I move: "That the Bill be now read a Second Time."
I welcome the opportunity to address Dáil Éireann today on the Insurance (Amendment) Bill 2018, which was published on 19 June 2018. This important legislation seeks to amend certain provisions of the Insurance Act 1964, as amended, to clarify the role of the Insurance Compensation Fund, ICF, and to implement the recommendations of the review of the framework for motor insurance compensation in Ireland report of 2016. The review was triggered following the failure of Setanta Insurance, a Maltese incorporated company, in 2014 and the uncertainty that followed over compensation arrangements for third-party claimants which highlighted weaknesses with the current insurance compensation framework in Ireland.
The cause of this uncertainty is the fact that there are two insurance guarantee schemes in place in Ireland with differing compensation levels, namely, the ICF and the Motor Insurers Bureau of Ireland, MIBI. The ICF covers the liabilities of non-life insurance policy holders in the event of a failure of an insurance undertaking and covers 65% of a claim or €825,000, whichever is the lesser, and the MIBI’s primary purpose is to compensate victims of road traffic accidents caused by uninsured drivers and unidentified vehicles and covers 100% of a claim, subject to a limit of €1.22 million in the case of claims for property damage. This uncertainty was reinforced when, taking account of a clearly outlined reference to MIBI in the ICF legislation, the Law Society of Ireland brought a case to the High Court seeking that MIBI was liable to pay the Setanta third-party claimants. The outcome of this case was that in September 2015, the High Court ruled in the Law Society’s favour and the Court of Appeal, in January 2016, upheld this decision.
This was the context in which the review of the framework for motor insurance compensation in Ireland was carried out in 2016. The review made a number of recommendations, which are addressed in the Bill, with the key recommendations being that the level of compensation from the ICF for third-party motor claims be increased from 65% to 100% in line with that currently provided by MIBI, and the increased coverage of the ICF be funded by a direct contribution to the ICF from the motor insurance industry via the MIBI to the value of 35% of the third-party motor insurance claims.
Subsequently, in May 2017 the Supreme Court overturned the decisions of the High Court and Court of Appeal and found that the ICF was liable for the payment of compensation to Setanta third-party claimants. The major effect of this was that Setanta third-party claimants who had previously thought they were going to receive full compensations were now only entitled to 65% of their claim or €825,000, whichever was the lesser. As a consequence, the Minister for Finance after appropriate consideration agreed that Setanta third-party claimants will receive 100% of a claim subject to a limit of €1.22 million in the case of claims for property damage and this decision is reflected in the Bill.
As Members will be aware, the heads of the Bill underwent pre-legislative scrutiny in March 2018 and I welcome the report of the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach. The report contains a number of recommendations regarding the heads to which I will return later.
I will now outline the main elements of the Bill, which comprises 17 sections. Part 1 deals with preliminary matters, including the Short Title of the Bill, definitions of terms used in the Bill and the authority for expenses incurred in the administration of the Bill. A separate commencement of Part 4 is included to allow the MIBI adequate time to put arrangements in place for the new motor insurers insolvency compensation, MIIC, fund. This part also provides for the transfer of functions relating to the administration of the ICF from the office of the accountant attached to the High Court to the Central Bank and relevant functions in relation to applications to the High Court, to the State Claims Agency, where liquidations are already in progress.
Part 2 deals with matters relating to the transfer of the administration of the fund such as the preparation of final accounts of the ICF, the payment of any moneys in the ICF to the Central Bank and the transfer of records from the accountant attached to the High Court to the Central Bank and the State Claims Agency.
Part 3 relates to the amendment of the Act of 1964 and comprises sections 8 to 15, inclusive. Section 8 amends section 1 of Act of 1964, including definitions. Section 8 amends some of the existing definitions contained in the Insurance Act 1964 and inserts new definitions. Section 9 amends section 2 of Act of 1964 to provide that the Central Bank of Ireland will take over the functions performed by the accountant attached to the High Court in respect of the administration and governance of the ICF. It provides that the accounts of the ICF be given to the Office of the Comptroller and Auditor General not later than six months after the end of each financial year to be audited and thereafter laid before the Houses of the Oireachtas by the Minister for Finance.
Section 10 amends section 3 of the Insurance Act 1964 to disapply the current limit of 65% or €825,000, whichever is the lesser, to be paid to third-party claimants from the ICF in the case of the failure of a motor insurer.
This amendment provides for the payment of personal injury claims in full and to a maximum of €1.22 million for injury to property in the case of third-party motor insurance claims, in line with the amounts paid by MIBI where a driver is unidentified or uninsured. It also provides that in such a scenario, the ICF will be able to recoup the balance over the limits mentioned from a new motor insurers insolvency compensation fund, which is to be established under section 16. These amendments implement the key recommendations of the review of the framework for motor insurance compensation in Ireland. Finally, this Part of the Bill facilitates the payment of 100% compensation to third-party claimants for existing motor insurers that have gone into liquidation since 30 September 2011, namely, Setanta and Enterprise Limited.
Section 11 amends section 3A of the Insurance Act 1964 to provide that applications to the High Court by a liquidator, in the case of an insolvent insurer authorised in Ireland, for approval of payment from the ICF must be accompanied by a report from the State Claims Agency following its assessment and verification of the claims. A provision is also included in this section and in the following section to ensure any moneys which are recovered from the liquidation of a motor insurer are repaid on a pro rata basis to the ICF and the motor insurers insolvency compensation fund.
Section 12 amends section 3B of the Insurance Act 1964 so that in the case of an insolvent insurer authorised in another member state, the State Claims Agency will make the application to the High Court. Before doing this, it will have assessed and validated claims on the basis of information provided by the person appointed to perform the functions of a liquidator in that other state. The amounts approved by the High Court will be paid by the Central Bank of Ireland from the ICF to the State Claims Agency for disbursement to individual claimants. This section also shortens the time limit for making applications to the High Court for payments from the ICF from no more than once in any six-month period to no more than once in any three-month period. This will allow payments to be made more frequently.
Section 13 amends section 3C of the Insurance Act 1964, which deals with companies in administration, to provide that any application to the High Court for payment from the ICF shall be accompanied by a report prepared by the State Claims Agency confirming that the methodology applied for estimating claims reserves and assessing liabilities is appropriate and in line with generally accepted accounting principles or practice.
Section 14 amends section 6(6) of the Insurance Act 1964 to update the existing regulatory powers of the Central Bank of Ireland to take action in the event of an insurer failing to contribute to the ICF. Section 15 repeals section 14 of the Insurance Act 1964, which provided for the regulation-making powers of the Central Bank in relation to the Act. This is being done because the Central Bank already has appropriate regulation-making powers under section 48 of the Central Bank (Supervision and Enforcement) Act 2013.
In Part 4, section 16 provides a legal basis and sets out the arrangements for motor insurers operating in the Irish market to contribute an amount under normal circumstances equivalent to 2% of gross written motor premiums to an ex ante fund to be held by MIBI, to be known as the motor insurers insolvency compensation, MIIC, fund. The purpose of this payment is to build up a fund to enable industry to meet its 35% commitment in the event that a motor insurer is liquidated in the future. The contribution rate will be subject to an annual review by the Minister, and may be varied between 0% and 3% depending on factors such as the amount held in the MIIC fund and the likelihood of a call on that fund in line with the following parameters: an amount equivalent to 2% of gross written motor premiums until the MIIC fund reaches €150 million; reducing to a contribution equivalent to 1% until the MIIC fund reaches €200 million; and contributions to be then suspended until such time as there is a call on the fund. In the event of a significant call on the MIIC fund and there being insufficient moneys in the fund, the contribution can be increased to the equivalent of 3% of gross written motor premiums until the fund reaches €50 million, after which time a contribution equivalent to 2% of gross written motor premiums will again apply. It also sets out the circumstances in which payments will be paid out of the MIIC fund to the ICF. In the event of an insurer failing to make a contribution to the MIIC fund, MIBI may seek to recover the debt and may refer the matter to the Central Bank for regulatory action if deemed appropriate.
In Part 5, section 17 contains consequential amendments. This section amends the National Treasury Management Agency (Amendment) Act 2000 to provide the statutory basis for the State Claims Agency to carry out the additional functions given to it under this Bill.
I note the work of the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach on the scrutiny of the general scheme of the Bill. I thank the committee for its detailed consideration of the proposals. Deputies will note that many of the committee's recommendations have been taken into account in the drafting of the Bill. For example, provisions have been made for the recovery of costs by the agencies involved - MIBI, Central Bank and the State Claims Agency. A mechanism has been provided for to make sure there is flexibility to change the levy in response to the amount held in the fund and other relevant regulatory considerations. The policy options in respect of other matters, such as the funding mechanism, were thoroughly examined in the regulatory impact analysis before the scheme was published. On the basis of this exercise, the preferred option was to establish an ex ante industry fund into which insurers would contribute an amount equivalent to 2% of gross written motor insurance premiums to be used to meet any future obligations in respect of motor insolvencies. This approach seeks to strike an appropriate balance between protecting policyholders affected by an insolvency and minimising the exposure of the Exchequer, particularly in the event of the insolvency of a larger insurer, while at the same time ensuring Ireland remains an attractive place for insurers to conduct business through the provision of as much certainty as possible to insurers operating in the State.
I reiterate the importance of the swift passage of this amending Bill to ensure full compensation can be paid to third-party claimants who have been waiting a long time for the resolution of this matter. I look forward to working with Deputies to bring this important legislative measure through the Houses of the Oireachtas as quickly as possible. I commend the Bill to the Dáil.