Nobody doing anything to prevent another insurance collapse
By Business Editor David Murphy
The 75,000 unfortunate policyholders who bought insurance with Setanta have been treated terribly.
What is worse is the fact that nothing is being done to prevent a repeat of the calamity.
Setanta Insurance operated from offices in Blanchardstown in Dublin and only sold policies in Ireland, mainly to van owners. It was regulated in Malta where rules regarding how much money a company has to set aside to pay for insurance claims are less onerous.
As Malta is in the European Union it means a company regulated in the Mediterranean nation can sell insurance anywhere in the EU.
Similarly, any company which has approval from regulators in Ireland can sell services elsewhere in the EU.
There are about 35,000 people working in the IFSC. Many of them are selling financial services abroad under the regulatory umbrella of Central Bank in Ireland.
Europe established this system to enhance competition across the continent.
In principal it is a good idea – but only if the regulatory requirements are equally onerous in each country and consumers are protected.
The Central Bank became aware that there were problems in Setanta late last year, it was still permitted to sell insurance policies until it the end of 2013 and went bust last month.
When it collapsed, the Maltese regulators said policy holders could claim against the Irish insurance compensation fund. However, that only covers claims up to €825,000, or up to 65% of a claim.
In other words in the event of a serious accident with multiple injuries, only a fraction of the usual compensation would be paid.
If there are significant number of claims against the compensation fund there is also the possibility that it will not have sufficient money. That raises the spectre of an additional insurance levy (on top of the existing 2% levy to pay for Sean Quinn’s insurance disaster.)
About 75,000 customers bought policies with Setanta Insurance.
Since the company went into liquidation 35,000 have bought insurance elsewhere – which means they have had to pay twice for the same service.
Now the liquidator is writing to the remaining 40,000 customers telling them that their policies will be cancelled in seven days.
People in the know in the insurance industry are gleefully pointing out that Setanta’s policies were so cheap it should have been evident to consumer they were too good to be true. But consumers are not experts in assessing whether an insurance company is sound.
That is the job of the regulators, regardless of where they are located.
The Central Bank can’t take the blame for the failure of the Maltese authorities. However, if Irish consumers are exposed somebody should protect them.
The responsible organisation for policy in this area is the European Commission, which says it is looking into the case of Setanta. But in order for reform to happen the Minister for Finance Michael Noonan needs to kick up a fuss in Brussels.
So far the silence is deafening.
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