High insurance costs need to be addressed by Government

Addressing the annual Irish Insurance Federation (IIF) lunch in May 2000, the Taoiseach said: "The sector not only creates employment and invests in the economy but it fulfils a vital social role by providing a service to individuals and the business community. High-quality insurance services are an essential part of a modern economy - and the members of the Irish Insurance Federation have risen to this challenge."

While insurers are justifiably proud of their contribution to the economy, the legal, social and economic environments in which they operate are severely testing their confidence in the future. It is high time for insurers - in close partnership with Government, legislators and the courts - to address factors resulting in high insurance costs for individuals and business.

As claims' costs and accident frequency are almost entirely outside the control of insurers, cost reductions can only be achieved via targeted action by Government and other arms of the State.

Motor and liability insurers - and, increasingly in recent years, property insurers - are used to losing money on the pure underwriting of insurance contracts. But they expect to be able to produce a reasonable return to investors after factoring in investment income.

However, the motor insurance market (more than 50 per cent of total non-life insurance in the Republic) has made an operating loss after investment income in two of the past three years; liability insurers have returned operating losses for each of the past three years. For the first time, the non-life market as a whole made an operating loss in 2000 of £109 million (€138 million), or over 5 per cent of gross premium income.

These results are compounded by developments this year. Two significant court decisions in July, relating to the cost of hospital treatment of victims of road accidents and to the calculation of compensation for future loss in personal injury cases, will require insurers to increase claims' reserves substantially and will increase the cost of new claims arising in the future.

The impact of the September 11th terrorist attacks on world and local insurance markets has yet to be fully quantified, but insurers in the Republic are seeing significant restrictions in the availability and scope of reinsurance covers and sharp increases in the cost of reinsurance. These restrictions and increased costs impact on all covers, but particularly on the property insurance market.

Meanwhile, the continuing high frequency of claims, especially in motor insurance, and background inflation in the cost of both personal injury and vehicle and property damage claims, continue to put upward pressure on premiums.

Action is required on a number of fronts from Government, business and consumers to challenge this high cost environment.

Government's decision to establish the Personal Injuries Assessment Board (PIAB) is supported by the insurance industry. Insurers see the board as having significant potential to reduce the costs associated with injury claims. However, preparations for establishment of the board are moving very slowly. This should be given priority and a determined effort made to assuage the concerns of the legal profession so they can support the board.

Insurers would like to see a high-level Government decision to overhaul civil litigation procedures - as was carried out in Britain by Lord Woolf - to cut out waste and delay in the handling of personal injury actions, and bring down costs. Non-compensation costs in personal injury cases - legal fees, expert reports and witness fees, et cetera - are 42 per cent of the cost of compensation. Abolition of VAT on legal fees could have a significant impact on insurers' costs.

The Government must expedite the enactment of the Road Traffic Bill to introduce penalty points for driving offences and provide the necessary technological infrastructure to operate it. Insurers believe penalty points will enhance existing deterrents against motoring offences.

Extra resources must be provided to enable a dedicated Garda Road Traffic Corps and the Health & Safety Authority to carry out their law-enforcement duties effectively.

IBEC, ICTU, insurers and the Department of Enterprise, Trade & Employment have agreed a code of practice on workplace safety that can reduce accidents at work while offering comprehensive rehabilitation for accident victims. Its sponsors hope the code will act as a catalyst for improving workplace safety and highlighting benefits of rehabilitation for workplace accident victims, and the IIF would like to see it taken up and applied in every workplace.

There is an onus on insurers and brokers in the Irish market to develop creative solutions to the problems being experienced by their clients.

Perhaps new excess covers could be offered to policyholders who may be interested in self-insuring part of the property and liability risk exposure. Cheaper "no frills" policies might also be reintroduced - especially for commercial property insurances - where the scope of cover has tended to increase over the years.

Michael Kemp is chief executive of the Irish Insurance Federation