LAST UPDATE | 14 Jul 2021

ADVOCATES FOR INSURANCE industry reform have reacted with anger to the findings of a new Central Bank report that reveals the average cost of liability and commercial property insurance premiums rose by 24% between 2013 and 2019 from €1,828 to €2,269.

Based on data from the National Claims Information Database (NCID), the Central Bank has this morning published its first major statistical analysis of the market for business liability, employer’s liability and commercial property insurance.

It provides a broad overview of the market for these three types of insurance in the decade from 2009, a market that was valued at just over €1 billion by 2019.

The report does not take into account the impact of the Covid-19 pandemic or the introduction of the personal injuries awards guidelines earlier this year.

“This marks another milestone in the NCID series and is the first time we have looked at this complex area of insurance,” said Mark Cassidy, Director of Economics and Statistics at the Central Bank of Ireland.

“This complexity is evident in certain findings captured in the report, particularly calculating an average premium metric that accurately reflects market price movements.”

But in a statement this morning, Peter Boland, Director of the Alliance for Insurance Reform, says the analysis “lays bare the scale of the greed that has driven the current insurance crisis”.

Package premiums

According to the report, an overwhelming majority of policies in this market (86%) are packages that bundle together combinations of employer’s liability, public liability or commercial property.

“Although it’s not a perfect measure, it is the best indicator we have of overall average premiums, and we are confident that it is representative of the underlying trends,” he explained.

When it comes to the cost of package premiums over the decade, two distinct periods are noted in the report.

Between 2009 and 2013, the overall average premium fell by 16%.

But between 2013 and 2019, the average premium for package policies increased by 24%. 

This is mainly because this sector of the insurance market had become loss-making by around 2014, Cassidy told reporters.

A number of factors caused this decline in profitability including higher claims costs and a larger share of claims being settled through litigation.

“It’s very typical of this sector that you get a period of, first of all, declining premiums, leading to lower profitability,” he said.

“Because of that lower profitability, the firm’s then need to catch up. They then need to recoup the losses from the very low periods of profitability by increasing their premiums over the subsequent years.”

The cost of a claim to the insurer “is the key factor driving profitability, and therefore insurance premiums”, Cassidy said.

The average cost of employer’s liability claims for firms increased by 56% from €25,001 in 2009 to €38,988 in 2015, while the average cost of public liability claims increased by 48% from €14,286 to €21,154 over the same period, according to the data.

From 2015 to 2019, the average cost of employer’s and public liability claims then decreased by 16% and 22% respectively to €32,635 and €16,587 in 2019.

Across both varieties of liability cover, 92% of costs related to injury claims, the report states.

Insurers “have been insisting for years now that claims drive insurance costs,” Boland said.

But he said it’s clear from the data that costs “within the control” of firms are also driving the losses.

“Dramatically reduced investment income, increased commission levels paid to brokers and big increases in reinsurance costs and reserves for future settlements have driven recent losses,” he said.

“Meanwhile, insurers’ loss ratio (ultimate claims costs to earned premiums) has dropped dramatically since 2015, the year liability premiums started to rocket.”

‘Pursuit of fees’

Chiefly because of the potential for large payouts, litigation is increasingly the most popular method of settling injury claims as opposed to, for example, settling directly with the insurer or through the Personal Injuries Assessment Board (PIAB).

The proportion of claimants who settled through litigation increased from 52% in 2015 to 64% in 2019.

But it’s also the most time-consuming and expensive settlement channel, accounting for an average of 35% of the total cost of a claim compared to 12% for direct settlements and just 4% for PIAB.

Boland said, “What is extraordinary here is that lawyers’ pursuit of fees is actually costing their clients when minor injury public liability or employer liability claims are taken to litigation.”

“Claims for minor injuries cost up to 25 times more in legal fees than settlements via PIAB, take 2.7 years longer to settle and yield less for the claimant than PIAB awards.”

Earlier this year, the Government introduced Personal Injuries Guidelines, in a bid to normalise personal injuries awards and help to drive down costs for insurers and consumers.

Last week, new figures from the Department of Enterprise suggested that there has been a significant decline in the value of awards since the guidelines were implemented.

“The tentative evidence we’re getting is very encouraging,” said Cassidy.

“I think what we would expect to see is a more significant impact in terms of the reduction in the average reward… in terms of reducing the volatility in the claims environment, which is extremely important.”