Central Bank can't lower premiums – but we can hold insurers to account

Many motorists have seen steep increases in their insurance premiums in recent times, and are understandably asking why. The answer is a sudden return of commercial premiums to break-even, after years of declining premium rates, in a climate of increased claims and low investment returns.

Where does the Central Bank, as financial regulator of the insurance industry, fit into this picture? The bank has no role in setting or capping premiums or renewal rates, as that is strictly prohibited under EU law. Put simply, we cannot intervene on premiums.

But we have a critical role to play in protecting consumers nonetheless – because with insurance, the picture is wider than the premium alone, and starts with the prevention of business failure. Having the appropriate insurance in place, that pays out when needed, helps a person to cope financially when things go wrong. This is the fundamental promise of insurance that regulators are set to uphold.

Specifically, the bank's role in relation to protecting consumers in their dealings with insurance companies is twofold. First, we monitor continuously and seek to ensure the solvency of Irish insurers - so that they always have sufficient funds to pay claims in full. Second, we set requirements for insurers to treat consumers fairly. These include advertising requirements, so that you have the correct information when buying an insurance product.

We regulate how claims and complaints must be handled. Insurers and brokers must carry out sales in accordance with these regulations, which are known as codes of conduct, and must employ sufficiently qualified staff. Insurance companies must also provide renewal notices at least 15 working days before the renewal date so that consumers can explore cover from alternative providers, if they wish.

On the first point, the Central Bank has intervened successfully in recent years to ensure the solvency of Irish insurers. Irish insurance companies providing so-called non-life cover (typically motor and home insurance), and which are prudentially regulated by the bank, ran up combined motor underwriting losses of €684m from 2013 to 2015, mainly due to the gap between premiums and claims. To ensure these companies remained solvent at all times - and therefore could fully cover any policy holders' claims that arose – the bank intervened forcefully, requiring these insurers to increase their capital by €615m in that same period. This year to date, we have required an additional €142m increase in solvency capital. In addition, we have ensured these firms have increased support from their parent companies and have put in place more extensive reinsurance cover in a number of cases.

As a result of the bank's actions, all Irish insurers have remained solvent and open for business in the period in question, despite their extensive losses. Their customers have been protected from the loss their failure would have caused. What happens when things go wrong can be seen in the case of two foreign insurers operating in Ireland – Setanta and Enterprise.

These companies were based outside Ireland and regulated in Malta and Gibraltar. As per European law, both firms were able to sell insurance in Ireland without any further authorisation from the Central Bank. However, both companies became insolvent and policyholders were left without cover. We have worked closely with the regulators in these countries to ensure that policyholders were fully informed of what was happening quickly and what actions they needed to take.

We have been proactive with foreign insurance regulators to ensure that they have a full understanding of the issues affecting the Irish market and to impress on them their role to ensure Irish policyholders are protected. Ultimately, however, it is for them to act on the knowledge we provide them with.

The importance we place on consumer protection is reflected in our mission of 'Safeguarding Stability – Protecting Consumers'. The Central Bank will continue to focus on the adequate protection of policyholders and beneficiaries in accordance with its dual role of ensuring the solvency of Irish insurers and their adherence to its consumer protection framework.

In the meantime, what would help to drive down premium prices? A reduction in the overall number and cost of claims, which are the main element driving the price of insurance in the long run, is essential.

The Central Bank is committed to working with the Oireachtas Committee on Finance, which is extensively examining the issue; the Department of Finance working group; and other stakeholders, as is appropriate to our mandate.

Written by: Cyril Roux, Deputy Governor (Financial Regulation) 

This article appeared in the Irish Independent on 21 October 2016.