Wednesday, 28 May 2014
Topical Issue Debate
Insurance Industry Regulation
I wish to set out the position with regard to the closure of Setanta Insurance. The weakness in the regulatory system has allowed this company to avail of EU rules essentially allowing it be regulated in another EU jurisdiction while operating solely in this jurisdiction, with 75,000 policyholders, most of which are small and medium enterprises. We are all well aware of the difficulty these small and medium enterprises are experiencing without this kind of disaster being visited upon them. While this issue has been raised by way of parliamentary questions and Topical Issues, I want clarify the current legal position in regard to the policies, what assistance is available to policyholders and, critically, the role of the Financial Regulator, an issue which has been a fairly hot chestnut in this country in recent years.
Setanta claimants and customers do not know what is happening one month after the Malta-registered insurer went into liquidation. Questions about who knew what and when in regard to Setanta Insurance are beginning to mount up. It has now emerged that the Central Bank had been aware of difficulties in the company since November of last year. Setanta stated in January of this year that it would stop taking new business and cease existing policies but, in the meantime, the bombshell was that it published on its website last month the news that its operation was to be liquidated and claims would not be met. I want to know what the Central Bank knew last November and what it did - or, critically, what it did not do - about it. There is also discussion between the Central Bank and the Malta Financial Services Authority, and I want to know the exact detail of that. Was the Minister or the Department aware of it and, if so, what action did they take in regard to it?
Protecting the consumer means more than knowing there are problems and then doing nothing about it. Protecting the consumer is exactly that. There has been a long litany of disasters in this country in recent years in regard to people who knew things and did not do anything about them or, further, regulatory authorities that were not doing what they were supposed to be doing. We learned yesterday there are currently more than 600 firms licensed to carry out insurance business in this country that are not regulated for prudential purposes by the Central Bank. This poses an extremely serious risk to Irish consumers and there are no guarantees that what happened in regard to Setanta Insurance will not happen in regard to other businesses or other people availing of such services. The matter requires further analysis. The lessons we are currently learning in regard to Setanta Insurance must inform how we are able to cope with future issues that will invariably arise.
I understand the Minister for Finance, Deputy Noonan, has given a commitment that the Department of Finance and the Central Bank will review the circumstances around Setanta Insurance and will report on what lessons can be learned and how the regulatory framework can be strengthened. As we speak, however, there are thousands of people who have been, in effect, disenfranchised by what has happened. It is not good enough that another EU member state would host a company which would come in here and do precisely what it has done to people trading in this country.
The fact so many small businesses are still here in 2014 is a great tribute to the way in which they have been able to weather economic catastrophe in recent years. To think that, just when there is almost light at the end of the tunnel and they can see the horizon for the first time in a hell of a long time, they would have to deal with such a calamity is unacceptable. In particular, the role of the Central Bank needs to be established without doubt. If people in the Central Bank were asleep on the job or did not do their job, the consequences of that are now going to be felt by honest-to-God unfortunates around the country who are left in limbo by this debacle.
I thank the Deputy for raising this very important matter. I apologise on behalf of the Minister, Deputy Noonan, who has a very important engagement at this time.
At the outset, the Deputy should note that Setanta Insurance Company Limited is a Malta-incorporated company which was both authorised and prudentially supervised by the Malta Financial Services Authority. While its financial position is not supervised by the Central Bank of Ireland, as the Central Bank has no role in that regard, the firm is supervised by the Central Bank for conduct of business rules - that is, consumer protection obligations. The Central Bank is in contact with the Malta Financial Services Authority in regard to Setanta Insurance, the impact on policyholders and the provision of relevant and appropriate information.
Under EU law which governs 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 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.
The Minister for Finance understands Setanta met its EU regulatory obligations up until its insolvency and was, therefore, entitled under EU law to trade across EU borders up to that point.
On 16 April the MFSA determined that the company was insolvent. This means that Setanta does not have sufficient funds to be able to honour its full obligations towards claimants, policyholders and other creditors. It was formally placed in liquidation by the MFSA on 30 April and Mr. Paul Mercieca was appointed as liquidator. Officials of the Department of Finance, together with officials of the Central Bank, met the liquidator and his representatives in Ireland on 7 May and the Central Bank is in ongoing contact with him regarding the position of Setanta policyholders. The liquidator has confirmed that all policyholders who have not already done so should arrange alternative cover without delay as claims are unlikely to be paid in full. He has issued letters to policyholders informing them that their insurance cover will be cancelled within seven to ten days in accordance with their policy documents. This process has commenced and there were less than 20,000 policies with Setanta Insurance on 27 May. It is expected that all remaining policies will be cancelled this week in line with the terms of the policies. In the circumstances, the Minister for Finance continues to strongly advise policyholders to make alternative insurance arrangements without delay and that they should contact their insurance broker or an insurer directly to seek alternative cover. This is also the advice of the Central Bank. The liquidator has advised that arrangements are in hand for policyholders to obtain their no claims bonus certificates from Setanta. Insurance Ireland has informed me that these certificates will be honoured by other insurers and we are aware that many insurers are being flexible surrounding requirements for documents.
In addition, the Insurance Ireland declined cases agreement is 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. The Minister for Finance is informed that under the agreement, the insurance market will not refuse to provide insurance for an individual seeking insurance if he or she has approached at least three insurers and has not been able to obtain cover from them. The Minister understands Insurance Ireland is also making information available to those who have queries, complaints or difficulties regarding this matter through its service at (01) 6761914 or by email at email@example.com.
With regard to Setanta premiums and claims, the position on each policy is for the liquidator in the first instance to decide in due course. Department of Finance officials and the Central Bank will remain in close contact with the liquidator and the Minister for Finance has asked that public statements be provided to clarify matters for policyholders and claimants.
At the heart of this debacle are people, many of them in small businesses, who have weathered a very dark and horrible political and economic storm in the past fe years. We have seen people struggle to keep businesses going, some with more success than others. It is cold comfort that we now know what happened should not have happened and that the framework should be in place, which I accept. The reality is that there are people who have been very badly treated. There is evidence to suggest the Central Bank knew about the difficulties in Setanta last November. A situation rolled into this year up and continued last month, as a result of which the company has gone into liquidation and people have been left stranded. That is not good enough. It is not good enough when one considers the history of the Central Bank around the time of the collapse of the economy. It is absolutely infuriating for people to be left in this situation, despite the existence of those whose job it is to keep an eye on companies such as Setanta and to be in consultation with the authorities in Malta and other EU member states and aware of directives and all the talk about frameworks. In effect, they have been left high and dry. I implore the Minister of State to convey to the Minister for Finance the message that we need to step up to the plate and ensure those who have been left disenfranchised and out of pocket will have their costs redeemed insofar as it is possible to do so because they are entitled to nothing less, particularly if an organ of State was asleep at the wheel. God knows, that institution has good form in that regard.
I will some clarify some matters. The Central Bank has been in discussions with the MFSA about Setanta since November 2013 when it identified issues during a consumer protection-themed inspection and immediately referred the matter to the MFSA for further investigation. There was regular contact in the following months. Issues led to the announcement in January that the firm would cease writing new business and issuing further renewals. On 21 January the Central Bank wrote to advise my Department of its concerns about Setanta Insurance's solvency and I was subsequently informed of this correspondence. Contact continued between the Central Bank and the MFSA and on 11 April the MFSA advised the Central Bank that the directors of Setanta Insurance were considering the potential liquidation of the company. There was ongoing contact in the following days and Setanta Insurance announced that the shareholders had recommended the appointment of a liquidator subject to the approval of the MFSA. On 16 April I was advised that the stakeholders of Setanta Insurance had resolved to wind up the company. As the Central Bank continues to have ongoing contact with the MFSA, I would not say it was asleep at the wheel. It was very active in dealing with the liquidator, as well as the various industrial representative bodies. It has also engaged with the brokers who sold the policies to ensure they assist policyholders and keep them informed. In addition, it contacted all brokers to instruct them to write to policyholders who held a current Setanta motor insurance policy informing them of the urgent need to make alternative arrangements.
On 16 April the MFSA determined that the company was insolvent. This means that it does not have sufficient funds to allow it to honour its full obligations towards claimants and policyholders. Setanta was formally placed into liquidation on 30 April and Mr. Paul Mercieca was appointed as liquidator. Together with officials of the Central Bank, we met the liquidator and his representatives in Ireland on 7 May. The Central Bank is in ongoing contact with him regarding the position of Setanta policyholders and he has confirmed that all policyholders who have not already done so should arrange alternative cover without delay as claims are unlikely to be paid in full. He has issued letters to policyholders informing them that their insurance cover will be cancelled within seven days. This process has commenced and there are less than 20,000 policies in place. If one looks at the clear evidence available going back months, one can see that the Central Bank was on the case. It was put on notice last November.