It will take over a decade for the proposed new insurance levy to cover the outstanding losses incurred from the separate collapses of Quinn Insurance and Setanta, an Oireachtas Committee has heard.
At a meeting of the Joint Committee on Finance in Leinster House on Thursday, representatives from Insurance Ireland and from the Central Bank said the balance of the deficit from both collapses now stood at €872 million.
The Insurance (Amendment) Bill proposes to introduce a new pre-funded levy to give more certainty to the industry, and to have a reserve available in the event of future crashes.
However, committee members expressed concern the levy would lead to increased premiums, despite sharp increases in recent years.
Kevin Thompson, chief executive of the industry representative group, Insurance Ireland, told the Committee the new levy would collect between €35 million to €40 million a year. Combined with the already existing State Scheme, the Insurance Compensation Fund (which collects about €70 million a year), the overall reserve collected each year would amount to over €100 million .
But given the deficit still outstanding for Quinn and for Setanta, Mr Thompson agreed with Michael McGrath of Fianna Fáil when he said “there is a decade or more to pay that alone”.
The committee was speaking to interested parties as part of its pre-legislative scrutiny of the Bill. Representatives from Insurance Ireland and from the Central Bank separately welcomed the broad provisions of the Bill, including the levy.
Stability
Mr Thompson told the committee the pre-funding mechanism would “bring stability to the market”. That, he said, would allow monies to call upon in events such as the Setanta collapse. He said it would bring certainty to an industry in line with best international practice.
Senator Rose Conway-Walsh of Sinn Féin said her own premium had risen by 20 per cent in the past year despite no change in her circumstances.
She said one effect of the Bill was that premiums would be reduced but said she was concerned they might actually rise.
“We need more assurance that this will not happen. The legislation is useless if it’s not going to be reflected in the premium.
Mr Thompson said the premium was a function of claims and pointed to claims inflation in recent years. He also said the latest CSO figures reflected a reduction in premiums.
Ms Conway-Walsh challenged that analysis, saying there were other factors, including poor management, which could contribute to premium increases.
The new legislation has come in the wake of a Government-led Cost of Insurance Working Group, which examined sharp increases in motor insurance premiums.
It has also been drafted to deal with the outstanding compensation to be paid following the collapse in 2014 of Malta-registered Setanta Insurance, and also the huge shortfall caused by the earlier collapse of Quinn Insurance.
