Business

Cost of car insurance claims jumps by 25% amid rising inflation and crash rates

Half of all injury claims settled last year were resolved under personal injury guidelines adopted in April 2021

Last year saw a spike in Irish car crashes and motor damage costs, as traffic on roads and inflation surged post-Covid. Photograph: iStock

Joe Brennan
Wed Dec 13 2023 - 00:08

Irish motor insurance claims costs rose by almost 25 per cent last year to €751 million amid a spike in damage costs as crash rates and inflation rose following the pandemic, according to new figures from the Central Bank of Ireland.

This contributed to a decline in profits across the motor insurers at a time when premiums also continued to fall.

Insurance companies previously highlighted that rising costs of spare parts and labour had contributed to damage costs last year.

The numbers of Irish injury and damage claims increased by 16 per cent and 20 per cent, respectively, following two years in which pandemic restrictions depressed crash rates, according to National Claims Information Database (NCID) figures used for the Central Bank report published on Wednesday.

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Of the €548 million of total settled claims costs reported last year, 54 per cent related to injury claims and 46 per cent was down to damage costs.

Half of all injury claims settled last year were resolved under personal injury guidelines that were adopted in April 2021 – up from 16 per cent for the previous year.

The average cost of injury cases managed directly by insurers last year was 47 per cent below those settled against a previous set of guidelines contained in the so-called book of quantum. The average cost of cases settled through the Personal Injuries Assessment Board (PIAB) was 32 per cent lower.

However, only a small number of litigated claims were settled under the guidelines – as most cases settled through this channel were filed before the recent guidelines came into effect.

“It is still not possible to determine the impact of the guidelines on claims settling through litigation due to the small number of claims settling through this channel. This is important to note as 77 per cent of all injury costs were associated with litigated claims,” said Robert Kelly, director of economics and statistics at the Central Bank.

The average premium earned per policy fell by 7 per cent last year to €568, bringing the total decline from a peak in late 2017 to 22 per cent.

Still, FBD, the only indigenous insurer in the Irish market, said in August that its motor premiums increased by 1.7 per cent in the first half of the year, “reflecting the increasing cost of motor damage claims, driven by increases in labour, parts and paint costs, with newer, more technologically advanced vehicles costing more to repair”.

Profit recorded by the motor sector declined to €159 million last year – or 12 per cent of total income – from €176 million in 2021.

Last year saw 48 per cent of settled injury claims being resolved directly between insurers and injured parties, with 15 per cent being dealt with through PIAB and 37 per cent through litigation – which is by far the most-costly avenue.

The previous four Central Bank reports on NCID motor figures showed how most claimants opting for litigation gained little financially and lost time compared to the PIAB channel.

However, the gap widened last year – reflecting the fact that most cases settled through the litigation channel were in the system before the injury award guidelines were introduced.

The average award for litigated cases where claims were for less than €100,000 – 94 per cent of claimants – was €22,856 last year, with legal expenses adding €17,872 to the average total cost.

The average for a PIAB settlement was €15,500, with average related legal costs amounting to €755.

The average for cases settled directly with insurers was €9,754, with additional legal costs averaging €2,130. The average litigated case took 4.8 years to settle, compared to averages of 2.7 years and 1.8 for those resolved through PIAB and directly, respectively.

Minister of State with responsibility for financial services Jennifer Carroll MacNeill said that she will raise the issue of litigation costs with insurers and the Law Society of Ireland.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times

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