The decision on appeal about liability for claims against Setanta motor policies has been delivered relatively quickly. On 2 March 2016 the three members of the court found unanimously – upholding the decision of the High Court last September – that the Motor Insurers’ Bureau of Ireland (MIBI) would be liable to meet them, rather than the burden, estimated at €90m, falling on the broader base of the statutory insurance compensation fund. The Irish Times reports that this cost will have to be funded by a one-off additional charge of €50, on average, on every motor policy issued in Ireland.
All three members of the Court of Appeal gave separate judgments which together run to over 81 pages. A very great deal of that is taken up with principles of contractual interpretation as applied to the content of the MIBI’s agreements and to other documents. However, quickly bypassing this detailed and learned analysis, the result reached by the court is much the same as that which most people would discern from reading this brief note in MIBI auditors PWCs’ report dated April 2013:
“As stated in the Report of the Board, in the event of the insolvency of any of its members, the Bureau is required, under its agreement with the Minister for Transport, to pay claims, to the extent that its insolvent members are unable to do so.”
The decision comes only a few months after the Irish Central Bank issued a thematic review of the insurance industry’s handing of bodily injury claims, which recognised “growing claims costs, stemming from legislative and judicial changes and changing macroeconomic conditions”. Specifically, it pointed out that motor claims frequency was increasing by an average of 8.3% and that average cost per claim was rising by around 8% (in private motor business).
The press release accompanying the thematic review noted the potential impact on reserves of these trends and stated that “it seems that the money set aside for private motor by some companies is approximately half the level per vehicle compared to others for more recent accident years … companies need to carefully consider the extent to which these differences are appropriate.” This does come across as ‘regulator-speak’, perhaps cloaking real concerns about the sustainability of some reserving models in somewhat abstract and cryptic language.
It seems very likely that the latest judgment will precipitate the development of a new MIBI agreement between the insurance industry and the Irish Government – once one has been formed in the aftermath of the general election held on 26 February. This possibility was clearly recognised this week by the Court of Appeal, with the President (Mr Justice Ryan) commenting “that it may well be time, as the judge in High Court felt, for the process of change to be undertaken”. That process of change looks certain to be much wider than merely dealing with the fallout from Setanta and, in any new agreements, the Irish Government and the insurance industry will have to seek to concur on the following points.
- Where the liability for any future motor insurer insolvency should lie? (With the MIBI and the insurance compensation fund probably being the only realistic options.)
- At what level should it be funded – the insurance compensation fund currently pays claims at only 65% of value – and how it should be funded?
- How, assuming the enabling legislation for periodical payments is implemented, the compensation fund and the Bureau manage any associated liabilities?
- How the extended motor insurance obligation – arising from the Vnuk decision of the European Court of Justice – is to be catered for?
These may come across as technical questions, but resolving each of them should provide greater protection to those claiming against either the MIBI or the compensation fund. Such protection comes at a cost, however, and there will inevitably be further upward pressure on motor premiums in Ireland as a result of tackling these issues.
About the Author
Alistair Kinley is BLM’s Director of Policy & Government Affairs.
Alistair is responsible for BLM’s engagement with government departments and regulators on policy and public affairs issues and consultations affecting the firm and its customers. He coordinated BLM’s market-facing activities in connection with the Insurance Act 2015 and the consultations which preceded its publication and introduction in Parliament.
He is a member of the Civil Justice Council (CJC), a regular speaker and experienced commentator on legal and procedural reforms and was a contributing editor to the Law Society’s Litigation Funding Handbook (September 2014).