The Insurance Compensation Fund (ICF) levy of 2%, applied to home, motor and commercial insurance, operates under the Insurance Act 1964 and came into effect from 1 January 2012 following the appointment of administrators to Quinn Insurance Ltd (QIL) by the High Court.
Under Section 6 of the Insurance Act 1964 the responsibility for deciding whether the ICF has sufficient funds available to it at any particular time is a matter for the Central Bank of Ireland (CBI). Where, in the opinion of the CBI, the state of the ICF is such that financial support should be provided for it, it determines an appropriate contribution to be paid to it by each insurer calculated as a percentage, not exceeding 2% of the aggregate of the gross premiums paid to that insurer in respect of policies issued in respect of risks in the State. Funds from the levy are collected from insurers by the Revenue Commissioners and these funds are transferred on a monthly basis to the ICF.
The ICF is mainly a consumer protection mechanism. When an insurance company gets into financial difficulties, such as in an administration or in an insolvency, the scheme provides funding which allows policyholders claims to be met, in circumstances where the terms of the scheme are met. Such compensation schemes exist in many other EU Member States to deal with insurance companies occasionally getting into financial trouble.
An ICF levy was previously introduced on 1 January 1984 following the collapse of PMPA in October 1893. The 2% levy was paid by all non-life insurers at this rate until 31 December 1991 and a reduced levy of 1% applied for the period 1 January 1992 to 31 December 1992, when it was discontinued as sufficient moneys had been collected to successfully complete the administration of the former PMPA.
The ICF levy should not be confused with a 3% stamp duty on non-life insurance premiums introduced in 1982, which is often referred to as an insurance levy. This Stamp Duty forms a part of general stamp duty receipts and is paid into the Central Fund along with other tax receipts.