The single European market has brought a lot of benefit for Irish consumers. But in the world of motor insurance, it has meant something of a nightmare. In 2014 Setanta Insurance went bust, leaving 80,000 customers in the lurch and leading to an ongoing legal battle over who should pay outstanding claims. Now Enterprise Insurance is closing, affecting 14,000 policyholders.

The common link is that Setanta and Enterprise were selling into Ireland from other, smaller European countries. Setanta was regulated in Malta and Enterprise in Gibraltar.

Setanta

With Enterprise Insurance insolvent, the Central Bank advises that consumers will have to look elsewhere for cover. And the question now is whether there will be another hole to fill, if outstanding claims cannot be met by the company's liquidator. And if so who will meet it? Because it appears that many other countries do not have compensation mechanisms, meaning pressure comes on the industry here – and in the long-term their policyholders – to foot the bill, even though the Irish regulator had no part in overseeing what was going on.

When Setanta went under, it left behind €90 million in claims from 1,700 policyholders. The High Court ruled that the Motor Insurance Bureau of Ireland (MIBI) should meet the bill and this was upheld by the Court of Appeal. MIBI is to appeal to the Supreme Court, meaning the policyholders will have to wait a long time before their claims are paid. Its case is that it is an industry fund designed to pay up when there are claims against uninsured drivers, as opposed to meeting the bill when competitors go bust.

On the hook

Coincidentally, the Department of Finance published proposals on Friday that in future the Insurance Compensation Fund should foot the bill in liquidations. This is a special fund loaned money from the exchequer. The industry repays it over time, or rather customers do via insurance costs and a 2 per cent levy on non-life policies. The industry is concerned that the latest proposal – which will require legislation – is that this fund is being exposed to meet all the costs of insolvent companies, rather than a capped amount.

As of now the MIBI appears to be on the hook if any shortfall emerges in Irish claims on Enterprise Insurance, after the High Court decision. Meanwhile there is confusion and uncertainty for the 14,000 customers of Enterprise, the brokers who sold them these policies and anyone with a claim against the company. And yet more pressure is likely on the incredible upward march of motor insurance costs, up an extraordinary 38.8 per cent in the year to June.