The Insurance (Amendment) Bill 2011 was passed into law on 30 September 2011. It amends the Insurance Act 1964, the legislation which established the Irish Insurance Compensation Fund (the Fund).
The Fund is a mechanism to provide financial assistance to Irish insurers in distress. The administration of each of ICI and PMPA in the '80s was financed by the Fund.
The relevant legislation allows the Central Bank of Ireland (CBI) to levy the insurance industry to build up the Fund. The administrators/liquidators of the distressed insurer may request access to the Fund from the Irish High Court. While (like IPT) the levy is an insurer tax, historically insurers have passed on the cost of the levy for the Fund to underlying policyholders in the Irish market.
The new legislation amends and clarifies the scope of the Fund. Key features of the new regime are as follows:-
- The levy will be paid by all non-life insurers that cover Irish situate risk (whether through a head office in Ireland, an Irish branch, or on a freedom of services basis. Indeed non-EEA insurers writing Irish situate risk through an Irish branch will also be liable to pay the levy).
- All contributing insurers may be called upon to contribute up to 2% of the gross premium income generated from policies covering Irish situate risk to the Fund.
- The levy will not be applied to certain "excluded risks" e.g. premium generated from reinsurance, life insurance, health insurance or certain risks covering passengers in marine and aviation vehicles, carriers liability and export credit.
- Unlike IPT, where a policy covers both Irish and non-Irish situate risk, the insurer is liable to pay the levy in respect of the total premium received on that policy; that is, unlike IPT, the levy will not be allocated to the premium that relates to the Irish situate risk only.
- From now on, Irish authorised insurers in administration (as opposed to liquidation) will only be allowed access to the Fund if 70% of their entire business in the preceding 3 years related to Irish situate risk.
- Irish authorised insurers that do not meet that 70% threshold have very limited access to the Fund on administration - only the expenses of the administrator can be meet out of the Fund for such companies and only then, where those expenses would not otherwise be met than from the Fund. Effectively, this rules out administration as a feasible option for insurers carrying on significant business outside of the Irish market. In practice, the new legislation will facilitate the appointment of an administrator to such companies so as to conduct an initial investigation into the company's finances. The administrator can do so safe in the knowledge that his expenses will be met out of the Fund. However, if the administrator is not satisfied that there is sufficient funding for a fully solvent run-off of the business, the practical option is for the insurer to be put into insolvent liquidation.
- Current administrations will have access to the Fund on the basis of the old legislation (i.e. limitless access for insurers to request funding – they will not have to prove 70% of their business relates to Irish situate risk).
- The new legislation corrects drafting errors so as to reinstate access to the Fund for insurers in liquidation (including access for contributing insurers elsewhere in the EEA in certain circumstances).
On liquidation, payments out of the Fund are capped in a number of ways:
- a payment will only be made if it appears to the Irish High Court that the claim cannot be met otherwise than from the Fund;
- a policyholder can only claim in respect of the excess amount owed under the policy which was not already met by the technical reserves of the insolvent insurer;
- refunds of premium are not covered;
- claims in respect of excluded risks are not covered;
- payments out are capped at 65% of the sum due to the policyholder or €825,000, whichever is the lesser amount;
- only third party liability claims of "corporate" (i.e. non-individual) claimants are covered;
- third party liability claims are subject to all of the foregoing limits.
- The CBI will publish a notice on its website specifying a date where contributing insurers shall be obliged to pay the appropriate contribution.