Insurers told to reduce premiums after Central Bank cuts levy on home and motor policies

The Insurance Compensation Fund levy is to go from 2pc to 1pc from the start of next January.

It is known as the Quinn Levy as it was put in place to cover the losses incurred by the collapse of Seán Quinn’s insurance empire, where appropriate cash reserves were not maintained.

This marks the first change in the levy in 14 years, according to the Central Bank of Ireland, which administers the levy.

The reduction is estimated to reduce the amount collected by the levy by around €57m across the whole sector.

Central Bank executives said as the average motor premium for last year was €616 this means a 1pc reduction would equate to around €6 for consumers.

It covers the cost of claims in the State where an insurer goes into liquidation and is applied to home, motor and other general insurance products.

The Central Bank said the change will positively affect a large cohort of consumers with non-life insurance policies.

It said it expects firms to act in the best interest of those consumers by ensuring any reductions on eligible policies are passed on without delay. Insurers are regulated by the Central Bank.

The regulator said the Insurance Compensation Fund remains an important facility, providing protection to certain Irish non-life policyholders in the event of their insurer going into liquidation.

The fund is collected by the Revenue Commissioners and used to pay compensation to consumers for claims on failed insurance firms.

Deputy Governor of the Central Bank Mary-Elizabeth McMunn said: “The changes announced today reflect the financial position of the fund and the reduction in the levy will positively impact a large cohort of policyholders in Ireland.”

She said it is the responsibility of insurance firms to pay the correct levy and it is important that they are ready to implement the change from January 1 next.

“We expect firms which charge this levy to act in the best interests of consumers by ensuring that any reductions on eligible policies are passed on immediately.

The Central Bank of Ireland said it recommends no further request for credit for the fund from the Minister for Finance is required at this time.

The reduction reflects that a rate of 1pc is likely to be sufficient to repay the outstanding loan balance and cover anticipated calls on the fund in 2026, taking into account companies which are already in administration or liquidation, the Central Bank said.

Last year the Government decided to reduce the Motor Insurers Insolvency Compensation Fund levy from 1pc to 0pc, a move that came into effect at the start of the year.

The Motor Insurers Insolvency Compensation Fund is designed to cover outstanding claims in the event of a motor insurer going into liquidation.