At breakfast not too long ago one Dublin publican opened the little brown envelope from his insurance company to find his premium pole-vaulting from €80,000 to €145,000 – an 81% increase in just two years. He’s not alone in dropping his spoon into his corn flakes.
Last year, a report from the National Competitiveness Council stated that insurance costs are one of the issues of “greatest concern to businesses” in this country.
Even according to TDs like Fianna Fáil’s Michael McGrath, business insurance hikes of up to 40% are adding €10,000-€20,000 on to the premia of some in the services industry. If that’s the case, surely Kevin Thompson, Chief Executive of Insurance Ireland, which represents 95% of the domestic insurance market, would agree that such hikes are simply unsustainable – even in the short-term.
“Insurance Ireland fully recognises the concern over the rising costs in insurance and has been advocating for fundamental and sustainable reform of the claims settlement process for many years,” he begins in answer to this question, “We’re beginning to see reforms implemented in motor insurance but there’s a long way to go to tackle the embedded costs in the system and our levels of awards which we know are out of kilter internationally. The only way to stabilise such costs and remove the volatility in the market is to tackle the cost of claims in the personal injury claims environment.”
Deputy McGrath’s motion on 17th of May called on the government to take swift action on the issue of insurance and establish a clear timeline for Minister of State Eoghan Murphy’s Cost of Insurance Working Group to complete its report on employer liability and public liability insurance. It also called on government to extend this to other relevant areas of business insurance.
“Insurance Ireland is fully-focused on implementing Phase 1 of the Cost of Insurance Working Group Report and the interim progress report noted that all the actions assigned to Insurance Ireland were met,” claims Kevin Thompson, “The priority for Insurance Ireland is to address the delivery costs of processing them. There are embedded costs in the system such as legal costs. They must be tackled if the reforms proposed in the report are to have a material effect.”
Following a claim, one rural publican found his premium leaping by 800% while another was asked for an extra €2,500 despite not even making a claim. How can the insurance industry justify 25% year-on-year increases for the past two years in circumstances where there have been no claims?
“There’s understandable concern among business owners,” he agrees, “Insurance is a simple proposition, the claims of the few are paid by the premiums of the many. Like the recent experience with motor insurance, the issue is the cost of claims; that is, the level of award and the cost of settling them. Our awards are out of kilter and we’ve high processing costs that have to be tackled.”
Figures from the Personal Injuries Assessment Board – which deals with 20% of Public Liability claims – show a relatively modest 6% increase in such claims from 2013 to 2015, with the average award remaining relatively stable at €25,000.
So just what is driving the cost of claims?
“For liability insurance, gross incurred claims were €414 million in 2015, up from €355 million in 2014,” says Kevin, “Our awards are clearly out-of-kilter with other jurisdictions. Our Book of Quantum, the reference guide for awards, was recently updated to include a 55% increase for a fractured ankle from €35,300 to €54,700. In the UK, the equivalent award would be in the region of £10,000. The Injuries Board only deals with cases where liability is not in dispute, thus taking adversarial legal and associated costs out of the system. PIAB is also only one claims settlement channel.”
In addition, individual excesses in policies are shooting up….
“Individual insurers assess their terms and policy conditions on an annual basis based on their prior claims experience and capacity to absorb risk within Solvency II requirements”.
It seems then that four in five claimants believe they can do far better for themselves by body-swerving the PIAB and going through the courts, triggering correspondingly astronomical costs on the licensed trade in doing so through legal fees that have lost the run of themselves. It’s interesting to consider to what extent legal fees have eaten into claims costs.
“In motor in 2015, legal fees amounted to 35% of the total cost of compensation,” he explains, adding, “Legal fees can account for up to 60% of compensation in litigated cases. The Courts Service said that in 2015 the average Circuit Court award increased by 21.2% following a 13.5% increase in 2014. The most recent report of the National Competitiveness Council highlighted its concern over increased legal fees which said that in Q3 2016 legal service prices were 10.4% higher than in the same quarter in 2013 and ‘Ireland remains an expensive location in which to enforce a business contract and is the sixth most expensive in the OECD’”.
The on-trade also remains very worried about the capacity of the insurance industry to provide cover to late bars in particular where operators now face premia of €50,000 to €100,000 per annum. Such increases are simply not sustainable. While Insurance Ireland recognises this an issue, “….it comes back to the need to tackle the cost of claims,” he re-iterates.
Indeed, the ‘unaffordabilty’ of employer liability and public liability cover has led some to take the route of having no such insurance at all – particularly with excess levels being increased so significantly while other businesses have been refused outright by insurance companies.
“As with motor insurance the key points are the need to internationally benchmark our very high personal injury awards and reinforce the powers of the Injuries Board to handle more claims. We also need to continue the fight against fraud which is an unfair cost to bear.”
With all this going on, it’s difficult to know where to begin wielding the scalpel.
“We welcome the initiative of the Cost of Insurance Working Group to look at this area and we want to contribute to it in the same way as motor to examine claims costs, awards and cost-drivers like legal fees,” he says, “The priorities are the work of the Personal Injuries Commission to internationally benchmark our personal injury awards and legislation to give new powers to the Injuries Board to settle more claims and prevent them going to costly litigation. Insurance Ireland first made these points in the 2014 review of the Injuries Board and we believe they should be legislated for as a matter of priority.”
In the meantime the trade will be aware of the principles of reducing risk such as prioritising Health and Safety and introducing control measures such as CCTV systems he says, “For example we believe the industry should support the proposal to extend the period of time that CCTV footage can be held. The statute of limitations is two years so a claim can arise after the footage has expired. There’s some momentum behind this proposal now and the trade’s support would certainly help it.”
Anyway, the LVA believes that the two-year period in which it’s possible to lodge a claim is excessive.
In its presentation to the Oireachtas Finance Committee last December the LVA’s Donall O’Keeffe highlighted the absence of objective information on the majority of public liability settlements, describing this lack of industry information and transparency on how claims are settled as “outrageous”. The main reason this information wasn’t available, he said, was because 70% to 75% of claims are settled directly between insurers and claimants, adding, “There’s absolutely no information available about the majority of public liability settlements”.
He’s called for a National Claims Register to capture all relevant information about public liability claims and for all claimants to be obliged to notify the business concerned with full details of their claim within 30 days of the incident occurring.
“The insurance industry provided all its claims data to inform the latest edition of the Book of Quantum,” responds Kevin, “The insurance industry is fully engaged with the Central Bank of Ireland in the setting up of a National Claims Database. Indeed Minister Eoghan Murphy, who led the Cost of Insurance Working Group, said that insurers provided all data requested of them in a recent interview on Radio 1.
“The question is why others have not been as forthcoming with data and we would call on all stakeholders to volunteer their data to inform the policy solutions businesses need.”
Seems that there’s still no light at the end of this insurance tunnel.