Insurers will have to set aside significantly more reserves to cover car-crash, workplace injuries and other claims as compensation payouts surge, according to the industry’s regulator.
The Central Bank will tell insurers the results of a review of claims payouts within weeks, Sylvia Cronin, the bank's insurance director, said in an interview.
The average High Court personal injury award soared by 34 per cent last year, according to the courts service.
“A number of companies would be a lot more optimistic than others in their approach to reserving,” Ms Cronin said.
“On average, they will have to increase reserves.”
The insurance industry has been in a state of turmoil in recent years, as companies failed to raise enough from selling policies to cover claims and expenses. FBD, which is loss-making, said on Wednesday that Prem Watsa's Fairfax Financial Holdings will invest in the firm to bolster its capital.
Andrew Langford, the company's chief executive officer, quit in July, as its share price plunged.
In the past five years, Quinn Insurance entered administration, London-based RSA Insurance has been forced to inject cash into its Irish unit and Setanta Insurance collapsed.
“Insurance companies have been quite optimistic in terms of their assumptions, particularly in terms of pricing and claims,” said Ms Cronin, who joined the central bank last year after a career working in the industry.
“They haven’t managed the downside risk particularly well.”
Insurers increased car coverage costs by 7 per cent last month, bringing the annual increase to 25 per cent, according to the Central Statistics Office. A further 25 per cent increase is in store next year, lobby group Insurance Ireland said Tuesday.
A second concern is over claims. For example, the average award for whiplash in Ireland is €15,000, three times the rate in the UK, according to Insurance Ireland, and FBD said last month that rising payments may be partly down to a wave of newly-appointed judges, who “tend to be more pro the plaintiff.”
Ms Cronin said that claimants are sidestepping settling cases or state assessment in favour of going to court. Moreover, costs may be about to increase further, according to the State Claims Agency, which handles cases taken against government agencies.