To listen to some of the discussion about the insurance sector this week, you would be forgiven for thinking that a) insurers are not passing on the benefits of sector reform to customers and b) it is wrong that insurers make a profit. Neither of these suppositions is correct.
Insurers have most definitely been passing on benefits of reform to consumers. In the motor insurance market, premiums have been coming down consistently since 2016. According to the National Claims Information Database (NCID) report issued by the Central Bank on Tuesday, motor insurance premiums have fallen by 17 per cent between 2017 and 2021. Recent Central Statistics Office (CSO) figures show a further 10 per cent decrease in the year to date following one of the most significant reforms from the Government’s Action Plan for Insurance Reform, the Personal Injuries Guidelines introduced in 2021.
Average motor insurance premium peaked at €710 in the fourth quarter of 2017, fell to €590 in the fourth quarter of last year and, according to the CSO, there has been a further drop of 10 per cent in the year to date
Average motor insurance premium peaked at €710 in Q4 2017, fell to €590 in Q4 2021 and the further drop of 10 per cent in 2022 reported by the CSO figures also comes against a backdrop of rising prices in almost every other sector.”
In terms of profitability, everyone in business knows that this is fundamental to their existence. A business or market that consistently can’t return a profit eventually ceases to exist.
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Moreover, a profitable and healthy insurance market is essential to the successful running of the wider economy, able to fulfil its role supporting consumer and business activity on a daily and weekly basis. A profitable, healthy insurance market is also likely to bring more competition to the market, offering customers more choice, more products and more services.
While last week’s NCID report shows healthy profit levels for insurers in 2021, this is a market that is cyclical in nature and a wider analysis of the figures over the past 13 years shows average profitability in the sector of 4 per cent, which includes operating profits and losses.
The cost of insurance is a key concern for consumers, so it is positive to see motor premiums falling for a fifth consecutive year. We have consistently supported and worked with Government on the introduction of reforms to reduce market volatility and bring more consistency for policyholders. The falling motor premiums shown in last week’s report from the Central Bank also provide clear evidence that the benefits of these reforms are beginning to be realised and consumers are benefiting. This is in contrast to many other sectors of the economy where inflation is taking hold and prices are rising.
Cost of claims
One of the key purposes of the Government’s Action Plan for Insurance Reform was to address the high cost of claims, which Insurance Ireland had been raising concerns about for a number of years. These concerns were borne out by the 2018 report of the Personal Injuries Commission, led by Mr Justice Nicholas Kearns, which highlighted the fact that, for example, payments for soft-tissue injuries in Ireland were 4.4 times higher than in the UK, and ultimately led to the very welcome introduction of the new Personal Injuries Guidelines.
What we are now seeing emerge is the positive impact of the new guidelines in the motor insurance market, with the public liability and employers’ liability markets remaining problematic.
The NCID report on these segments of the insurance market, published in June, analysed more than 328,000 policies and showed that the employers’ liability, public liability and commercial property markets have been very challenging markets for insurers over the past decade.
The average premium for the majority of policies (84 per cent) increased by 6 per cent from €2,232 in 2009 to €2,356 in 2020, an 11-year period, but insurers’ operating result for this sector of the market was a loss of 11 per cent in 2020. I should point out that the figure of a 6 per cent increase comes from the NCID report and its analysis of the total market and is less than the figure of 16 per cent which is often quoted by the Alliance for Insurance Reform but is not based on the total market but on a small sample size of fewer than 500 policy holders.
While good progress has been made in overall market reform, it is essential that the other measures in the Government’s action plan continue to be progressed. These include the strengthening of the powers of the Personal Injuries Assessment Board (PIAB), which is under way through the publication in August of the Personal Injuries Resolution Board Bill 2022, and the rebalancing of the duty of care and increased competition in the market.
These are the elements which we believe will help to take the volatility out of the employers, public and commercial property liability market segments, making them more viable for insurers and attracting more competition.
It’s interesting to note that claimants received roughly the same level of award whether opting for litigation or PIAB
The latest data from PIAB, published earlier this month, shows a more positive trend emerging in 2022 in terms of claimants accepting PIAB awards, but the proportion of cases going through litigation remains far too high. It is concerning to see a decline in the proportion of claimants using PIAB (15 per cent), accounting for only 8 per cent of total injury claims costs. The cost of litigation is still very high.
For claims less than €100K, legal fees in the litigation channel accounted for 40 per cent of total claims costs in 2021 whereas legal fees in the PIAB channel accounted for only 4 per cent of total claims costs. It’s interesting to note that claimants received roughly the same level of award whether opting for litigation or PIAB. In order to bring about further premium reductions, it is important that more cases are resolved through PIAB and less through litigation.
Much has been achieved to date through the Government’s Action Plan and it is important that momentum is not lost. It is essential that the outstanding measures are prioritised and completed for the benefit of consumers and the economy.
Moyagh Murdock is chief executive of Insurance Ireland.
