The Motor Insurance Insolvency Compensation Act 2024 (Act) came into operation on 17 October 2024.

Its introduction represents a significant step forward in protecting the interests of motor insurance policyholders and injured parties in road traffic accidents. The primary goal of the Act is to standardise the compensation process for motor insurance by assigning responsibility for compensating injured parties to the EU Member State exercising prudential oversight over the ‘at-fault’ motor insurer that has become insolvent. While the Act maintains the fundamental structure of the existing motor insurance compensation system in Ireland, which relies on the Insurance Compensation Fund and the Motor Insurers Insolvency Compensation Fund, it introduces important changes in how motor insurance claims will be handled in insolvency cases.

The Act implements Articles 10a and 25a of Directive 2009/103/EC as amended by Directive 2021 / 2118 (2021 Directive) and introduces amendments to existing Irish law, including the Insurance Act 1964. Aligned to deliver ‘effective and efficient protection’, the 2021 Directive places new obligations on Member States concerning the timely compensation of injured parties from road traffic accidents involving an insolvent ‘at-fault’ motor insurer. Article 10a applies to accidents occurring within the injured party’s Member State of residence. Article 25a addresses accidents occurring in a Member State other than where the injured party resides. Under the 2021 Directive, Member States must designate a national compensation body tasked with compensating residents for personal injuries or damage to property in such scenarios. Furthermore, Member States must ensure that this new body possesses sufficient resources to compensate the affected injured parties.

New Irish Compensation Body

Section 5 of the Act formally authorises the Motor Insurers’ Bureau of Ireland (MIBI) as the Irish motor compensation body for the purposes of Articles 10a and 25a of the 2021 Directive (Irish MCB).

The MIBI is a non-profit organisation registered in Ireland as a company limited by guarantee. Its principal role is to compensate victims of road traffic accidents caused by uninsured vehicles and unidentified motorists. The MIBI’s role is regulated by an agreement between it and the Minister for Transport. The MIBI also performs a number of other functions under the earlier Motor Insurance Directives in addition to its more recent role in establishing and maintaining the Motor Insurers Insolvency Compensation Fund under the Insurance (Amendment) Act 2018.

In accordance with the 2021 Directive, the Act provides that the Irish MCB is required to provide compensation to an injured party resident in Ireland, regardless of whether the accident occurred in Ireland or another EEA Member State and regardless of whether the insolvent insurer was authorised in Ireland or another Member State. However, if the insolvent insurer was authorised in another Member State, the Irish MCB has reimbursement rights against the equivalent compensation body where the insolvent insurer is authorised. The Act also deals with the circumstances where subrogation rights may be available to compensation bodies once compensation has been paid (see further below).

Importantly, the Act provides the Irish MCB with recourse to funding from the Insurance Compensation Fund to pay compensation and reimbursements as required. It also sets out a clear framework for the presentation and processing of motor claims to the Irish MCB, including that claimants should receive compensation payments within three months from the date their offer of compensation is accepted.

Shift from Host-based scheme to Home-based scheme

Ireland’s prior insurance compensation fund framework was primarily designed to facilitate compensation payments to policyholders on a Host State basis, i.e., compensation was paid if the insurance risk was located in the State. Under the Host State principle, all insurers carrying on insurance business in the State, irrespective of where they were authorised (i.e. prudentially supervised), were required to participate (as applicable) in the insurance compensation scheme. Under the new alternative approach, the so-called ‘Home-based’ insurance guarantee scheme, all motor insurance policies issued by an insolvent Irish-authorised insurer are covered by the scheme, including any insurance policies issued by that Irish insurer in other Member States.

The shift from the prior ‘Host-based’ approach to the ‘Home-based’ approach is one of the most significant changes introduced by the Act. Importantly, this change impacts motor insurance only and does not apply to other classes of insurance.

The Act also amends the Insurance Act 1964 by giving the Minister additional powers to introduce regulations for a funding mechanism requiring Irish-authorised insurers writing motor third-party liability business in other Member States to contribute to the Insurance Compensation Fund relating to such cross-border insurance business. These insurers are now regarded as falling within the scheme’s scope on the ‘Home’ state basis.

The Act also includes various cooperation and engagement provisions between the Irish MCB and other stakeholders to ensure that claim processing proceeds promptly and efficiently and to protect the best interests of policyholders and injured parties.

Strict Timelines

The Act facilitates a comprehensive streamlining of the existing legal framework relating to the Insurance Compensation Fund for motor insurance insolvency so that claimants will deal efficiently and directly with the Irish MCB rather than different liquidators or motor insurance companies.

In accordance with the 2021 Directive, the Act provides for strict timelines for the review of compensation claims, including that claimants should receive payment of compensation within three months from the date their offer of compensation is accepted. For instance, once the Irish MCB receives a claim, it must be assessed within three months of receiving the claim and provide in writing either:

•  a ‘reasoned offer of compensation’; or
•  a notice in writing setting out the grounds upon which compensation will not be paid or why it has not yet been determined whether compensation will be paid.

The compensation must be paid no later than three months after the claimant receives an acceptance notice. The Act provides a funding mechanism for the Irish MCB, administered by the Central Bank of Ireland, which ensures that the Irish MCB will be funded expeditiously by the existing insurance compensation vehicles, the Insurance Compensation Fund and the Motor Insurers’ Insolvency Compensation Fund.

Other changes under the 2021 Directive

In early 2024, other parts of the 2021 Directive were implemented into Irish law by the European Union (Motor Insurance) Regulations 2023. These included some significant changes to the motor insurance regulatory landscape in general, such as:

•  an increase in the limit per claim for damage to property;
• the replacement of the definition of ‘vehicle’ for insurance purposes to cover any motor vehicle propelled exclusively by mechanical power on land, subject to speed and weight conditions and any trailer to be used with such a vehicle, whether coupled or uncoupled; and
• the introduction of a new definition of ‘use of a vehicle’ to cover any use of a vehicle that is consistent with the vehicle’s function as a means of transport at the time of the accident, irrespective of the vehicle’s characteristics and irrespective of the terrain on which the motor vehicle is used and of whether it is stationary or in motion.

Conclusion

A motor insurance insolvency event is invariably an unwelcome and traumatic experience for policyholders, injured parties, the relevant insurer, and all other industry stakeholders concerned. Implementing the Act represents a significant step forward for protecting motor insurance policyholders in Ireland. Moreover, harmonising the compensation frameworks across all European Member States should alleviate the potential risk of any re-occurrence of the adverse fallout arising from cross-border motor insurance insolvency events.

The multidisciplinary team at William Fry, led by John Larkin, Catherine Carrigy, and Ruairi Rynn, is delighted to advise the MIBI on the implementation of this legislation and its new role as the Irish motor compensation body.

If you wish to discuss this topic in more detail, please contact Catherine Carrigy, Ruairi Rynn, John Larkin or your usual William Fry contact.

Contributed by Róisín Casey.