Motor insurance premiums may rise to pay for insolvencies fund

Under plan Insurance Compensation Fund will pay 65% of any claims if firm collapses

 Eoghan Murphy: he said his agreement with the insurance industry represented a “significant step forward”

Eoghan Murphy: he said his agreement with the insurance industry represented a “significant step forward”


Motor insurance premiums could rise in the next few years as the industry looks to put together a €150 million fund to meet some of the costs of compensation claims that arise from the failure of another insurer.

This is part of a new framework being put together by the Government to avoid a repeat of the three-year saga to decide who was responsible for funding claims connected with Malta-registered Setanta Insurance, which collapsed in 2014.

This follows a Supreme Court’s decision on Thursday that the State’s Insurance Compensation Fund should be liable for the compensation. This reversed a previous High Court ruling that the Motor Insurers Bureau of Ireland (MIBI) should pick up the bill.

Existing legislation means the ICF is only liable for 65 per cent of individual claims or €825,000, whichever is the lesser.

MIBI, which was originally set up to meet the cost of claims involving uninsured drivers, would have been liable for 100 per cent of the Setanta claims.

The liquidator of Maltese-registered Setanta, which sold insurance policies exclusively in Ireland before it collapsed in 2014, has determined the total cost of an estimated 1,750 claims could run to about €90 million. The liquidator has previously indicated that he could only meet up to 30 per cent of these claims.

Under the new plan, recommended by an inter-departmental group chaired by Minister of State for Finance Eoghan Murphy, the ICF would pay 65 per cent of any claims associated with the collapse of a motor insurance company here, with MIBI paying the balance.

Future failure

This would require MIBI to build up a fund that it could draw on in the event of any future failure. Mr Murphy said this would involve insurers paying a fixed percentage of gross premiums to the fund to finance their share of any future motor insurer insolvencies.

The Irish Times has learned that insurers will pay 2 per cent of their gross written premium. This would amount to about €27 million a year, with the intention to build the fund up to €150 million.

Senior insurance industry sources, who asked not to be named, said the cost of building up this fund would have to be passed on to consumers, and could lead to higher motor premiums over the next five or six years.

A draft Bill incorporating the new motor insurance compensation arrangements is expected to be brought to Cabinet in June.

Commenting on this new framework, Mr Murphy said: “It is important that we implement the recommendations of the Review of the Framework for Motor Insurance Compensation in Ireland as soon as possible to ensure that equivalent compensation levels to those of MIBI are put in place for any future motor insurance insolvencies.”

New entrants

He said his agreement with industry represented a “significant step forward” to achieving a more stable insurance market that should make Ireland “more attractive” to new entrants.

The Supreme Court majority upheld the MIBI argument that various agreements with the Minister for Transport did not cover insolvent insurers.

MIBI had argued the ICF should pick up the Setanta bill, as was the case with PMPA and Quinn Insurance.

MIBI welcomed the ruling. “We welcome the decision made this morning and are assessing the implications of the judgment,” said MIBI’s chief executive David Fitzgerald.