Setanta Insurance Q &A
Published 18/04/2014 | 02:30
Q: I have a motor insurance policy with Setanta. What should I do now?
A: Get a new policy as soon as you can.
Setanta is being wound up and has warned it may not have sufficient funds to pay claims. This renders its insurance cover useless – an insurance company that cannot pay a claim is not an insurance company at all.
Setanta has also warned that it may not be able to refund premiums that have already been paid in advance.
Q: I have a claim with Setanta. Will it be paid out?
A: The company has warned that it is unlikely to be able to pay claims, because of a shortage of funds.
It said in a statement that it was "not in a position to confirm that claims in the interim period will be met in full, since any and all claims will be subject to the relevant liquidation process".
David Curran, an insurance expert and partner in Holohan Law, a Cork and Dublin-based legal firm, said this may leave those involved in accidents exposed.
"If you are insured with Setanta and you have an accident and are negligent, then you will have to pick up the tab for that.
"You could be looking at a personal injury claim of €50,000 to €60,000 from someone you crash into."
In the first instance, unpaid claims will have to to through the Motor Insurers' Bureau of Ireland, set up by insurers and the Government to cover claims caused by uninsured and unidentified vehicles.
The bureau is funded by a 6pc levy on all motor insurance policies.
But if it is unable to meet the cost of claims, Mr Curran said the state-backed Insurance Compensation Fund will have to be used to meet the claims.
This is administered by the Central Bank, but controlled by the High Court.
A levy of 2pc is imposed on all motor, home and business insurance policies to fund it.
It has been used to fund shortfalls in Quinn Insurance, a bill that is set to be as high as €1.3bn.
The fund will cover 65pc of the value of claims, or up to €825,000 of a claim, whichever is the lesser.
A liquidator will be appointed to Setanta Insurance, which means that any shortfalls from a claim settled with funds from the Insurance Compensation Fund could be divided up between claimants, if there is spare money.
Q: Who will pay for this mess?
A: You got it in one – as usual, we all pay.
If, as expected, Setanta does not have enough money to pay out its claims, then the money will have to come from the Insurance Compensation Fund.
That is already costing us 2pc on all non-life insurance policies.This is expected to be in place for at least 12 years.
The 2pc figure may have to be increased. If not, the levy could stay in place for longer. This means that everyone with an insurance policy will end up funding claims made by those insured with Setanta.
Q: Why did this happen?
A: Setanta Insurance warned in January that it was not taking on any new business and was to slowly wind down its business, as exclusively reported by the Irish Independent.
But yesterday, a decision was taken to dissolve the company immediately, instead of a gradual shutdown.
The company has not got sufficient reserves to meet claims made from motorists.
It said in a statement that a decision had been taken that a "solvent run-off was no longer possible".
The company is headquartered and regulated in Malta.
Its only business was insurance in Ireland, and it used EU "passporting laws" to operate here.
This is an EU rule allowing the free movement of goods and services across the zone.
Essentially, a company can set up in one EU country and offer services and goods in the other.
This meant Setanta is regulated by the Maltese Financial Services Authority, but was operating in this market.
It is understood Setanta sought authorisation here from the Central Bank when it set up in 2007, but decided in the end to be regulated in Malta.
Q: Could this happen again?
A: There are around 700 financial companies with registered head offices outside the country that are regulated in those countries but operating here.
They are fully entitled to be regulated in one EU country, and operate in another. Unless the law is changed at EU level, this could happen again.
Mr Curran commented: "The regulatory requirements should be uniform across the EU. It should not be possible to trundle off to Malta, get accredition there, and then come back and operate an insurance company here."