Compensation Scheme - Life Assurance

Policyholder Compensation Scheme – Life Assurance

The Isle of Man has a comprehensive regulatory framework in place to protect policyholders of authorised insurers, more details of these arrangements can be found here.

As part of this framework the Isle of Man operates a compensation scheme to protect policyholders of authorised insurers writing long term business (i.e. insurer’s authorised to write insurance business under classes 1 and 2 only).

This Policyholder Compensation Scheme (‘PCS’) was created through the Life Assurance (Compensation of Policyholders) Regulations 1991 (the ‘Regulations’).

A summary of the cover provided by the PCS is as follows:

  • The PCS can be considered to be a fund of ‘last resort’, coming into effect only when the Authority’s comprehensive framework of statutory protection measures has been unable to prevent the failure of an insurer. Because of this the likelihood of the PCS being invoked is considered remote.
  • The PCS seeks to compensate policyholders holding ‘protected contracts’ with a ‘Participant Insurer’ in the situation where the Participant Insurer has become insolvent and is unable, or likely to be unable, to satisfy claims under its protected contracts.
  • A ‘Participant Insurer’ is an insurer authorised to carry on long-term business in the Isle of Man (e. insurance business under classes 1 and 2).
  • A protected contract means a contract of insurance effected by a Participant Insurer. This includes contracts issued from branches of a Participant Insurer but does not include insurance contracts that were initially taken out with a non-Isle of Man insurer and subsequently transferred to an Isle of Man insurer.
  • The PCS does not provide protection against investment or other financial losses arising out of the investments which may be held within a long-term insurance contract. It is designed to deal only with the failure of a Participant Insurer.
  • Compensation is payable up to a maximum of 90% of the value of your protected contract, determined at the date of the failure of the Participant Insurer.
  • Money is not collected in advance to fund compensation payments. Compensation is paid out of contributions collected from the other Participant Insurers following the failure of the insurer.
  • Participant Insurers may decide to pass on the cost of the PCS funding contribution to their own policyholders, where their terms and conditions allow.
  • There is no time limit for payment of compensation and it may take several years for full payment to be made.
  • Guidance for policyholders can be accessed here.
  • The Regulations for the Isle of Man’s PCS can be found here.