Recently, I overheard a conversation between two women in which one of them was giving out about her husband. During the big freeze last December, the woman had asked her husband, a farmer, if their children could invite some schoolfriends over to go sledding on the hills in the farm, which were covered in snow. Her husband advised against the invitation in case one of the friends became injured and he ended up with an insurance claim against him.
This is how mad the situation around insurance claims in Ireland has become.
What seems like a perfectly innocent situation triggered concerns about a possible insurance claim.
Recent years have seen business owners and voluntary organisations being hit with tens of thousands of euro in insurance claims for what often are minor injuries in the most innocent of settings, often where the claimant is largely responsible for the incident.
Large payouts may be justified when a significant injury is involved and where a business is negligent or reckless. However, all too often, the payouts are awarded against a business without establishing their negligence or recklessness.
The cost of business insurance has gone through the roof in recent years. Worries about insurance costs have kept owners awake at night. Others have simply had enough and shut up shop altogether.
This is all still happening despite a pledge made by the Government two years ago – through its Action Plan for Insurance Reform – to bring down the cost of business insurance.
The plan contained 66 measures which, it was hoped, would lead to greater competition in the insurance market and lower premiums for customers and businesses. So far, that plan has for the most part delivered for motor insurance consumers, but has been less effective in driving down business insurance claims costs.
The Government is always keen to point out how it believes the Personal Injuries Assessment Board (PIAB) – and personal injuries guidelines introduced in Spring 2021 – have significantly reduced awards and brought down the cost of motor insurance.
However, only 15 per cent of motor insurance injury claims are settled through the PIAB, according to recent figures from the National Claims Information Database (NCID). Twice as many motor insurance injury claims are settled through the courts and 35 per cent are settled directly with insurers.
The insurance that puts most financial strain on businesses is public liability (PL) and employer liability (EL) cover. PL insurance covers the business in the event that a member of the public becomes injured on the premises; EL provides cover in the event that an employee is injured while working for the company.
In my experience as a practitioner in business insurance, very few EL or PL claims go through PIAB. For most people, the first – and only – port of call for such claims is a solicitor. Fewer than half of the awards from the EL claims that actually go through PIAB are accepted by claimants – while only six in 10 PL PIAB awards are accepted, according to a recent Dáil question on the issue.
Many EL and PL claims end up in court. A good chunk of those should never see the light of day. Injuries have been feigned and exaggerated. Businesses have often been left footing the bill for an injury that arose as a result of a claimant’s poor judgment and decision-making – rather than any failure on the part of business.
Recently, a Dáil question was put to then minister for finance Paschal Donohoe asking him to explain why the Action Plan for Insurance Reform had been so successful in reducing motor insurance premiums while premiums for business insurance, such as EL and PL, continue to rise.
He acknowledged that from 2009 to 2020, the average cost of EL claims increased by 68 per cent overall, while the average cost of PL claims increased by 40 per cent.
“Combined with this, we can also see from NCID data that the EL and PL sector has been largely loss-making since 2015, and thus many firms have had to increase premiums to cover these losses,” said the minister.
There are up to 16 providers competing in the motor insurance market, but there is far less competition in the business liability insurance sector and, given the losses incurred , this is hardly surprising. Ireland is a small country, so rather than quoting for all business sectors, insurers typically specialise in one or a number of areas to ensure that they generate enough experience in a sector to correctly calculate the risks involved. So while we typically have just two to three insurers quoting for a business at renewal, there is scope, assuming a reduction in the volume of claims and the average payout, to have five to six competing in each business sector. Business insurance risks vary considerably so we’ll never have 16 providers competing as we have in motor insurance.
Changes in the pipeline around duty of care rules – which aim to balance a property owner or business’s duty of care with the personal responsibility of members of the public – should encourage more players into the business liability insurance sector. Currently those rules are too skewed in favour of the customer – and too open to abuse as a result.
Insurers need to play their part in keeping premiums down by acknowledging the significant impact of inflation. Insurers typically calculate premiums based on the company’s turnover and wages. Take a builder who built 20 house extensions last year and plans to build another 20 this year. Unfortunately, he now needs to pay his staff higher wages to retain them and he also needs to charge the customer more as raw material and staff costs have risen. As turnover and wages go up, so too does the premium as the insurer charges more – but the risks haven’t increased one iota. Insurers needs to adjust their rates to allow for inflation.
Ireland needs to adopt a zero-tolerance stance to monster business insurance costs and claims. It’s not just businesses that lose out to high insurance costs and claims. So too do their staff, customers, and the wider economy. And even simple childhood pleasures like sledding in the snow.
Jonathan Hehir is chief executive of CFM Group