I welcome the opportunity to address Seanad Éireann on the Insurance (Amendment) Bill 2011 which was published on Tuesday, 13 September. Owing to changes in EU law dealing with the non-life insurance sector since the fund was last used, it was necessary to get legal advice on the existing legislation. The Attorney General advised that our existing legislation was not compatible with EU law and should be amended. In that light, the Bill proposes to amend the Insurance Act 1964 to change the scope of the insurance compensation fund, ICF, from one which covers the risks of policyholders of Irish authorised insurance companies to one which covers all insured risk in the State, except for specific excluded risks. The effect of this is that, except for specified excluded risks, all insurance policies taken out in relation to risks in the State come within the remit of the scheme. Insured risks outside the State are no longer covered by the scheme, where an insurance company is being liquidated.
I will outline also the main reason for having the matter addressed speedily by the Oireachtas. The joint administrators of Quinn Insurance Limited hope to conclude the sale of the company to Liberty Mutual Direct Insurance Company Limited, a joint venture between Liberty Mutual and Anglo Irish Bank, on 4 October and they are to report to the High Court that day to give effect to this. One of the key requirements which will have to be demonstrated to the court by the joint administrators is that there is a commitment in place from me, as Minister for Finance, to advance the necessary funds to the ICF in response to a request from the Central Bank. There is €40 million in the fund and the joint administrators have informed the bank that more is required. It is important that all these elements are in order in order that the remaining elements of the deal can be completed and sale be finalised. This will complete an important milestone in the administration process, which will see the sale of Quinn Insurance Limited completed and ensure the future of the workforce is secure. Senators will recall that more than 1,600 jobs are at stake.
The Bill comprises ten sections, the main elements of which are set out as follows. Section 1 is the definition section. The purpose of this provision is to acknowledge that the principal Act is the Insurance Act 1964.
Section 2 is an amendment of the definitions section of the principal Act. The purpose of this provision is to introduce a number of new definitions to section 1 of the Insurance Act 1964 and update the existing definitions for "authorisation", "policy" and "insurer". These will allow the scope of the scheme to be extended to cover all insured risk in the State, except for specific excluded risks. The excluded risks include health insurance mainly because a large proportion of the market, namely, VHI, is outside the scope of the current ICF legislation. Similarly, life insurance is not covered by the existing scheme. There is also a definition for "insurer authorised in another member state" as this is required under the new scheme since such insurers can operate in the Irish market on a branch basis or on a freedom of service basis and policyholders of these companies are brought into the scheme in relation to risk in the State.
Section 3 is an amendment of section 2 of the principal Act relating to the insurance compensation fund. This is a technical provision and its purpose is to make a number of minor cross-referencing changes to section 2 of the Insurance Act 1964, consequential on the amendments made in this Bill.
Section 4 relates to payments out of the fund in respect of an insolvent insurer. The purpose of this provision is to replace section 3 of the Insurance Act 1964 and introduce three new sections: 3A — application by a liquidator of an insolvent insurer; 3B — application where insurer in liquidation is insurer authorised in another member state; and 3C — payments out of fund where an administrator is appointed. These provisions are designed to facilitate payments out of the fund to policyholders in relation to risks in the State where an Irish authorised or an EU authorised insurer goes into liquidation and the approval of the High Court has been obtained for such payments.
Section 3 provides context for sections 3A and 3B and sets out the limitations to the payments which can be made from the fund. These limitations replicate what is contained in the existing legislation, the most important of which is that the payment from the fund under a policy shall not exceed 65% of that sum or €825,000, whichever is the less, in the event of payments being made to policyholders after the liquidation of an insurer. Under the new scheme policyholders will be covered by the fund in respect of "risks in the State." The principal factors which will determine whether a risk is a "risk in the State" will be whether insured buildings are located in the State, whether insured vehicles are registered in the State, in the case of short-term travel insurance whether the insurance was taken out in the State and in most other cases whether the habitual residence of the policyholder is in the State or, in the case of legal persons, whether the establishment of the policyholder is in the State.
Section 3A provides for the liquidator to make payments from the fund to policyholders of Irish authorised firms and that the accountant of the High Court shall, as respects the amount paid out of the fund, be a creditor of the insurer. Section 3B provides that if an insurance undertaking in another member state goes into liquidation and policyholders in relation to risk in the State are affected, the accountant of the High Court can make an application to the High Court on their behalf and can distribute any sums due to such policyholders.
Section 3C provides for the continuation of the administration provision as set out in the Insurance Act 1964, but prospectively intends confining the availability of funding from the ICF to firms under administration which conduct a large percentage of their overall business in Ireland, that being 70% averaged over the three years before the appointment of the administrator. Companies under administration will continue to operate under the existing scheme as is provided for in section 9. Senators should know that I intend to propose one Committee Stage technical amendment for this section.
The purpose of section 5 is to repeal section 4 of the Insurance Act 1964, which the Office of the Attorney General has advised is obsolete as it relates to a specific insolvency in 1964, namely the Equitable Insurance Company Limited. This provision allowed the Minister for Finance to provide a grant of £30,000 to the fund out of moneys provided by the Houses of the Oireachtas under section 3 of the existing legislation to go to the liquidator of Equitable Insurance Company Limited. As this matter was resolved a long time ago, this provision is no longer necessary.
Section 6 is an amendment of section 5 of the principal Act relating to advances to the fund by the Minister. This is a technical amendment. The purpose of the provision is to make a cross-referencing change to section 5 of the Insurance Act 1964, consequential on the amendments made in section 4 of the Bill.
The purpose of section 7 is to replace section 6 of the Insurance Act 1964. The section sets out the conditions for levying insurance companies in relation to the ICF. The provision sets out a number of elements. First, the Central Bank continues to be responsible for assessing the fund from time to time to see if it needs financial support. In addition, the Central Bank determines the levy to be placed on insurers where funding is required and notifies them. Second, the Minister for Finance is provided with a power to appoint a collector to collect the levy, who will pass the levy to the ICF. The collector will inform the Central Bank where no payment is made. Third, the Central Bank will continue to be responsible for enforcement in the event of non-payment of the levy. Fourth, the levy is required to be reviewed regularly and, fifth, all insurance companies will be levied in respect of risks in the State under the new scheme. This contrasts with the existing scheme under which only Irish authorised insurers are levied, but in that scheme they are levied in respect of risks inside or outside the State.
Section 8 repeals section 31 — the compensation insurance fund — of the Insurance Act 1989 and is a technical amendment. The purpose of this provision is to repeal section 31 of the Insurance Act 1989, which made amendments to section 3 of the 1964 Act. These amendments are now obsolete as they are superseded by section 4 of the Bill.
Section 9 concerns saving. The purpose of this provision is to provide a saving mechanism and to ensure any liquidations or administrations commenced before the Bill comes into effect will continue to be subject to the old rules. This is the standard convention that a company under administration is protected under the rules that applied when the company went into administration. The effect of this is to ensure that Quinn Insurance Limited remains under administration as if this Bill had not been introduced.
The purpose of section 10 is to provide for the Short Title of the Bill.