·         Unlimited liabilities from the failure of an insurer would be passed onto competitors

·         Insurance Ireland’s pre-funded proposal is based on international best practice and would smooth the impact over time

19th July. Insurance Ireland has said a proposal being considered to resolve the liabilities of an insurer failing poses a systemic risk to the motor insurance market.

A report today indicates the Government’s Review of the Framework for Motor Insurance Compensation in Ireland will recommend that the liabilities of any future insurance failure be assumed by the Insurance Compensation Fund (ICF), with no upper limit on the exposure of insurance companies. Insurance Ireland supports the use of the ICF to resolve insolvencies but strongly opposes the funding model being proposed given the unlimited liabilities.

Kevin Thompson, CEO of Insurance Ireland stated “This is an opportunity to bring stability to the market by addressing how claims from a future insurance liquidation would be managed. However, this proposal makes any future failure potentially systemic by passing on unlimited losses onto other insurers”.

“This opens the door to a future financial shock for Government, consumers and insurers. Insurance Ireland has been clear in stating that insurance companies cannot assume unlimited liabilities of their competitors. No other business would be expected to do this and it makes no commercial sense as the risk has to be factored into premiums”.

“Insurance Ireland has been constructive and proposed a solution based on international best practice, including the French system, where the liability is capped.  This would ensure a fair contribution to cover outstanding claims while smoothing the impact over time. This would reduce the immediate impact of any liquidation, while also being practical to implement. For example, insurers write many lines of business covering home, motor and others, so a motor liability cannot be split out in an insolvency”.

Kevin added “This decision cannot be viewed in isolation. We urgently need to bring stability to the motor insurance market to maintain capacity and ensure sustainable competitive choice for consumers, instead of adding additional unnecessary volatility”.

“In addition, should the proposal be accepted, the industry here faces international reputational risks that could lead to reduced investment in the Irish market. Insurance Ireland calls for this proposal to be reconsidered and for further engagement in order to develop a response that works for consumers, the Government and insurers”.

Ends.

Media contact:

John Byrne

Communications Manager, Insurance Ireland

Tel: 01 644 7781 / 087 9383852

Nuala Buttner

Q4 Public Relations

Tel: 01 475 1444 / 085 174 4275

Notes for Editors:

·         Chronology of engagements:

o   Actively engaging with Government since September 2015.

o   Met with Ministers Noonan and Donohoe in December 2015

o   Agreement to pull together an interdepartmental group to look at international practice on insurance compensation schemes

o   Met with the interdepartmental review group in early 2016

o   Asked for information on the size of the market disruption – commissioned independent actuarial consultancy

o   Met with Joint Review Group – 30th May

o   Responded on 3rd June and asserted Insurance Ireland needed to complete a due diligence process on the proposal

o   Formal response with counter proposal based on best international practice (UK and France) on 12th July

o   Notified of proposal going to cabinet on Tuesday 18th July