The Irish government is planning to extend the Insurance Compensation Fund to cover in full third-party motor claims arising out of the liquidation of an insurance company, with insurers paying 35% of the cost.
But an insurance lobby group has criticised the move, saying it posed a systemic risk to the motor insurance market.
Minister for Finance Michael Noonan said the recommendations in the review of the Framework for Motor Insurance Compensation would provide greater certainty regarding insurance compensation in Ireland, the Irish Times reports.
He added: “Importantly, for insured motorists, this will facilitate speedier payments and a simplification of the claims procedure.”
But industry lobby group Insurance Ireland said the decision to proceed with a proposal that would “expose insurers to the unlimited liabilities of a failed competitor poses a systemic risk to the motor insurance market”.
Its main concern is that there is no upper limit on the exposure of insurance companies.
Insurance Ireland added: “[We] support the use of the ICF to resolve insolvencies but strongly opposes the deeply flawed funding model being proposed as liabilities are not capped.”
Chief executive Kevin Thompson said that the decision opened the door to a future “financial shock” for the government, consumers and insurers.
He added: “Insurance Ireland has been clear in stating that insurance companies cannot assume unlimited liabilities of their competitors.
“No other business would be expected to do this and it makes no commercial sense as the risk has to be factored into premiums.”
The review took place in the wake of the collapse in 2014 of Malta-based Setanta Insurance, which led to a dispute over who should pick up the tab for the 1,700 open claims that could cost up to €95.2 million to settle. That remains subject of a Supreme Court appeal.
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