Wednesday, 19 December 2018
Saincheisteanna Tráthúla - Topical Issue Debate
Insurance Industry Regulation
I thank the Ceann Comhairle for choosing this question for the Topical Issue debate. I have a real sense of déjà vu.Here we are with another insurance firm, which is principally regulated in another EU member state, failing with very significant consequences for policyholders, claimants and, ultimately, Irish insurance consumers. Qudos Insurance was regulated prudentially in Denmark and sold business in Ireland under the freedom of services provisions of EU law. It had approximately 50,000 policyholders, primarily motor insurance, much of it commercial vehicles and vans, and also some home insurance. Information I have received in response to a parliamentary question is that early indications suggest around 1,400 claims remain outstanding. This is similar in scale to Setanta Insurance, and is now the fourth foreign-regulated insurance company to collapse in recent years. Setanta Insurance was regulated in Malta, Alpha Insurance was regulated in Denmark, Enterprise Insurance in Gibraltar, and now Qudos, also regulated in Denmark.
Several issues require resolution. First, given that we are approaching the fifth anniversary of the collapse of Setanta Insurance and hundreds of claims are yet to be paid, I sincerely hope we are not looking at a similar time frame for those affected by the collapse of Qudos Insurance. Some policyholders have spoken in the media and their stories are quite striking. In some cases, people are in a bad way with repairs to their homes and with significant and serious crashes involving people insured by Qudos.
What reassurance can the Minister of State offer claimants that they will have their claims dealt with quickly? That is the first priority. Then there is the question of who ultimately pays this bill. Will it be Denmark or Ireland? As a result of a change of the law in Denmark in May 2018, it appears that if the company moves from solvent liquidation to bankruptcy after 1 January 2019, the Danish insurance guarantee scheme will not be picking up the bill. In that case it will rest with the Irish insurance compensation fund. That has a number of implications. First, claimants who do not have a third-party motor insurance claim will not get all of their money because there is a cap of 65% for payouts from the insurance compensation fund here. This would also mean another draw on a fund that is already significantly overdrawn and will remain so well beyond the next decade because of the bills for Quinn Insurance and Setanta Insurance as well as many other issues.
I am very curious as to how this change in the law in Denmark came about and the fact that the company is now in solvent liquidation. Who is in control of the decision on when or whether that company moves into bankruptcy? It has very major implications for Irish policyholders and indeed for all Irish insurance consumers. Will the Minister of State reassure the House that from the point of view of the Department of Finance and the Central Bank, the manner in which this issue is being handled by the Danish authorities is above board? I am not accusing them of pulling a fast one, but I want the Minister of State to reassure us that the process under way there is transparent, independent and is being conducted above board. I look forward to the Minister of State's response.
I thank the Deputy for raising this very important issue. My colleague, the Minister for Finance, asked me to take this Topical Issue debate for him because he has another previously organised engagement.
As the Deputy has rightly pointed out, on 28 November the Central Bank announced it had been informed that Qudos Insurance A/S had entered into solvent liquidation. Qudos is authorised and regulated by the Danish Financial Supervisory Authority, FSA, and therefore the Central Bank has no role in this decision. Qudos operated in Ireland on a freedom of services basis, and its products were sold through Patrona Underwriting Limited.
On 4 December, Qudos published further information stating it was no longer paying insurance claims. In light of the uncertainly around the payment of claims, the Central Bank then issued a statement strongly recommending that affected customers contact their insurance brokers to arrange alternative insurance cover. It is understood that at the end of November 2018, there were 51,012 policyholders with Qudos in Ireland. That is comprised of 37,948 van insurance policies, 10,940 household insurance policies and 1,366 private car insurance policies. I will provide the Deputy with the figures. There are also smaller numbers of fleet, haulage and non-standard insurance policies totalling 758. Patrona has issued a statement saying that policies remain valid and in force until their natural expiry dates. However, given the current Qudos position and in line with Central Bank recommendations, Patrona has provided brokers with options to replace all insurance cover with other providers at no extra cost to consumers. We understand that the vast majority of policyholders have now been transferred to new providers.
The Central Bank has informed the Department of Finance that, as of 14 December 2018, there were 1,544 open Qudos claims. This cohort is made up of 155 household claims and 1,389 private car claims. The Central Bank understands the Danish liquidators are continuing their review of the company, with a view to determining its underlying financial position. Once this exercise is concluded, they will be in a better position to determine whether the company is solvent or insolvent. It is only then that it can be determined that the company has failed, that is, it is unable to meet its claims obligations. The matter is fluid as information is being frequently updated. We were trying to get an update for the Deputy this evening. Consequently, it is expected that more information regarding this matter should he available later this week. When we get this information, we will convey it to the Deputy.
Last week Department of Finance officials were in contact with Denmark's Ministry of Finance. The ministry advised them on the basis of information received from the Danish FSA that, as the company is in solvent liquidation, it believes that claims will be met. As the Deputy also rightly pointed out, the Ministry also indicated that if Qudos is ultimately placed into bankruptcy before 1 January 2019, the Danish insurance guarantee scheme will be liable to meet these claims. However, due to a legislative change in May 2018, if bankruptcy is declared on or after 1 January 2019, the Danish insurance guarantee scheme will not be in a position to pay claimants located outside Denmark. This is the eventuality the Deputy is worried about. However, in such a situation, Irish claimants may instead be eligible for cover from the Irish insurance compensation fund subject to its terms and conditions and the particular circumstances of the case.
I understand Department of Finance officials were also in contact with the UK Treasury and the European Commission to set out the impact and importance of this issue for Ireland and to understand what, if any, actions they were planning to take. UK customers have also been impacted by the failure of Qudos. The Minister of State, Deputy D'Arcy, has met Insurance Ireland whose representatives outlined their serious concerns about the additional cost that Qudos could place on the Irish insurance sector if it is liquidated on or after 1 January 2019. Officials continue to liaise with the Central Bank which advises that it is in very frequent contact with its Danish counterparts and the supervisory authorities of other affected member states though the collaboration platform for Qudos established by the European Insurance and Occupational Pensions Authority, EIOPA. The Deputy can rest assured that, throughout the week, intensive efforts will continue through the appropriate channels to seek an early decision from the Danish authorities to provide certainty for all affected parties.
I thank the Minister of State for his reply. To be frank, it is very worrying. I would like to know whether the change in Danish law is compliant with EU law. That is something the Department of Finance should follow up on. That needs to be dealt with because the Danish authorities are simply passing on the bill in respect of a company that was principally regulated there. My main concern is that this process is being managed so that Qudos will be put into bankruptcy after 1 January. That has very serious implications. It will cost Irish consumers tens of millions of euro. It will mean that some claimants will not get all of their money because they will be subject to the conditions of the insurance compensation fund, which has a cap of 65% or €825,000, whichever is the lesser.
For Irish consumers to have to pick up the tab yet again is just not on. They are already paying up to 7% in taxes and levies on their insurance policies. We are now looking at the potential of another major draw on the insurance compensation fund. Looking at the figures, I note that the number of open claims, now at 1,544, will rise. That is the nature of how insurance works. It can take time for claims to be put into the system. We are looking at another debacle on the scale of Setanta Insurance, which is still rumbling on almost five years after the collapse of that company.
There are major questions about the quality of regulation of insurance across the European Union. It is only as strong as its weakest link. I support the passporting provisions. Ireland is a significant exporter of insurance services. However, this system only works if there is a common standard of regulation across the European Union. I have raised this issue directly with the European insurance regulator. We will see what that body's response will be. The Minister for Finance, Deputy Donohoe, needs to raise this issue at a political level within the European Union. That has not happened to date and it is not good enough. This needs to become a significant political issue on the agenda of the Eurogroup, the Economic and Financial Affairs Council, ECOFIN, and the other relevant authorities.
This matter is being treated with urgency by the Department of Finance and the Minister. As the Deputy said, the Minister of State, Deputy D'Arcy, has been in contact with the UK Treasury and the European Commission. We hope to get an update as soon as possible on their plans in that regard. We are concerned about it. I have taken careful note of all the points the Deputy has raised during the debate. It is hoped that the Danish authorities will come to a decision quickly to provide certainty to policyholders and claimants. The Deputy should note that the Minister is very conscious of the problems caused in recent years by the number of non-life companies passporting into the Irish market, particularly in the light of the significant motor insurance claims. On the other hand, Ireland is a major beneficiary of the cross-border passporting regime, particularly in the life insurance sector.
It should be noted that the Solvency II regulatory framework is not a no-failure regime. It is not possible, as we all realise, to build a viable system that will provide a cast iron guarantee that no insurer will ever fail. It is important, therefore, that EU supervisors properly and consistently supervise the insurers they authorise and that there be greater communication, as the Deputy said, between supervisors across the European Union on their respective companies in conducting cross-border business. In that regard, there is a proposal, as part of the ongoing review of the European supervisory architecture, to further improve cross-border co-operation and communication through the strengthening of cross-border collaboration platforms which operate on an ad hocbasis. However, the proposal would ensure a more formal structure was put in place where an insurer did a lot of cross-border business. It would give supervisors in the countries where insurance was written greater insight into how the business was being conducted. The Minister, Deputy Donohoe, and his colleague, the Minister of State, Deputy D'Arcy, are very concerned about this issue for Irish policyholders and every effort is being made in that regard. There is constant contact by the Department of Finance and other agencies with the Danish authorities to ensure a quick decision can be made in order that it will not extend beyond Christmas, something about which the Deputy is concerned. I will convey his views to the Minister.