€125m windfall for State in compo change

The Department of Social Protection is in line for a windfall of up to €125m under new rules that require insurance companies to reimburse the department the cost of welfare payments to people with successful personal injury claims.

In just four months after the regulations came into force, the department issued 25,000 recoverable benefits statements to insurers, setting out how much it paid in illness or injury-related benefits to each claimant and, consequently, how much was due back to the department.

In the same period, the department received some €2.5m from insurers covering around 500 settlements with claimants — an average of €5,000 per case, which would cover six months of the standard illness benefit payment of €188 per week.

The department has said it expects to recoup €22m a year under the new arrangement, which is similar to the system in Britain where there has been a Compensation Recovery Unit for the last 25 years.

But although the rules only came into effect in August, they apply retrospectively to claims not already settled or heard in court by then, meaning there are thousands of outstanding cases where the clawback clause applies in addition to the 4,000-plus new cases expected to arise each year.

The new rules end the practice whereby the State was effectively subsidising insurers as, in calculating the amount of compensation to be paid to claimants, insurance companies deducted the value of welfare payments from any claim for loss of earnings.

Michael Moran of Insurance Ireland, the representative body for the insurance industry, said the new arrangement had been accepted by the sector.

“There’s a cost there, obviously, and there’s also an administration burden too but we’re just getting on with it and trying to make sure it works as efficiently as possible,” he said.

An expert in personal injuries law, Stuart Gilhooly, said the Law Society’s main concern was to ensure claimants did not lose out.

He said some claimants whose cases went to court and who were found partially responsible for the incident or accident that caused their injury were finding their loss of earnings compensation reduced disproportionately.

Mr Gilhooly criticised the wording of the legislation underpinning the arrangement. This requires that the intended compensation be split between the insurer and the claimant in the ratio of their contributory negligence before the recoverable benefits are deducted from each portion.

This leaves the claimant with less compensation that if the recoverable benefits were deducted from the total compensation amount and then split, as applies in cases where settlements are reached.

“There are different rules for settlements on the one hand and cases that are heard on the other and for no obvious reason,” Mr Gilhooly said.

“The system is operating quite smoothly in that people are working around it as best as they can but the legislation could have been drafted better.”

The €22m long-term anticipated annual return from the scheme is small compared to the Department of Social Protection’s overall annual budget of just over €20bn but to put it in context, it would cover the cost of the new Back to Work Family Dividend support for a full six months.