05 May 2016
On 2 March 2016, the Court of Appeal upheld the controversial High Court decision made last September that it is the Motor Insurers’ Bureau of Ireland (MIBI), rather than the Insurance Compensation Fund, which is potentially liable to cover outstanding policyholders’ claims following the liquidation of Setanta Insurance Company Limited (Setanta) in April 2014. The precise implications of the Court of Appeal ruling will need to be carefully assessed; however, early indications are that it will have far-reaching consequences for Irish motor insurers and the operation of the MIBI going forward.
The MIBI, which draws from a fund contributed to by motor insurers operating in the Irish market, had argued that the scope of its responsibility did not extend to liquidated insurers but solely to compensating the victims of uninsured or untraced drivers. The MIBI had also argued that the Insurance Compensation Fund was the body primarily designed to compensate claimants in the event of an insurer’s insolvency. However, primarily based on an interpretation of the 2009 agreement between the Department of Transport and the MIBI, the High Court ruled that given the purpose and nature of the MIBI, it was potentially liable to cover any outstanding claims by and against Setanta policyholders.
As mentioned, the full consequences of this judgment are not yet clear. However, in upholding the High Court decision, it is understood that this ruling will add an additional €90 million to the total liabilities of the MIBI which will fall to motor insurers to pay. Inevitably, this cost burden will be passed on to policyholders through increased premiums, at a time when the motor market is already under considerable pressure from rising claims costs.
Furthermore, the precedent apparently set by the Court of Appeal’s ruling will be a cause for concern for both the MIBI and the Irish motor insurance sector. As it now stands, the existing MIBI model will require review as its reserving to date would not extend to covering the potential cost of an insolvent insurer. This is also the case for MIBI members who will now need to consider the implications of this outcome on their regulatory capital requirements. More generally, Irish motor insurers are justifiably aggrieved at the fact that, in the first instance, they will be liable in circumstances where a competitor behaves in an imprudent manner.
It is expected that the MIBI and representatives of Irish motor insurers will be seeking legislative change in order to combat the adverse implications of this ruling as a matter of urgency.