Insurance (Amendment) Bill 2018: Committee and Remaining Stages

Sections 1 to 8, inclusive, agreed to.
SECTION 9
Question proposed: "That section 9 stand part of the Bill."

This might provide the opportunity for the Minister of State to address some of the points made on Second Stage. Will the Minister of State clarify why he is going for an additional new fund, as opposed to extra contributions going into the existing insurance compensation fund, ICF? We are setting up a motor insurers insolvency compensation fund but will the Minister of State explain the logic behind that given the ICF is designed to deal with the fallout from the failure of an insurance company? There is the question of the need for an extra fund and why it is not being dealt with in the existing structure of the ICF.

A new levy will be put in place on insurance policies. My understanding is that once the amount accumulates to €150 million, the rate will reduce to 1% from 2%. Will the Minister of State clarify how quickly he expects the levy to be applied? I am sure he will say it is a matter for insurance companies how it is collected but in reality this will be passed to policyholders. At a rate of 2%, it should collect in the region of approximately €70 million per year. After two years or so will the 2% become 1%, and after a further year will that become zero? Is it correct that in total there will be approximately three years where the levy is applied to reach the €200 million or so, meaning the levy will no longer be collected? It would be helpful if the Minister of State could clear up some of those matters.

Could insurance companies be forced to absorb this rather than having the people out there paying insurance, which has gone up for different reasons? They seem to be getting screwed the whole time. As Deputy McGrath has pointed out, when the threshold is reached, is there something to ensure it will be dropped from 2% to 1% or zero? Is there a forecast from the Department? If the insurance companies are taking the brunt, will it be dropped? I have a fear as insurers currently love trying to saddle these things on motorists.

Insurers are private businesses and therefore the Minister for Finance cannot direct them to absorb these particular costs. It is a matter for the insurance company whether to absorb them or not. If they are seeking market share and pricing accordingly, they can absorb them. If the Minister interfered in the pricing of insurance products, he would, in effect, be requiring insurers to sell products at a lower price than they consider appropriate. That would certainly run into difficulty from a solvency perspective and it would be viewed as weakening their balance sheet. It is not a matter for the Minister.

On the basis that there would be no call on the fund prior to it building to its target level of €200 million, it is anticipated the process would take approximately seven years. At the 2% level, the contribution is expected to collect approximately €34 million to €40 million per annum for approximately four years.

That is the 2% level.

At that stage our expectation is that when the fund reaches €150 million, the levy will be reduced to 1% and take the fund to €200 million. The rate will revert to zero at that point because €200 million is the appropriate figure for the fund.

In the review of the framework for motor insurance in Ireland, it was recommended that the 35% payment from industry be made via the Motor Insurers' Bureau of Ireland, MIBI. The industry opposed this approach, as in its view it created an open-ended exposure, and the industry would never know what is its obligations. In other words, it could be 35% of a very small amount or a very large amount, depending on the size of the insurer going into liquidation. Industry argues this would create uncertainty and unpredictability, leading to higher capital charges. It also made the case that the proposal would make Ireland unattractive to new entrants. Instead, the industry proposed the establishment of an ex ante fund into which it would make a contribution equivalent to 2% of gross motor insurance premiums. Such a fund, once built, would allow the industry to meet its obligations. It would also create certainty as to what an insurer's exposure would be in any year to an insolvency, and it was indicated that a similar level of certainty is found in the UK and French models.

The option for the State to advance the necessary funds to the ICF to cover the full 100% compensation for third party motor insurance and recover the money by the existing 2% levy over time was one of the options considered in the regulatory impact analysis carried out in preparing the general scheme of the Bill, which was rejected in favour of the current proposal. In adopting the approach I have outlined, the Minister is seeking to strike a balance between protecting third party claimants affected by an insolvency and minimising the exposure to the Exchequer, particularly in the event of an insolvency of a larger insurer. At the same time, the Minister is seeking to ensure that industry shares the burden of the increased coverage of the ICF while creating predictability and certainty for industry with respect to the exposure in the case of financial insolvency and maintaining attractiveness for new entrants.

I wish to rationalise those numbers. My understanding is that the new levy applies to gross written motor premiums. Therefore, the insurance compensation fund, ICF, levy is for all non-life policies. In effect, the Minister of State is saying, broadly speaking, that the amount to be applied to motor premiums accounts for approximately half of the non-life insurance book. According to the research we have, the ICF contribution is approximately €70 million per annum. The Minister of State is saying that the new fund, with a levy of 2%, will collect between €34 million and €40 million per annum. It would take approximately four years to get to the €150 million target. The Government will then reduce the rate to 1% and it will be in place for a further three years. For the next seven years people are looking at 3% stamp duty, which is permanent because it is taxation. Then, they are looking at the 2% insurance compensation fund levy, which will apply to all non-life insurance policies for the next three or four years. That will go towards the new motor insurance insolvency compensation fund. Then, for the following three or four years the rate will be 1%.

Am I right in saying that, provided there is no further drawdown from the insurance compensation fund to clear out the legacy liability from Quinn Insurance, we are looking at probably another 12 years? Is the intention then that the levy will remain in place to build up the fund? It is in deficit currently to the tune of €800 million. Would it remain in place in future to build up a fund?

No decision has been made on where we will be or what the position will be in ten years' time. It is the same fund or structure that was used for PMPA and that process concluded in 1991. The opportunity is still there to use the legislation to build up a fund in future. I do not know the answer to the question. It is undecided. The logical approach would be to continue it to have an amount of money for an insolvency in future, but that would depend on the circumstances with the industry. Certainly, it would have run for a long period by then. It would be a matter, perhaps, for some other Minister for Finance a decade from now.

Insurance companies are picking and choosing in the line of flooding and so on. At the moment there are areas where a person may buy a house that never flooded but because the company has that property on a map, it will refuse the new owner insurance. At the same time, insurance companies from other countries have gone into liquidation or gone bust and we are trying to ensure we protect the people affected. I agree with that 100%. To put it bluntly, the taxpayer has come to the aid almost every time there has been a problem with these companies. Yet, the companies pick and choose what they will do in the line of the people affected. Does the Minister of State believe there is anything we in the Dáil can do about this? Deputy Michael McGrath introduced a Bill to try to solve some of these issues. Is there something we can do to ensure there is give and take? The insurers must take some of the punishment when something happens. Can we put in clauses to the effect that insurers have to adhere to strict terms and conditions to help people who are in a vulnerable position?

Insurance companies price risk. If they are sure something will happen, they will not price that eventuality. If a company knows an area will flood, in all likelihood the consumer will not get insurance.

The companies will not insure now in places where there was never flooding previously.

That is a little unusual. Perhaps there is some evidence to show there potentially may be a flood.

Yes, It may be 1,000 years from now.

The insurance companies have to take that into consideration in their pricing model. They are structured and established to pay out in the event of a winter storm, for example, or an accident. The companies will calculate on the basis of the information available and the more information they have, the better.

I know what Deputy Fitzmaurice is talking about. It may be a desktop exercise to evaluate whether an area will flood. My experience is that if people get correctly qualified hydrologists, people who can show that the event will not happen, then the desktop exercise can be questioned. At that stage the potential exists for the insurance company to proceed differently on the basis of a proper flooding report rather than simply a desktop exercise, and that report would have more credence.

The CFRAM report dealt with certain parts of the country. Its scope has widened because the analysts have looked at one in 100 year events and one in 1,000 year events. I imagine the Minister of State has, like every other Deputy, encountered cases such as those I have encountered in Roscommon. A person may be selling a house on a hill, but the CFRAM report will have that house in the category of a one in every 1,000 year event, even though water never came near it. In one case, the bank would not give a mortgage to the buyers for the simple reason that they could not get insurance, even though the house was already insured. If the people who owned the house kept it, they would continue to get insurance but a new person buying the house would be refused insurance. This is causing problems because people are left with houses they have to stay in or else someone needs raw cash to buy them because the banks will not give a loan and the prospective buyer will not get insurance cover.

Does the Minister of State envisage a remedy for such cases? When insurance companies go bust, the State covers the people the companies claim to have insured. They are looked after and there is no liability on the person who had the insurance policy. Does the Minister of State envisage that something will be done to ensure people who are vulnerable are able to get some cover, perhaps by applying 1% levy on insurance premiums to deal with such cases?

I do not. Deputy McGrath outlined the 3% stamp duty and the 2% levy to pay for the Quinn Insurance debacle. That fund is still in deficit to the tune of €770 million. Now we have another 2% to pay for Setanta Insurance and Enterprise Insurance. I do not envisage that would be the case.

Question put and agreed to.
SECTION 10
Question proposed: "That section 10 stand part of the Bill."

I wish to ask the Minister of State about the application of this section to Setanta Insurance and the associated outstanding claims. As the Minister of State is aware, more than 1,500 active claims remain arising from the collapse of that company four years ago. Will the Minister of State provide some clarity for the people who were caught up in that and who are involved in those outstanding claims? When does he envisage that this welcome provision will be made? When will the 65% cap be removed and when will the people in question have their outstanding claims paid in full? They keep asking me - and I keep asking the Minister of State - when this will happen. A later section, section 12, provides for more frequent payouts from the insurance compensation fund. The period will change from every six months to every three months. Will the Minister of State deal with that central question on Setanta?

The limits are being removed in respect of third-party claims. This section sets out the detail. Up to €1.22 million is set out for injury to property in the case of third-party insurance claims and any person injury claims will be met in full. That is the position for third-party claims.

I understand, however, that a limit will remain for first-party claims. Will the Minister of State explain why a distinction is being drawn between first-party claims and third-party claims? The reforms in the Bill are welcome, but we will be left with a situation where one category of claimant is being treated differently from another.

Is this the first-party claimant?

Yes, the third-party claimant will get full settlement. Will the Minister of State clarify whether that distinction applies in the outstanding claims in Setanta, but that they will be made at 100%, and the distinction between first and third party does not apply to those?

Currently, only third parties have full coverage. First parties do not have full coverage because they were the person driving the car.

Under ICF it is at 65% or €825,000.

That is correct.

Therefore, they do not have full coverage, but they are moving-----

They will go to full coverage in line with the ICF.

They are moving to full coverage but first-party claims are not moving to full coverage.

A difference is being introduced between the two which is not there currently.

That is correct.

That is my reading of it. I am trying to understand the rationale. Currently, they are treated equally - a limit applies, but they are equal - and under this legislation, there will a distinction between the first-party claim and a third-party claim.

The first-party claimant is still the same as it was.

It is not changing.

It is not changing for the first party. There is a difference between first and third-party claimants.

That is what I am asking. A difference is being introduced now. I am asking why.

It is the personal responsibility of the individual who is driving. Therefore, it is reduced. If someone is found to have been negligent and have caused the accident, he or she does not get the benefit of the full amount, compared with the innocent party in an accident. There is the person who caused an accident and somebody who is the victim of an accident.

This is Committee Stage so we must tease out these details. Will the Minister of State clarify that this distinction does not apply to the outstanding Setanta claims?

It does apply. It is the same structure with first-party claimants and third-party claimants because there is the question of liability. There is a responsibility on the person who is the first party if they have caused the accident.

I thank the Deputy. I call Deputy Fitzmaurice.

I also wanted to say-----

No, I call Deputy Fitzmaurice.

I want to get some clarifications to ensure that I am understanding this correctly. I refer specifically to customers of Setanta. Third-party claims will be paid. If someone had comprehensive insurance on a vehicle and was involved in an accident, would the customer be paid for his or her car if that customer had comprehensive insurance? Up to now, that was being paid at 65%. People have gone to the courts. I understand that litigation has been brought in some cases where the car driver was sued and had insurance in good faith. Are cases that have been adjudicated already at 65% or at the threshold of €825,000 paid or will it be sorted with this new Bill?

For people who had insurance with Setanta, where there were individuals or there might have been households which had paid out a considerable amount of money on insuring cars and vans and lost that money because they were told to get insurance somewhere else immediately, will they be in any way reimbursed for what they lost?

No, this will not cover that. If a customer had insurance, say they had paid a full year's premium a couple of days before the company went into liquidation, unfortunately, they are not covered by this.

On a person who was involved in an accident where the 65% was paid, there were circumstances where individuals took the other person who was liable for the accident to court for the remaining 35%. This concludes that. The 35% will then be paid.

This gets back to the kernel of the issue for Setanta. It is the question of when. Will the Minister of State clarify that there is no limit as to the number of claims and the financial quantum of such claims that can be dealt with fully in the next cycle of ICF payouts, which under this legislation will be every three months? Therefore, provided the terms of the claim are agreed and settled, is there any restriction on administering the 100% payout? In some cases 65% has been paid out and 35% is outstanding, but there are 750 claims where zero has been paid out so far. Will the whole lot be paid out and washed through, as it were, ideally in one go, in claims where a settlement figure is agreed? I need to clarify this.

I will read from the briefing note and answer that for the Deputy. It says that under the new regime, the State Claims Agency will make an application to the High Court in accordance with the amended legislation no more than once in any three-month period. Therefore, the twice yearly, or six-month, period will now be four times a year. The State Claims Agency will make that application. Therefore, from a practical perspective it is hoped that within three months of the Bill being signed into law, any claim which has been settled and 65% paid will receive the balance owing of 35%. Within three months of this being finished, the approximately 50% of claims that have been settled, that is, paid at 65%, will receive the outstanding 35%.

It will be paid within three months of the enactment of the legislation.

Yes. That will conclude the first half, approximately, of the claims at 65% plus the 35%.

Any claims recently settled will receive their full payment. If any claims are concluded in the period from when the last lodgement was with the High Court, they will be paid in a single payment of 100%. It is important, therefore, that any application is made at the optimum time to ensure that as many claimants as possible receive the compensation due to them in this first application post enactment of the Bill.

In this regard the liquidator for Setanta has informed the Department that a further 117 claims have settled since the last tranche was submitted to the State Claims Agency for verification. These claims will be included in the next application to the High Court and are of the value of €5.1 million, being 100% of the total value of the settled claims. That leaves about 750, about half, the claims plus another 117, so a total of around 870 claims which will have been concluded.

The other aspect is that unless people choose to finalise the settlement, whether it is 65% as it was in the past with a question mark over the 35%, it is somewhat irrelevant. If people choose not to settle and they want to go to court, that is a matter for the individuals.

I wish to clarify my understanding of what the Minister of State has said. Where the settlement amount is agreed, irrespective of whether the 65% payout has been made, all the money due, whether it is the remaining 35% or the 100%, will be paid within three months, that is, the first tranche following the enactment of the legislation.

Does the Minister of State anticipate that all of the money due, whether it is the remaining 35% or 100%, will be paid within three months?

Yes, in the first three months.

That will happen in the first tranche following enactment of the legislation.

I know from answers to parliamentary questions - the Minister of State has just outlined some of this - that there are 645 claimants whose personal injuries claims have not yet been settled, for various reasons. A further 223 claimants have not yet had their damage-only claims settled. Is the Minister of State aware of any reason so many claims remain unsettled? Is there any reason that is particular to the collapse of Setanta? Obviously, there is always a tail effect in dealing with claims. Under normal circumstances, claims can continue for years. Has any issue related to the collapse of Setanta resulted in figures not yet being agreed in so many claims?

I have no knowledge that there is any difference between this bundle of unsettled claims and any other. Unfortunately, under the Irish insurance structure, some claims continue for a very long period. There is a belief the longer they take to conclude, the more money that can accrue. That is often said to be the case, but I do not know whether it is. We are dealing with what is in front of us. We are trying to conclude the 65% of the half that are settled, adding to it the 35%, plus 117. That concludes that number of claims, minus the 900. The remaining 645 have not been concluded. I do not have any information on whether the percentage among that tranche of claims is higher or lower than among any other.

I am getting a lot of my queries out of the way. They are relevant to this section. The message for claimants involved in the Setanta issue is to try to reach a settlement and agree on what the amount of compensation for a personal injury or damage to property is to be. If agreement is reached, it will have to go through a process involving the State Claims Agency for verification before the process can be executed in the High Court.

The State Claims Agency has to lodge it in the High Court.

The message for those caught up in it is that they should do everything possible to reach an agreed sum.

The Government has given a commitment that they will then be included in the first possible tranche. I would like to mention the related issue of the flow of money. Is there any distinction between dealing with the Setanta cases and others that might arise down the line? In the Setanta cases, all of the money - 100% of an individual claim - will come straight out of the insurance compensation fund.

In the future, will 65% of the money come from the insurance compensation fund, with the remaining 35% coming from the new insolvency fund? Will the flow of money by way of transaction be any different? Will the Minister of State clarify the matter for me?

No, 100% will come from the insurance compensation fund.

Always. The money will then be recovered from the motor insurers insolvency compensation fund.

Question put and agreed to.
Sections 11 to 15, inclusive, agreed to.
SECTION 16
Question proposed: "That section 16 stand part of the Bill."

This section gives statutory effect to the motor insurers insolvency compensation fund which is a key element of the Bill. It is to be administered by the Motor Insurers Bureau of Ireland, MIBI. It has been described as an ex ante fund. It is intended that it will be built up in advance of a failure of an insurance firm, something we hope will never affect Irish consumers again. Will the Minister of State clarify that the fund will have full statutory effect? Is its administration entirely a matter for the MIBI? As I understand it, the MIBI is a collaborative arrangement between the insurance industry and the Department. Will the Minister of State clarify how the fund will be administered? What oversight or controls will there be to ensure it will be administered to the highest standards? Will there be an audit trail? What level of accountability will there be for this fund? Will the Minister of State clarify these matters?

The main objective of the new motor insurers insolvency compensation fund which is to be established by the MIBI is to ensure the 35% contribution will be covered by the industry. It will be a private industry, rather than a State, fund. Therefore, how the fund is held and managed will be a matter for the MIBI and the insurance industry. In terms of accountability, the Bill provides for the MIBI to advise the Minister for Finance of the amount held in the fund annually, or on request. The annual amount of contributions payable by individual insurers will be certified by an auditor.

Therefore, it is to be administered by the industry.

We are providing statutory recognition for the fund through this legislation. The Minister of the day will be able to look for information on the balance within the fund at any point and the MIBI will be compelled to provide that information on request. Is the Minister of State satisfied with the oversight provisions from the perspective of the State? It will be important for the administration of the fund to be subject to adequate oversight and accountability provisions, given that it will be the ultimate backstop in the case of the balance of 35%.

As with the MIBI fund, we are talking about large quantities of money that will be collected from the industry. We are satisfied that this has been done in the past and that it will be done in the future. It will be certified by an auditor. We are comfortable that this is the right way to deal with it. If we are not comfortable with it in certain circumstances, it can certainly be looked at again.

Question put and agreed to.
SECTION 17
Question proposed: "That section 17 stand part of the Bill."

Does the Minister of State intend to bring forward amendments in the Seanad next week? Does he intend to complete the passage of the Bill through both Houses next week in order that it can be signed into law by the President without further delay? I thank the Minister of State for his personal interest in this issue. I have been on his case about Setanta and the need to put in place a structure to protect Irish consumers if another such collapse happens. We must bear in mind that the people caught up in the nightmare had taken out valid insurance policies and paid for them in Ireland. They had bought those policies from an insurance company that was regulated principally in Malta but was also regulated here for conduct of business purposes. When it failed, they were left in the lurch in a very bad way for a long period. Like the Minister of State, I personally know of many cases in which great trauma and distress have been caused to individuals and families by the significant delays in having the issue dealt with. I recognise that it was groundbreaking in some ways because the exact responsibilities of the insurance compensation fund and tje MIBI in this scenario had to be clarified.

That went all the way through the court system. We eventually got that clarity. I would have liked to have seen the issue finalised and provided for much earlier but I welcome the fact we are now on the brink of a really important breakthrough for the people who were caught up in the collapse.

The legislation also provides certainty for those other consumers in Ireland who are buying insurance policies. It gives them a safeguard and knowledge that, in the event of another company getting into financial difficulty and ultimately failing, we are giving legislative backing to the full honouring of any outstanding claims caught up in any such collapse. That is right and proper. I urge the Minister of State to ensure the Bill completes its passage next week in the Senate and, I hope, gets signed into law. I hope that, in the autumn, the next tranche of payments can be administered and that as many of the individual outstanding claims as possible will be settled in full so people can move on with their lives.

I, too, welcome what has been done. Many who took out policies were very uneasy because they were afraid for their houses and properties. They were very afraid of being bothered after doing things right. Senanta Insurance came in here. Under European legislation, is there anything that will ensure what happened will not happen again on a Europe-wide basis? Does the Union not have a set of rules or guidelines to prevent a recurrence?

I will deal with the last point first. There is not such a set of rules. Insurance, being the business it is, has capital amounts underwriting business and cash coming in to try to ensure there are sufficient cash reserves to settle claims. As sure as there are insurance companies, there will be insurance company failures. I would not say we have been quarrelling over how exactly to put in place the best structure but there was a pretty substantial court procedure - involving the High Court, Court of Appeal and Supreme Court. Until that was concluded, it was very difficult for the State to intervene. In the short period from December 2017 until January of this year, we moved as quickly as we could after the actuarial analysis was concluded to try to ensure those people who adhered to the law correctly and appropriately and found themselves facing a potential claim through no fault of their own would be facilitated in the way we have facilitated them, bringing the level up to a level similar to the one in question, maybe involving the ICF.

I thank Deputy Michael McGrath. I am aware of his determination to try to bring this to a conclusion. I appreciate that on all occasions he was just pursuing the matter on behalf of his constituents. This applies to all the Deputies who questioned me and my predecessors. It is absolutely my intention to have no amendments in the Seanad. With no amendments there, we will be able to conclude this legislation next week, in this term. It will then go to the President for his signature. The matter will be finished and then it will be a matter of the administrative process for the next tranche, which will be three months from the enactment of the legislation.

The Central Bank (National Claims Information Database) Bill 2018 was published today. This is an important Bill because, when enacted, it will enable the Central Bank of Ireland to publish a range of information on an annual basis to increase transparency on the relationship between insurance premiums and related costs, identify current and emergency trends within the market, identify the factors that drive movements in the price of insurance in the State, and provide information on the number of claims, as well as providing statistical analyses of the costs associated with settling those claims and, importantly, understanding the settlement channels used by the insurance companies. It is essential that we get the Bill through both Houses in the next term so it can be operational in 2019. The Central Bank is currently trying to establish how we will deal with the national claims information database for motor insurance first. We feel it is appropriate to establish it in the motor sector first, and then we will move to the employer liability and public liability sectors.

Question put and agreed to.
Title agreed to.
Bill reported without amendment, received for final consideration and passed.
The Dáil adjourned at 9 p.m. until 2 p.m on Tuesday, 18 September 2018.