Eoghan Murphy: Car insurance needs supervision at EU level
In the Oireachtas Finance Committee last Thursday, Senator Kiernan O'Donnell asked a pertinent question - how do we avoid another Setanta?
The Supreme Court decision on the Setanta case between the Law Society of Ireland and the Motor Insurers' Bureau of Ireland is very welcome. This decision in favour of insurers removes the uncertainty that has seriously delayed the payment of over 1,600 outstanding third party claims.
We can now accelerate the process of resolving these claims which have been outstanding since Setanta collapsed in 2014. Work is already underway to expedite the first payments from the Insurance Compensation Fund; the first tranche is expected shortly.
However, the compensation fund can only cover up to 65pc of people's claims, with the distribution of Setanta's assets possibly making up an additional 30pc, depending on the claim. So customers of the company are going to lose out and some claims won't be dealt with immediately because they have not yet been settled. We cannot let such a situation happen again, where a customer is left without compensation for a claim through no fault of their own.
The Department of Finance will, with the cooperation of the Oireachtas, quickly progress legislation to protect consumers of motor insurance in to the future with 100pc coverage in the event of a company collapse.
Within the framework of the Government's work to reform the motor insurance market, ongoing since last July, the Setanta issue has been a constant feature of my engagements with industry and their representative body, Insurance Ireland. They have highlighted the uncertainty around liability for company failures as a key driver of rising motor insurance premiums. With this uncertainty now removed I expect this to be reflected in pricing in the short to medium term.
Setanta Insurance, a company registered, authorised and supervised in Malta by the Maltese financial supervisor, operated in Ireland using EU rules. Allowing an insurance company to establish in one country and conduct business in another is at the heart of the single market.
But all of this rests on the assumption of an underlying standard of supervision across the EU.
Since the Setanta collapse, supervision has been strengthened with the introduction of Solvency II from January 1,2016. The system is much more risk sensitive and demanding with increased and consistent capital requirements which will be consistent across the EU.
These capital requirement enable insurance firms to absorb significant losses. This gives assurance to policy holders and beneficiaries that payments will be made as they fall due. Solvency II also significantly enhances the role of supervisory authorities.
The Central Bank of Ireland has been quick to take advantage of several improvements. It has enhanced its Market Intelligence on Freedom of Services firms and maintains regular contact with the regulators of insurance firms conducting business in Ireland. It is conducting more on-site inspections of intermediaries and managing general agencies who distribute products underwritten by Freedom of Services insurers.
Increased cooperation between supervisors is a vital piece in the jigsaw. We are seeing this through their participation in EIOPA, the EU regulatory body for insurance and occupational pensions. A core EIOPA functions is the establishment of common regulatory and supervisory standards and procedures.
This is a point I previously raised with the European Commission and Members of the European Parliament regarding the systemic risks posed to our common financial system by competition around Brexit company relocations.
I believe that the best insurance we have against another Setanta happening is for all stakeholders to continue to deliver on urgent reform of this sector here at home, and for Ireland to continue to lead in Europe on the application of better and consistent regulatory and supervisory standards.
Eoghan Murphy is Minister of State at the Departments of Finance and Public Expenditure and Reform.