Consumers may end up paying higher insurance bills as the government prepares to use a compensation fund to plug any deficit that arises as part of a deal to break up Quinn Insurance.
The sum involved is believed to be several hundred million euro.
The use of the Insurance Compensation Fund, which was previously used after the collapse of PMPA in 1983, has emerged as a key part of the sale of the insurer, which is entering its final stage. Quinn Insurance has been under the control of administrators since last March, when the Financial Regulator became concerned about the firm’s solvency.
Three bidders are in the running to acquire Quinn’s general insurance business, while at least three parties are interested only in Quinn’s health insurance division.
However, the company’s founder, Sean Quinn, will not be involved in the business in the future, having been excluded from a joint bid with Anglo Irish Bank and US insurer Liberty Mutual.
The change of ownership will not involve an outright sale of the insurance firm, but will see a new owner taking on new business and renewals, while the existing book of claims will remain under administration.
The new owner will get assurances that the Insurance Compensation Fund will meet any future shortfall in solvency at the insurer.
It is understood that a commitment of up to €400 million may be needed from the fund, which is financed through a 2 per cent levy on all insurance premiums apart from life and health insurance.
Such a move would lead to price rises for consumers over an extended period as insurers move to recoup the levy from customers.
The fund is likely to be required because some of the assets available to meet Quinn Insurance’s claims have also been offered as security to banks and bondholders in the wider Quinn group. If they have claims over the assets – which include property and wind farms – then the insurer’s solvency is diminished and the fund will have to make up the difference.
‘‘It is unlikely the fund won’t be called on at some stage. It is just a matter of what the amount involved is,” said an informed source, who indicated it would be a significant sum.
Another source said that any New owner of the Quinn Insurance business would seek some sort of government-backed underwriting of its solvency.
Speaking in the Dáil last March after the administrators were appointed to Quinn Insurance, finance minister Brian Lenihan raised the prospect of the fund being used to bolster the company’s finances.
‘‘Should the administrator subsequently need additional funds to help him with the business, there is the facility of the Insurance Compensation Fund,” he said.
Source : ThePost.ie
