What now for Quinn Insurance customers?

QUINN INSURANCE:FIRST IT was the banks which caused so much trouble and now consumers are having to consider their insurance options following the appointment of an administrator to Quinn Insurance. While the future for the insurance group hangs in the balance – a court hearing today will examine an application for a full administration for the company – customers remain concerned about the possible impact changes in the group's ownership structure will have on them. But what do you need to know?

Q I’m a Quinn customer. So what should I do?

Many Quinn customers are no doubt wondering should they stay or should they go now. The most important point is that right now there is no risk to the customer. The business is being run as a going concern so policyholders can continue to renew policies, take out new ones and make claims in the normal way. In the words of the Financial Regulator, it’s very much “business as usual” and there should be no issue with claims being met.

In fact, according to some brokers, the insurer has actually been settling claims faster under the new management than it used to do. Having said that, the group’s outlook remains uncertain.

“If it was my policy, I’d be getting quotes, and would be prepared to pay for one a little bit more expensive,” says Padraig Lynch, a director with insurance broker chill.ie. “If I had a policy coming up for renewal I’d err on the side of caution and look for a more secure provider.”

Q Can I cancel my policy and get a refund?

In principle, if you are six months into a 12-month insurance policy with Quinn, you should be entitled to cancel your policy and get a pro-rata refund for the remaining period of the policy.

However, according to Tony Gill, a director with insurance broker First Ireland, if this is your first year of cover with the firm you may find that your refund is less than expected, as insurance companies are entitled to impose short-term cancellation rates. Moreover, if you have a business insurance policy with the group, he says that you won’t be entitled to any refund. He also warns that looking for a refund from an insurer is never an easy process.

Q Will insurance costs rise again?

As Ireland’s second largest insurer, Quinn Insurance, which has been compared to Ryanair, had a dramatic impact on Ireland’s insurance market, driving down prices across the board by aggressively competing for market share. Before it was put into administration, it held some 23 per cent of the health insurance market in Ireland, just under 19 per cent of the motor insurance market, and 3 per cent of the home and commercial property insurance market. So, if it is to be subsumed into another insurance group, its absence and the resulting decline in competition will inevitably lead to price hikes.

Not only that, but Quinn specialised in insuring difficult cases, such as firms with a poor claims record or young drivers. Without Quinn in the market such policyholders may find that the true market price for their premiums is double what Quinn previously charged. It is for this reason that Gill points out that many policyholders are “incredibly loyal” to Quinn. He estimates that about 300 of his brokerage firm’s clients have policies with Quinn, but that to date, there have been no cancellations.

Q I have health insurance with Quinn. Can I switch?

Provided that you have served all the applicable waiting periods with your old insurer, and you are not upgrading your cover, you can switch provider at any time. And you might just save some money by doing so. Aviva’s Level 2 Hospital Plan, for example, costs €780 a year, compared with Quinn’s similar Essential Plus product, which costs €854. If you are part of a group scheme through an employer, the switching option is out of your hands.

Q Will Quinn slash prices to hold onto customers?

Given that the insurer is being operated as a going concern, it will try to hold onto as much business as possible, as the more business it loses – and the longer the administration process goes on for – the less chance it will have of finding a buyer.

However, while it will have to remain competitive in order to do this, it will nonetheless have to set realistic prices, as there have been concerns that the insurer’s aggressive pricing model gave rise to some of the current issues. “Some would argue that low pricing has got them where they are,” notes Lynch.

And even if Sean Quinn wins in his battle to take back control of the insurance group, he will be under such regulatory scrutiny that prices are still likely to go up.

Q What happens if Quinn is taken over?

With more than 20 expressions of interest in acquiring the group, the likely outcome is that another insurer will take over Quinn’s insurance business. However, if this is to happen, it is likely that the acquirer will only take over certain assets, as was the case following the collapse of PMPA in 1983.

Gill says another insurer is unlikely to take on all of Quinn’s liabilities, and is more likely to take over its client list. As such, it is probable that there will be a “re-write” of Quinn’s policies by the new owner, which will have one likely outcome – an increase in the cost of premiums.

Q Will another levy be introduced?

While consumers are likely to be hit by price hikes on the back of declining competition as insurance policy holders shy away from Quinn, further increases may be on the way if a levy is introduced. Given the financial difficulties it finds itself in – Quinn has a deficit of some €200 million – it is seen as highly probable that a levy will be imposed on general insurance policies, excluding travel and health policies, to meet the cost of the insurer’s claims.

Q But aren’t we still paying insurance levies?

Following the collapse of PMPA, and the subsequent demise of AIB’s insurance subsidiary ICI in 1985, a 2 per cent levy on all insurance premiums was introduced. Although this levy came to an end in 1992, it was replaced with a general 2 per cent stamp duty on life assurance premiums which is paid into the exchequer’s central fund along with other tax receipts.

Consumers are still paying this charge today, along with an additional 1 per cent levy which was introduced in last year’s Finance Bill. This 3 per cent charge is estimated to bring in €40 million a year for the Government’s coffers. If the Government has to step in and support Quinn’s customers, it is likely that this levy will rise to as much as 5 per cent.

Q I have money invested with Quinn Life, what should I do?

The news that Quinn’s insurance business is in trouble is also of concern to the many investors in its associated life business, Quinn Life. However, according to the Financial Regulator, Quinn Life is a separate business entity, and is therefore “unaffected by these measures”.