Friday 15 November 2019

State accuses insurers of dodging €20m

Department of Social Protection says companies are obtaining court orders to avoid fees on inaccurate basis

Gavin McLoughlin

Gavin McLoughlin

Insurers are deliberately seeking to avoid making back-payments to the Exchequer, the Department of Employment Affairs and Social Protection has said.

The department believes as much as €20m could be owed by the industry to the State. The details are contained in a bond prospectus issued by FBD Insurance, which has told the market it could face a liability of as much as €2m.

The issue relates to a programme called the Recoverable Benefits and Assistance Scheme (RBA). The scheme is designed to allow the State to claim back certain social welfare payments on foot of the welfare recipients getting insurance payments.

But an issue has arisen whereby insurers are settling cases outside of court, and then going to court to look for a reduction or elimination of any payments due to the State under the RBA scheme.

"The DSP are of the opinion that in many cases the court orders do not reflect an accurate position of the settlement negotiated between the parties and that orders are also being obtained to deliberately avoid an RBA liability," the FBD prospectus states.

FBD said the department "believe they have a shortfall of €20m in RBA payments as a result". The insurer said it was difficult to estimate how much exposure it might have if it had to make payments to satisfy the department. But it added that, based on a sampling exercise, the figure could be as high as €2m.

The prospectus says the department is challenging insurers about they way they have interpreted the legislation,

In the department's opinion, the part of the legislation that allows for the RBA repayment to be reduced or eliminated because of a court order only applies when the order is made after a full hearing of the case - ie not when a settlement has been made without a full legal hearing.

The prospectus says the Department has taken no action in pursuing the RBA repayments since June 2017, when it told industry group Insurance Ireland that it was taking legal advice on the matter.

A spokesperson for Insurance Ireland said: "Insurance Ireland outlined its position in respect of the Recoverable Benefits Scheme to the Department of Social Protection in correspondence in 2016. Insurance Ireland has no further comment on this matter."

A spokesperson for the department said: "The Department of Employment Affairs and Social Protection is currently awaiting legal advice. Pending such advice the department maintains that amounts due remain outstanding."

The prospectus has been issued by FBD as it seeks to issue bonds as part of its buyout of loan notes held by billionaire Prem Watsa's Fairfax. Fairfax had the right to convert the notes into shares - something which would have diluted the stakes currently held by FBD shareholders.

The company has elected to buy back and cancel the notes to avoid shareholders being diluted.

Some of that is being done in cash alongside the issue of the new bonds.

As part of the issuance it has to disclose the risks it faces, and the potential liability arising from the Department's probe of the RBA payments is included under that heading.

Other risks it flagged include Brexit, adverse weather events and employee misconduct.

Indo Business

Also in Business