Reduction in Insurance Compensation Fund Levy
The Central Bank of Ireland has announced a reduction in the Insurance Compensation Fund levy, which is expected to positively impact a large cohort of policyholders in Ireland. This levy is collected by the Revenue Commissioners and is used to pay compensation to consumers for claims on failed insurance firms.
What is the Insurance Compensation Fund Levy?
The Insurance Compensation Fund levy is a charge that is paid by insurance firms to protect eligible policy holders in the event of their insurer going into liquidation. The levy is currently set at 2% and is being reduced to 1% from January 1 next year.
Impact on Consumers
The reduction in the levy will affect consumers with non-life insurance policies, including home and motor insurance. However, health insurance policies are not subject to the levy. The reduction is estimated to reduce the amount collected by the levy by around €57m across the whole sector. For consumers, the reduction will depend on the precise policy and premium paid, but it is estimated that the average policyholder will see a reduction of around €6.
Expectations for Insurance Firms
The Central Bank expects insurance firms to "act in the best interests of consumers" and pass on the reductions to eligible policies immediately. For firms that explicitly pass the levy on to policyholders as a separate charge, the Central Bank expects the reduction to be reflected in the policy from January 1, 2026, onwards. This also applies to current policies that are paid in instalments into 2026, where the levy charge is explicitly stated within the policy.
Central Bank Position
Deputy Governor Mary-Elizabeth McMunn stated that the purpose of the fund is to protect eligible policy holders in the event of their insurer going into liquidation. She said that the changes announced reflect the financial position of the fund and that the reduction in the levy will positively impact a large cohort of policyholders in Ireland. The Central Bank recently conducted its annual assessment of the financial position of the fund and determined that the 1% levy should be sufficient to repay the outstanding loan balance due to the Exchequer and cover expected future compensation to Irish policyholders that have valid claims.
Conclusion
The reduction in the Insurance Compensation Fund levy is a positive development for consumers with non-life insurance policies. The Central Bank expects insurance firms to pass on the reductions to eligible policies immediately, and it is the responsibility of insurance firms to pay the correct levy. The reduction in the levy will provide some relief to policyholders, and it is expected that the average policyholder will see a reduction of around €6. Overall, the reduction in the levy is a welcome change that will benefit many consumers in Ireland.
