In the case of PMPA, which collapsed in late 1983, levies were applied on Irish non-life policyholders for nine years to cover the costs of its demise.

Since January 1st, 2012, an ICF levy of 2 per cent has applied to all home, motor and commercial insurance policies to cover the costs associated with Quinn Insurance’s collapse into administration.

Quinn Insurance’s administrator Grant Thornton told the High Court late last year that some €235 million had so far been collected from this levy, and that the final bill would be about €1.1 billion.

It is estimated that the Quinn levy could be applied to policies for another decade or so.

So whether it’s the MIBI or the ICF, Irish motorists will ultimately pick up the tab. If the MIBI ends up having to pay the bill, the costs will be largely up-front and premiums could rise by €45 each, or so industry elders would have you believe.

They also argue that it creates a moral hazard of sorts and that some multinational insurers might pull out of Ireland for fear of being landed with more bills for the failure of other rivals in the market.

The current reality is that many motorists are facing annual increases in their premiums in the hundreds of euro, never mind the tens. These are a legacy of bad pricing decisions by firms as they chased market share in the period from the crash up to 2012, lower investment income, and higher awards from courts for certain categories of injury. Decision The board of MIBI will meet on Thursday to decide if it should press the button on an appeal to the Supreme Court or simply accept the decision and move on. There’s a strong likelihood that it will take its case to the higher court. This would have the effect of delaying further any payouts to the 1,750 Setanta claimants.

You might well ask why the Maltese authorities have been let off the hook in relation to Setanta.

They were clearly asleep at the wheel in regulating this basket-case of a company.

Why not send Malta the tab for this mess? We’ve yet to get a proper answer to that question.

To this day senior members of the Irish insurance industry say they do not know who owned Setanta.

It’s a bizarre state of affairs, and highlights a critical flaw in EU financial passporting rules. To the cost of Irish consumers.

Twitter: @CiaranHancock1