Wednesday 17 October 2018

Insurers will quit Ireland if MIBI appeal fails, says brokers' body

Ciaran Phelan, chief executive of the Irish Brokers Association
Ciaran Phelan, chief executive of the Irish Brokers Association
Sarah McCabe

Sarah McCabe

National Competitiveness Council slams Government's failure to curtail insurance costs, writes Sarah McCabe

The international parents of Irish insurers are in "disbelief" about a High Court decision, currently being appealed, which could force motor insurers to pay for outstanding claims in the event that a rival collapses, according to the head of the Irish Brokers Association.

If the original decision is upheld, some may consider exiting the Irish market as a result, Ciaran Phelan said, while premiums would likely rocket. He was referring to an appeal heard in the Court of Appeal last week by the Motor Insurance Bureau of Ireland. MIBI is appealing the High Court's decision late last year to make its 40-plus members liable for 100pc of outstanding claims associated with Setanta Insurance, the Maltese insurer which went bust.

"The indirect implication of the High Court's decision is that all motor insurance providers in Ireland will now be held responsible for any potential insolvencies that may occur to their competitors operating in Ireland," said Phelan.

"The ruling came as a shock to the Irish insurance sector, which has reverberated further afield as the Irish managements of these mostly international insurers attempted to draft a communication to their head offices explaining that they were now responsible for the future solvency faux-pas of their competitors.

"From what we heard, the overwhelming reaction by these international head offices was one of utter disbelief - could such a situation exist in any modern market?

"The parent companies are still dumbfounded as to how this happened and we are not being melodramatic when we say that some may consider exiting the Irish market as a result."

Industry insiders said they believe there is a low risk of the High Court decision becoming settled law. While MIBI may have to bear the fallout from Setanta, beyond that, Government would legislate to make another source liable if a motor insurer goes bust again, like the Insurance Compensation Fund, which is also financed by the industry but only compensates up to 65pc of claims or €825,000, whichever is lower. However, that approach led to taxpayers forking out upon the collapse of Quinn Insurance in 2010.

Commenting on the appeal case, a spokesperson for Aviva said: "In a position where big international insurers are constantly reviewing the opportunities in every market in which they operate, were this rule to become settled law, it would have to be taken into account and would make the Irish market less attractive."

Liberty said: "Liberty Insurance recognises this is a significant issue impacting the insurance market in Ireland. The company remains fully committed to the operation in Ireland."

In other insurance matters, the National Competitiveness Council has slammed recent rises in the cost of many types of insurance policies as barriers to Ireland's competitiveness and laid the blame at policymakers' doors.

"Insurance costs are relevant to businesses of all sizes and in all sectors of the economy," it said. The Department of Finance, Central Bank and Department of Transport all need to prioritise the cost competitiveness of insurance in policy decisions, it added.

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