Taxpayers lose as insurers keep millions in state funds cut from Covid payouts

Government abandons promise to pursue firms for the value of any deductions made

By Peter O’Dwyer

Insurance companies are set to pocket millions of euro of taxpayers’ money intended to support businesses through the Covid-19 pandemic, as the government has abandoned plans to pursue them for repayments.

The Business Post revealed last year that a number of insurers had begun stripping thousands of euro from policyholders’ awards by deducting the value of state supports such as wage schemes and rates waivers, in a move which effectively used taxpayers’ money to subsidise their costs.

In response, government ministers warned insurers they would be pursued for the value of any deductions made from the Covid-19 related payouts to their customers.

Seán Fleming, the Junior Minister at the Department of Finance, said he was putting insurers “on notice” that the government was responding to the issue, and added that they would not “be let off the hook”.

Speaking to the Business Post this weekend, however, Fleming confirmed that insurers would not be compelled to repay the value of the supports, since he had been advised it was not legally possible to retrospectively recoup the funds.

“We got legal advice from within the Department [of Finance] . . . It became fairly clear pretty quickly from all advice that you couldn’t make it retrospective, despite what we would like to see happen, and I would say this is a lesson learned from Covid. We’ve learned something on how to be better prepared if any equivalent issue happened in any particular sector,” Fleming said.

He said that in addition to subsidising the vast majority of businesses during the pandemic to keep them afloat, the state had effectively subsidised the insurance industry too, due to the firms’ stance on the issue.

The government last year pumped €13.5 billion into supporting businesses and propping up the economy as the Covid-19 pandemic continued to curtail trading and devastate many firms.

Insurers have generally remained profitable throughout the pandemic, however, with data from the Central Bank for 2020 showing that insurance firms made a combined €163 million profit for the year.

While data for 2021 isn’t yet available, FBD, one of the insurers most exposed to pandemic-related payouts, reported a profit of €22 million for the first half of last year suggesting that the sector remained profitable.

Several business owners have told this newspaper that insurers were continuing to deduct the value of state supports provided to their firms over the last two years or so from compensation payments owed to them for losses stemming from the pandemic.

Almost 4,000 business interruption (BI) claims had been fully settled as of the end of October with more than 850 more interim payments having been made. Insurers had paid out more than €146 million to BI policyholders at that stage.

The Business Post has also seen evidence of at least one insurer seeking to deduct the value of pandemic unemployment payments (PUP) made to the directors of a company from the compensation owed to their business.

The value of other supports including the Temporary Wage Support Scheme (TWSS) and its replacement the Employment Wage Support Scheme, the Covid Restrictions Support Scheme (CRSS) and commercial rates waivers afforded to struggling businesses have also been deducted from awards.

The government intends to pass legislation through the Insurance (Miscellaneous Provisions) Bill, which is currently undergoing pre-legislative scrutiny, that would require the Central Bank to gather data on the number and value of such deductions made by insurers.

It would also compel insurers to notify consumers of any deductions made from insurance claims settlements that are due to state supports they have received. The government intends to have the bill progress through the Oireachtas as a priority.

A spokeswoman for the Department of Finance said it was not possible to estimate the value of deductions insurers had made or would make from pandemic-related payouts but sources had indicated it was likely to be in the tens of millions of euro.

“While such deductions may be lawful and in line with the principle of indemnity, the government was concerned that such behaviour could be seen as insurers in some way pocketing taxpayers’ money. This is why the new bill seeks to increase transparency in relation to such deductions,” she said.

“It is important to understand the extent of such deductions in the market on an annual basis, in order to enhance policymakers’ understanding of this matter in order to facilitate targeted, evidence-based measures, if needed in the future,” the spokeswoman said.

A spokeswoman for Insurance Ireland said any support received by policyholders reduced the losses they incurred and that the purpose of insurance cover was to “put the customer back into the same position as if the loss had not occurred”.

“In this situation, to reimburse the customer for elements that have already been compensated by the state would contravene this key principle of indemnity,” she said.

Insurance Ireland did not directly address queries on whether it was appropriate for its members to retain the equivalent value of the supports, however, and in doing so partly offset the cost of paying the compensation they owed policyholders for valid claims.

The lobby group said it was not aware of any request from government for its members to return the value of the supports to the state.

Fleming, however, said he had explicitly asked Insurance Ireland and the chief executives of the major insurers to do just that.

“Specifically, we did . . . but there wasn’t a legal mechanism to enforce that. We did request it but it didn’t happen – and so did the Central Bank, but that was [just] a request and there was no authority behind the request or no force of legislation,” he said.

Fleming invited the insurers to reconsider their position, saying he would “of course” like them to voluntarily refund the value of the supports they’d deducted from policyholders’ awards.