Dáil debates

Wednesday, 30 April 2014

Topical Issue Debate

Insurance Industry

4:55 pm

Photo of Derek KeatingDerek Keating (Dublin Mid West, Fine Gael)
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That concludes topical issue No. 2. We now move on to No. 3. Three Deputies have made a submission on the issue. For clarification purposes, each of the three Deputies has two minutes to speak initially, followed by the Minister for Finance, who will have four minutes, and then each of the Deputies will have a further one minute supplementary followed by a final two minutes from the Minister.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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We are all aware of the terrible news that Setanta Insurance has closed down, leaving 75,000 customers on this island high and dry – policyholders who had in good faith renewed with Setanta, many in recent months, and others who took out their policies prior to that.

The situation exposes the weakness in our regulatory system, because this company was not regulated in Ireland. It availed of EU rules that allowed it to be regulated in another EU jurisdiction while operating solely in this jurisdiction. I urge the Minister to address two concerns. The first is the most pressing one that affects the 75,000 policyholders. Many of them have contacted me. It is clear that a large section of the client base for the insurance company was self-employed people, in particular small businesses with vans, such as those in the construction industry or other businesses requiring vans. They seek clarity on the legal position, whether they are legally covered, what the situation is with the money they paid out a couple of weeks ago to renew their cover, why the State does not protect them, and whether they have any comeback.

I was contacted by one person from County Monaghan who was informed by an insurance broker that he or she needed to continue to pay the premium for the rest of the year despite the fact that the person is now not insured, the reason being that the broker paid Setanta Insurance in full up front. Questions arise in that regard also. How do we ensure this does not happen in future at an EU level?

I urge the Minister to address a couple of issues. What role will be played by the insurance compensation fund? Does the Government plan to take any offsetting measures, particularly given that many small and medium enterprises are being hard hit?

Photo of Ciara ConwayCiara Conway (Waterford, Labour)
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As Deputy Doherty outlined, we understand that more than 75,000 people who had policies with Setanta Insurance have been left in the lurch. Those affected are predominantly self-employed people. There is a question mark over the status of their insurance cover. Questions also arise about those who still owe money and what the position is in that regard.

I understand the liquidators are due to have a meeting this week. Will the Government be represented at the meeting? I have been contacted by a number of constituents about those who have outstanding claims with Setanta Insurance – people whose lives have been torn asunder because of road traffic accidents and injury at work who have been unable to work and who have sustained lifelong injuries and are currently awaiting payment. Will the claims Setanta cannot pay be met by the compensation fund, given that the insurer is not regulated in this country?

I understand that the Irish Brokers Association has called for a complete overhaul of the insurance regulation following the liquidation of Setanta. Mr. John Bissett, the association's president, said the system needs to be completely overhauled so that companies cannot simply pick the most lax jurisdictions. It is our job as legislators, and as a Government, to protect consumers. What we had was a company primarily owned by Irish people and principally based in Ireland selling exclusively to Irish citizens but regulated elsewhere.

I refer to the poignant case of a young woman who, along with her family, was hit by a drunk driver who was insured by Setanta. There were two fatalities in the accident and even though no money will replace those lives, she will be unable to work again because of the injuries she sustained and both her and her young son are without her partner. What will be done for these people?

5:05 pm

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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I thank the Minister for attending this discussion. The other Deputies have covered the main issues but I would like to lend my support to the 75,000 policyholders of Setanta Insurance Company Limited who have been at least inconvenienced and, in a great many cases, are out of pocket as a result of the collapse of the firm. What assistance is available from the State to them in the context of the Insurance Compensation Fund, ICF to deal with outstanding claims which were not concluded by the firm prior to going into liquidation? What is the position of people who recently renewed their policies and who face the prospect of having to take out a new policy to ensure they have continuity of cover? People who have a Setanta policy are legally covered under the Road Traffic Acts in the sense that they have insurance but the policy may not be of any value if an accident happens.

This raises a broader question as to how many similar companies operate in Ireland but are not regulated by the Central Bank of Ireland. Many people have not drawn this distinction. If they take out insurance in this country, they assume that the insurance provider is regulated by the Central Bank and is not merely regulated in another EU jurisdiction and regulated here for conduct of business purposes. We need at least to scope the extent of this problem.

What will be the impact of banking union and the single supervisory mechanism on the future regulation of the insurance sector on a pan-European basis?

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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I thank the three Members for raising this important issue and for their contributions to this exchange of views.

Setanta Insurance Company Limited is a Maltese incorporated company, which was both authorised and prudentially supervised by the Malta Financial Services Authority, MFSA. While its financial position is not supervised by the Central Bank of Ireland, as it has no role in that regard, the firm is supervised by the bank for conduct of business rules, that is, consumer protection obligations. I understand that the Central Bank has been in ongoing contact with the MFSA in respect of Setanta in recent times.

Under EU law governing non-life insurance, an insurer is required to inform the regulator in its home member state - its home regulator - that it intends to pursue business in another member state. The home regulator must then provide the host regulator with a certificate attesting that the insurer covers the EU solvency capital requirement, as well as the nature of the business which the insurer intends to undertake. The insurer may start to pursue business from the date that the certificate is communicated to the host regulator, in this case the Central Bank of Ireland.

Setanta was regulated at EU regulatory level in accordance with a directive known as solvency I which currently places requirements on the amount of regulatory capital European insurance companies must hold against unforeseen events. I understand that Setanta met its EU regulatory obligations and under EU law was, therefore, entitled to trade across EU borders. Following negotiations that were completed at European level in November 2013, a new regime known as solvency II will commence on 1 January 2016, which will further strengthen the EU regulatory framework. The solvency II EU directive sets out new, stronger Union-wide requirements on capital adequacy and risk management for insurers with the key aim of increasing policyholder protection. The new regime will also ensure greater co-operation between supervisors.

On 16 April 2014, Setanta Insurance Company Limited determined that it was insolvent. This means that Setanta did not have sufficient funds to honour its full obligations towards claimants, policyholders and other creditors. Policyholders can expect to be given two months' cancellation notification, in accordance with the Central Bank of Ireland's Consumer Protection Code 2012, during which period cover will remain in force. While policies will remain valid until the required notice period has been served, it is important to be clear that the amounts due under claims may not be fully recoverable in all circumstances. In this light, it is important to note that the Central Bank has advised all Setanta policyholders to arrange alternative cover without delay.

At a creditors meeting held in Malta today, a liquidator, Mr. Paul Mercieca, was formally appointed by the creditors and was approved by the Maltese regulator. The company has now, therefore, been formally placed into liquidation. The Motor Insurance Bureau of Ireland, MIBI, has indicated that it intends to accept all third party claims connected to Setanta policies. MIBI is a non-profit-making organisation, which was established by agreement between the Government and those companies underwriting motor insurance in Ireland. The principal role of MIBI is to compensate innocent victims of accidents caused by uninsured and unidentified vehicles. First party claims on personal insurance policies will be payable from the ICF. Claimants will be eligible for 65% of the amount due or €825,000, whichever is the lesser

I am informed that Insurance Ireland made arrangements for its member insurance companies to be open over the Easter period to assist Setanta policyholders in arranging alternative cover. In addition, the Insurance Ireland declined cases agreement was available to policyholders of Setanta. The current declined cases agreement was drawn up in 1981 and is adhered to by all motor insurers in Ireland. I am further informed that under the agreement, the insurance market will not refuse to provide insurance to an individual seeking insurance if he or she has approached at least three insurers and has not been able to obtain cover from them. I understand that Insurance Ireland is also making information available to those who have queries, complaints or difficulties in respect of this matter.

The Central Bank is in ongoing contact with the MFSA regarding Setanta, the impact on policyholders and the provision for relevant and appropriate information, particularly in regard to claims. The Central Bank has written to all brokers and has instructed them to write to all policyholders who hold a current Setanta motor insurance policy and inform them of the urgency of making alternative motor insurance arrangements. The Department of Finance and the Central Bank will review the circumstances relating to Setanta and will report to me on what lessons can be learned and how the regulatory framework can be strengthened. The European Commission has also indicated that it will review whatever issues are raised relating to the regulatory framework which require action.

Photo of Ciara ConwayCiara Conway (Waterford, Labour)
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I thank the Minister for his reply. However, I am not concerned that "claimants will only be eligible for 65% of the amount due or €825,000, whichever is the lesser". The case I cited will involve a much greater sum. What will be done to ensure such lax regulation, albeit under EU law, cannot continue? This was a primarily Irish company selling to Irish consumers but it was regulated elsewhere. This is the kind of practice we would like to banish to the past in order that consumers can be protected. I refer not only to those who have suffered loss or injury in a car accident, but also those who are self-employed and trying to keep a business going given a significant number of Setanta's customers were self-employed.

What comfort can the Minister offer to these people who are so badly and desperately in need of good news?

5:15 pm

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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I thank the Minister very much for his reply which clarifies that the premiums paid by policyholders to Setanta Insurance are gone and none of the funds open in respect of claims can deal with the issue of refunding premium payments which have been made. The lesson for insurance consumers is to check immediately whether the company providing their insurance is regulated in Ireland. It will come as news to a great many people they have an insurance policy in Ireland which is provided by a firm which is not regulated here and the Central Bank of Ireland has no role whatsoever in prudential supervision. This is a risk and exposure. While the new system of pan-European supervision and regulation gets up and running and becomes stronger consumers must deal with this risk. If anything, greater awareness of the potential exposure faced by people having a policy provided by a company not regulated in Ireland is something we should all learn.

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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To reply to Deputy Conway, I cannot comment on an individual case and I have no idea what the liability might be. It is not clear yet from Malta, because the company only went into liquidation today, whether there are assets which partially support the outstanding claims of the company. I am sure it will be clarified in due course.

The insurance compensation scheme we operate here between the State and insurance companies is committed to covering 65% or something over €800,000, which ever is the lesser amount. While people are insured to drive for two months after the first announcement was made I strongly advise them to seek new insurance immediately because while they will be driving in accordance with the Road Traffic Act they will not necessarily be covered, or covered adequately, for any claims they may have to make themselves or claims which might be made by third parties.

I take Deputy McGrath's point and I see this as the start of a wider debate. The provision of insurance across State boundaries in the European Union is part of the single market in financial services. It is something we all support. We must be sure regulation is adequate and I have no evidence yet there was any inadequacy in the Maltese regulation. It is a member of the eurozone as well as being a member of the European Union. We will see, and I will communicate to the Dáil in due course as further information comes to hand.