Just when the problem of the soaring cost of liability insurance appeared intractable, the intervention by Chief Justice Frank Clarke this week is a potential game changer.
His announcement that a personal injuries committee made up of judges had not only been selected to examine the insurance industry but would begin work immediately - and in advance of legislation for same - is just the proactive measure required to break the logjam.
Over the past few years, Irish employers have experienced unprecedented increases in their insurance premiums for both public and employer liability. For many of our small firms, it is becoming an issue of survival.
Some senior politicians have sought to point the finger of suspicion at the insurers. There have been suggestions of anti-competitive behaviour and allegations of profiteering. However, these suggestions are wide of the mark as the evidence and data strongly points to an unsustainable cost of claims being at the root of the problem of rising premiums.
There is certainly merit in proposed legislative measures to discourage spurious or exaggerated claims. Insurers and the courts both have a role in addressing this problem. Likewise, a lack of transparency of insurers’ data on injury claims settlements may deter potential new entrants to this sector of the market. There is ample evidence, though, that the major factor inhibiting competition is a marked reluctance to underwrite the unquantifiable risk of costly court awards and legal fees. Put simply, Ireland’s runaway ‘claims culture’ has primarily been driven by overly generous compensation for legitimate injuries over many years.
The remedy to rising premiums lies in tackling the excessively high, and often unpredictable, level of personal injury awards. Irish guideline amounts for judges across a range of minor bodily injuries are typically far higher than those in the UK. These in turn set the benchmark for excessive out-of-court settlements.
It came as no surprise that the Government-appointed Personal Injuries Commission (PIC) subsequently identified a more than four-fold discrepancy in actual award amounts compared to the UK. The Department of Finance, through its Cost of Insurance Working Group (CIWG), has repeatedly highlighted the need to address this issue as a matter of urgency. In the words of Minister of State Michael D’Arcy, ‘the single most essential challenge which must be overcome if there is to be a sustainable reduction in insurance costs is to bring the levels of personal injury damages awarded in this country more in line with those awarded in other jurisdictions.’
Recently, there have been populist suggestions that insurance firms should be compelled, through a punitive levy on overall profits, to reduce their premiums for liability cover. This prompts an obvious question - if this sector of the insurance market is profitable, why have so many established Irish and UK players withdrawn from it? The legality of coercing any business, insurance or otherwise, into subsidising a financially unviable activity, would be highly questionable. In any case, doing so would probably be counterproductive, as it could discourage firms from offering any liability cover whatsoever.
The inclusion of a clause in the Judicial Council Act 2019 that provides for a transfer of responsibility on injury awards guidance was therefore welcome. We believe this initiative could encourage former players to consider re-entering the market and should in any case result in a significant reduction in premiums. However, we would caution about how effective it will prove to be in the short term. The clause was a belated add-on to complex legislation that was years in gestation. The Judicial Council, once established, will have numerous responsibilities.
To date, business has been concerned about the potential for further delays to the implementation of new guidance and an early start to the committee’s work is by no means a guarantee of timely completion.
Nevertheless, Mr Justice Clarke’s announcement this week that a personal injuries committee has been set up is to be greatly welcomed. In addition, his comments that the committee should consider benchmarking damages in Ireland by reference to other comparable countries - not just the UK, but other countries too - should position future award guidelines on an evidence-based footing.
A reduction of up to 75per cent in compensation in some instances is merited as Ireland remains way out of kilter with international norms.
The business community will continue to press for early action on drastically reducing the level of injury awards. Our preference is that this is achieved by the Judicial Council swiftly and voluntarily taking account of the PIC’s recommendations.
Neil Walker is Head of Infrastructure at Ibec