Central Bank cuts insurance levy and expects firms to pass on savings to customers

The reduction will affect consumers with non-life insurance policies, including home and motor insurance but not health insurance

The Insurance Compensation Fund levy will fall from 2% to 1%. The fund is used to pay compensation to consumers for claims on failed insurance firms. File photo

The Central Bank of Ireland has announced a reduction in the Insurance Compensation Fund levy and is expecting that firms will “act in the best interests of consumers” and “reductions on eligible policies are passed on immediately”.

The Insurance Compensation Fund is collected by the Revenue Commissioners and is used to pay compensation to consumers for claims on failed insurance firms. The levy is being reduced from 2% to 1%.

The reduction will take place from January 1 next year marking the first time since 2012 that the levy has changed. The reduction will affect consumers with non-life insurance policies, including home and motor insurance.

Health insurance policies, which have seen a number of increases over the last few months, are not subject to the levy.

The reduction from 2% to 1% is estimated to reduce the amount collected by the levy by around €57m across the whole sector. In terms of the reduction for consumers this will depend on the precise policy and premium paid.

However, as of the June last year from the latest data available, the average insurance premium cost €616 and so a 1% reduction would equate to around €6 for consumers.

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For firms which explicitly pass the levy on to policyholders as a separate charge listed within their documentation, the Central Bank’s expectation is that the reduction is reflected in the policy from January 1, 2026, onwards.

This also applies to current policies which are paid in instalments into 2026; where the levy charge is explicitly stated within the policy.

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.

Central Bank position

Deputy Governor Mary-Elizabeth McMunn said the purpose of the fund is to protect eligible policy holders in the event of their insurer going into liquidation.

“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, 2026.

“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.”