Motorists to be hit with cost of boosting insurance fund
MOTORISTS will end up being hit after the Government approved changes to the law on insurance to boost the size of a compensation fund.
The decision by the Cabinet comes after a ruling in May by Supreme Court on which fund should cover the cost of claims associated with collapsed Setanta Insurance. Malta-registered Setanta collapsed three years ago. It had 1,750 claimants, most of whom have yet to received a pay-out. Two months ago the Supreme Court said the State’s Insurance Compensation Fund should cover the cost of the claims, and not the insurance industry’s Motor Insurer’s Bureau. However, the Insurance Compensation Fund only meets 65pc of the cost of third-party claims.
Now the Government is to amend the law so that in future the Insurance Compensation Fund covers the full cost of claims when an insurer collapses. Insurers will be levied to meet the cost of boosting the compensation fund, but this is set to be passed on to motorists, experts said. Setanta was incorporated and prudentially regulated in Malta but traded solely in the Irish market. Tt offered some of the cheapest premiums in this market and had 75,000 policyholders when it was placed into liquidation in April 2014.
Its liquidation left a shortfall in funding to meet the cost of claims, which led to questions about who should foot the bill. Now insurers will have to pay 2pc of their gross written premium each year to ensure the Insurance Compensation Fund has sufficient funds to meet 100pc of third-party claims if another insurer collapses. Insurance experts said that is likely to amount to around €27m a year, up to the point where the fund reaches €150m. One expert said this is bad news for policyholders as insurers are certain to seek to recoup this money from their customers.
Finance Minister Paschal Donohoe said the provisions of the Insurance (Amendment) Bill 2017 would provide certainty in the event of another insurer going bust. “The failure of Setanta and the uncertainty that followed over the compensation arrangements for claimants highlighted weaknesses with the current insurance compensation framework. “These have been recognised in the Review of the Framework for Motor Insurance Compensation in Ireland Report – which was endorsed by Government last year.” He said the bill will implement the recommendations of this report and thereby provide greater certainty for both consumers and industry, regarding the insurance compensation framework in Ireland.
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