Dáil Éireann debate -
Tuesday, 16 Oct 2001

Vol. 542 No. 2

Adjournment Debate. - Insurance Company Collapse.

Mr. Flanagan

The collapse of the Independent Insurance Company Limited in Britain last June has had a very severe impact on Irish policyholders and businesses. This company was a major insurer in the UK and had 600 business clients in Ireland. I wish to highlight the plight of many policyholders and commercial firms who are left exposed to civil claims estimated to be in the region of £150 million as a result of the collapse of the company. The Independent Insurance Company Limited had many clients based in Ireland, including construction firms and workers, hoteliers, engineers, caterers, marine workers and motorcycle and vintage car owners. The Government and the Tánaiste appear to have no appreciation of the seriousness of this issue. Many companies could face closure, jobs will be lost and outstanding claims may be left unpaid.

The unfortunate businesses and individuals who find themselves without insurance cover as a result of the collapse of Independent Insurance Group are now being left to fend for themselves following inaction from the Government. No response plan has been put in place by the Minister of State at the Department of Enterprise, Trade and Employment to deal with the many thousands of people affected by the collapse of the insurance company and no solutions have been offered by the Minister of State or his immediate boss, the Tánaiste.

What steps have been taken to address this matter? Has the Tánaiste been in contact with the British ambassador and has the Minister of State been in contact with the UK authorities? If so, what was the nature of the response and, if not, why not? What steps have been taken with the appropriate Ministers in the UK to deal with this issue? What steps have been taken with the European Commission to find a resolution to a problem that sees UK policyholders covered by a bonding system that appears to have no force in this jurisdiction yet the Minister of State can approve the operation of this insurance company in this jurisdiction? Over the past ten days since the resumption of the courts, cases are being listed for hearing on a daily basis. The insurance company has washed its hands of responsibility and has left defendant companies exposed to massive personal claims that they simply cannot afford to underwrite. Judges are left with no option but to enter judgments against firms and individuals who will be deemed personally liable in many cases. This will have devastating results. Jobs will be lost as otherwise healthy trading firms will be forced to the wall as a result of personal claims which they cannot underwrite and industry will suffer.

Similarly, hundreds of plaintiffs in personal injury actions, many disabled and unable to seek alternative employment, with no means to look after themselves or their families, run the risk of not recovering any compensation for loss or injury suffered because cover has been withdrawn from the defendant companies. This is a most serious situation where the Government continues to sit on its hands and adopts a do nothing approach.

The Tánaiste, as a matter of urgency, should introduce legislation whereby the insurance fund accumulated through the payment of the 2% insurance levy could be utilised immediately to assist these companies in trouble. This fund was used in the past where the PMPA was concerned in the early 1980s. The Minister of State claims the levy can only be used in situations involving an Irish company. If that is the case, urgent legislation can be agreed in this House to allow for the operation of this fund, notwithstanding the fact that the original company was based outside the jurisdiction. There is a fundamental anomaly in this situation. Why can insurance companies operate within this jurisdiction without bonding while they are bonded in other jurisdictions, giving rise to the disastrous situation which now exists?

Minister of State at the Department of Enterprise, Trade and Employment (Mr. Treacy)

Independent Insurance Company Limited (IICL) was a UK authorised insurer. Accordingly, responsibility for ensuring that it could meet claims from its policyholders lay with the UK authorities who were responsible for the financial supervision of the company. The present position is that the company is in provisional liquidation and the liquidation process will be dealt with under UK law. This company is also under investigation by the serious fraud office in the UK.

The UK authorities do not operate a "no failures" policy in relation to financial institutions and accept that there will be failures. The UK has however a safety net for policyholders of failed insurance companies whereby a policyholders protection fund compensates such policyholders' who meet certain criteria. The most important of these are that the policies must be regarded as UK policies and compensation is only available to private policyholders, unless liabilities are subject to compulsory insurance under UK law.

Clarification obtained by us, through the Financial Services Authority in the UK, is to the effect that private policyholders who purchased their insurance through the company's Irish branch and policies issued to the policyholders of the Carol Nash insurance consultants book of business in Ireland, appear to be UK policies, for the purposes of the UK Policyholder Protection Act and are, in principle, protected policies, subject to the policyholders meeting all of the other requirements of the UK Act. The FSA goes on to say that protection will be limited to 90% and that policyholders will, in principle, be entitled to return of unexpired premiums of up to 90%, provided their policies contain a cancellation condition regarding rights to a return of premium on cancellation.

We understand from the Motor Insurers Bureau of Ireland that, in the case of third party claims arising under policies covering compulsory third party insurance, application may be made to the bureau for the recovery of insurance losses not otherwise recovered as a result of the failure of Independent Insurance in the UK.

Our information from the UK authorities is that Irish commercial policyholders are unlikely to be covered under the UK Policyholders Protection Act. They will be eligible, as creditors, for whatever percentage of claims the liquidator can eventually pay from the company's assets, including any amounts that might be recovered from possible legal action against IICL's auditors or actuaries. Officials of my Department have met with officials in the UK Treasury Department and the Financial Services Authority. They stressed our concerns in relation to Irish policyholders with Independent Insurance Company Limited. The UK authorities have undertaken to consider the concerns expressed to them and we await a response from them.

I have met with representative groups and with commercial policyholders of Independent Insurance, within a few days of the collapse in June. The collapse occurred on a Monday and we were notified on the Tuesday. I called in the Irish Insurance Federation on the Wednesday and asked them to provide alternative cover to the many companies which were under threat in the absence of any cover being available. Through that action we saved many companies which were in a serious situation. I met with the victims a few days later. I met all the business organisations and told them exactly what was required. I met them again two weeks ago and they still have to put forward the necessary documentation to me. I have asked both the policyholders and those representing them to let me have details of the exposure of Irish business as a result of the Independent Insurance collapse. Some of that information is now beginning to come to hand and I expect that further information will be sent to my Department officials as it becomes available.

Those with claims outstanding are creditors of Independent Insurance and will be dealt with on the same basis as other creditors by the UK liquidators. While it is not yet known to what extent the liquidators will be in a position to satisfy creditors, there are no grounds for optimism. Following our meeting with the UK Treasury and Financial Services Authority officials, we will meet the liquidators of Independent Insurance in the near future.

The gap in the EU's legislative framework in relation to the position of policyholders in the event of failure of an insurer writing cross-border business, is likely to be discussed in forthcoming EU meetings. While these discussions will probably eventually lead to EU agreement on an appropriate compensation mechanism, it will not be of practical assistance in the present case. When the directive was being introduced in Europe, Ireland was the only country to draw attention to the potential anomaly in the impact across member states in the event of a collapse by a company registered in a different jurisdiction.

Neither I nor any Irish Minister had any responsibility for the Independent Insurance Company operating here or any involvement in its approval. Under European law once a company is registered to operate in one member state it has the right to deliver services in any member state. That is the position with this company. My Department will continue in its efforts to ensure Irish policyholders are treated in accordance with the principles of the Single Market.

Mr. Flanagan

No grounds for optimism.