Mr. Kevin Thompson:

I thank the Chairman and members of the committee for the opportunity to appear before the committee as part of the pre-legislative scrutiny on the draft general scheme of the insurance (amendment) Bill.

On behalf of Insurance Ireland, I welcome the proposed legislation as it brings to an end an anomaly which first came to light with the liquidation of Setanta Insurance by the Maltese authorities. Prior to the Setanta situation, insurance companies that encountered difficulties were placed in administration which allowed for the orderly wind down and transfer of policies. In a liquidation scenario, these tasks became much more complicated.

Insurance Ireland accepts the proposed funding arrangements as contained in the general scheme of the Bill. Prior to the Supreme Court decision in the Setanta case, the industry, through the Motor Insurers Bureau of Ireland, would be responsible to meet not only all the motor third-party liabilities, MTPLs, of Setanta but also for any other company which may enter liquidation. Clearly, the circumstances where a prudent company would be responsible for the liabilities of a less prudent competitor was a classic example of market failure.

Insurance Ireland has always been of the view that in order to maintain the orderly functioning of the motor insurance market in Ireland it is vital that certainty exists around the annual contribution rate. Such certainty is the key feature of both the UK and French markets. In the UK, there is a monetary limit to the contributions which the sector is required to meet in any given trading year. In France, an ex-ante contribution is collected in advance of any liquidation event. This rate does not change from year to year and therefore it also provides the certainty to which I referred earlier.

The proposed methodology in the general scheme is in line with international norms of consumer protection and as such is to be welcomed. Furthermore, we accept that it is prudent to begin the collections at a level of 2% of motor gross written premium and to taper this back as the fund is built up to an appropriate size. The collection of the fund is also equitable because the entire market would be required to contribute based on the previous years motor gross written premium. Insurance Ireland agrees with the general direction of the general scheme that the best manner to avoid the complications and unnecessary uncertainty which arose as a result of the Setanta liquidation is to collect an ex-ante contribution for all insurers writing motor business in Ireland.