Finance Minister Michael Noonan has published a bill which proposes a new levy of up to 2% on non-life insurance policies.
This is to help fund the Insurance Compensation Fund (ICF), which exists to protect insurance policyholders in the event that an insurer cannot meet its liabilities. Health insurance is not covered by the levy.
The administrators of Quinn Insurance Ltd will need to call upon the fund due to losses in the business. It is estimated that they will need €320m in the final quarter of this year, but there is only €40m in the fund at the moment. Funding will also be needed for the coming years.
The Insurance (Amendment ) Bill 2011 proposes to extend the scope of the fund to cover all insured risk in the State, but insured risk outside the State will no longer be covered.
Under the bill, a levy of up to 2% would be applied to all non-life insurance policies, rather than limiting the levy to policies of Irish authorised firms. The Department of Finance says this will secure the revenue base of the fund.
ICF funding will be available only to companies who conduct a significant percentage of their overall business in the Irish market. This is defined as 70% averaged over the previous three years.
The Department of Finance says the changes are required to ensure that the ICF levy legislation is consistent with EU law.
Levy set to yield €65m this year
Under current legislation, the Minister for Finance can advance funds to the ICF on the recommendation of the Central Bank to enable payments from the fund to be made. Insurance companies previously paid a levy for a number of years following the collapse of PMPA in 1983.
The money will be paid to the administrators by the State from exchequer funds. For the purposes of accounting rules, it will not form part of the gross government debt, but will instead be treated as a financial transaction or investment. The money will be paid back to the State over time by way of the new insurance levy.
The levy is expected to yield about €65m this year, so the €280m claim should be repaid to the State, with interest, within five years.
But this year's is unlikely to be the final claim on the fund - though exact amounts will be determined as time goes on as losses fall due. In 2009 Quinn Insurance recorded losses of €905m, while last year its estimated losses were €160m.
There is also stamp duty on all non-life insurance premiums that is often referred to as a levy. The stamp duty of 1% was introduced in 1982, then raised to 2% in 1993. It was further raised to 3% in the 2009 supplementary budget. The money raised from the stamp duty on insurance premiums goes into the Exchequer fund along with all other tax receipts used to fund the state.