Ciarán Hancock: Guidelines should force big drop in insurance premiums

Without doubt, the housing market has been the most dysfunctional element of the Irish economy over the past decade or so. Running it close in second place would be insurance, where rising costs have placed a huge financial burden on businesses in every sector of the economy, and forced many motorists to dig deep into their pockets to stay on the road.

This was well-articulated by Supermac's founder Pat McDonagh on the business pages of The Irish Times on Monday, where he called for immediate reform of the Personal Injuries Assessment Board (PIAB) to beef up its powers in an effort to lower premium costs.

As with housing, the Government has reacted to the insurance issues with many policy measures in recent years, most recently with the judicial guidelines on personal injury awards.

The guidelines reduce the award levels for most categories of personal injury and should help to bring down the cost of premiums. And yet businessmen like McDonagh feel that more still needs to be done.

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PIAB published its annual report on Tuesday. It showed a 16 per cent reduction in the number of claims it received last year to 26,009. This was largely due to the impact of the pandemic on traffic levels and the number of road accidents, and a reduction in workplace claims as most of us worked from home.

But PIAB’s report shows that the numbers have been on a downward trajectory since 2016, when the level of claims topped 34,000. This might have more to do with insurers engaging directly with claimants and settling a case before it reaches PIAB.

Pandemic impact

There were 8,587 awards last year compared with 11,527 in 2019. The awards totalled €206 million in value versus €275 million a year earlier. The value and volume of awards have both been in retreat since 2016.

Given the timelag involved in the lodging of claims, it might be next year before we know the full impact of the pandemic on insurance costs. But PIAB expects to see a “continuing reduction in claims in 2021”, and “changes to how we work and live may lead to less cars on the road, and less people working in centralised premises; all of which could hopefully lead to less accidents and therefore less claims into the future”.

So far so good for buyers of insurance.

PIAB was established as an independent State body in 2003 to deal with claims in a cost-efficient manner, without the need to go to court. All personal injury claims must go through PIAB, but claimants can choose to litigate rather than accept a settlement.

This is where the picture changes. In PIAB’s annual report, its chief executive, Rosalind Carroll, noted how the Central Bank’s second National Claims Information Database report on motor claims, published last November, highlighted the disparity in costs associated with cases taken through PIAB versus those going to court.

In PIAB cases, the average compensation paid was €23,137 while the average legal costs amounted to €716 between 2015 and 2019. Where litigation was involved, the average compensation was €23,572 while average legal costs were a much more substantial €14,949.

So there is little between the settlement figures but a vast gap in the legal fees. These are averages, of course, but the figures illustrate that there is nothing to be gained for claimants by litigating through the courts.

Employer and public liability

The litigation figure is for cases where the settlement was less than €100,000, which is 85 per cent of all cases that go to court. Those above that level usually involve life-changing or serious injuries, and more complexity.

The figures are even more pronounced for employers’ liability (EL) and public liability (PL), according to another Central Bank report earlier this month.

In terms of EL, PIAB compensation averaged €36,320 while its legal costs ran to an average of €902. In cases that went to court, the compensation was €69,865 while the legal costs were a hefty €35,268.

In PL cases, PIAB paid out on average €27,484 while its legal fees ran to €1,734. In litigation, the compensation was higher at €38,599 but legal fees ran to an average of €24,421.

McDonagh argues that lawyers are the big winners in the current system and it’s hard to disagree with him based on those figures.

The other winners in recent years have been insurance companies. According to the Central Bank, motor insurers made a combined €142 million in operating profit in 2019, with their margins rising by one point to 10 per cent.

The figures for 2020 will be fascinating given the impact of the pandemic. Some insurers gave customers small rebates to reflect the fact that they had been off the road during lockdown but others stubbornly refused to move.

The cost of claims has also been reducing for insurers, according to the Central Bank’s data.

With the number of claims reducing and the cost of personal injury awards being set lower by the new judicial guidelines, insurance costs should begin to lower on a consistent basis.

Data from the Central Statistics Office shows that motor insurance costs fell by 6 per cent in the year to the end of June. That’s a good start but they need to go lower still, and fall across the board to ease the burden on businesses and consumers.