Insurance policies to be hit with 2% levy for next seven years

A 2 per cent levy is to be added to insurance policies to provide funds for use in the event of insurance company collapses.

The Insurance (Amendment) Bill will deal with outstanding claims from the collapse in 2014 of Setanta Insurance.

The Bill provides for the transfer of the Insurance Compensation Fund to the Central Bank and will create a Motor Insurers Insolvency Compensation Fund to make provision for any future failures.

The Dáil heard the legislation anticipates the levy being in place for at least seven years as it seeks to build reserves of €200 million.

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Fianna Fáil finance spokesman Michael McGrath noted estimates suggesting the €200 million target could be accumulated within three years, after which it should no longer be collected. He said that at a rate of 2 per cent it should collect approximately €70 million a year and then be reduced for a further year to 1 per cent.

Minister of State for Finance Michael D’Arcy said that if there is no call on the funding prior to it building to its target level of €200 million,” it is anticipated the process would take approximately seven years.

He said that at the 2 per cent level, the contribution is expected to collect approximately €34 million to €40 million per annum for approximately four years”.

Mr D’Arcy said that “at that stage our expectation is that when the fund reaches €150 million, the levy will be reduced to 1 per cent to take the fund to €200 million. The rate will revert to zero at that point because €200 million is the appropriate figure for the fund.”

Independent TD Michael Fitzmaurice asked if the insurance companies could be forced to absorb this rather than customers who "are being seen to get screwed the whole time".

The Minister said insurance companies are private businesses and the Minister for Finance cannot direct them to absorb these particular costs. He suggested that if they were looking for market share, and depending on their business model, they could absorb the costs.