Covid-19 business interruption claims pushed Irish non-motor insurers into €128m loss in 2020

Insurers in the Republic posted a €128 million operating loss in 2020 on public and employers’ liability and commercial property cover, as the industry was hit by business interruption claims from the Covid-19 crisis, according to Central Bank data.

The loss equated to 11 per cent of total income for the year. That included almost €1.09 billion of premiums earned by the industry covering the three areas as well as €33 million of income from investments.

Business interruption costs delivered a 30 per cent operating loss ratio on the commercial property line of business, the bank said in its second annual report on the three coverage areas. The three lines of insurance are typically sold as a package to businesses ranging from corner shops to large drug companies.

The combined loss across the three categories contrasts sharply with the €163 million of operating profits generated by motor insurance in Ireland in 2020, according to a separate Central Bank report published last year. That equated to a 12 per cent profit ratio and was fuelled as road accidents and claims declined during Covid-19 restrictions.

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The industry has been loss-making on the whole since 2015 in the business of underwriting employers’ and public liability and commercial property insurance, according to the new report.

As of the end of last October, Irish insurers had paid out more than €146 million in settlements and interim payments to businesses deemed to have been covered by business interruption policies during the pandemic.

The average earned premium for all package policies fell by 17 per cent between 2009 and 2013, before soaring 25 per cent over the subsequent six years and increasing a further 2 per cent in 2020. This delivered an overall increase of 5.5 per cent over the 11-year period.

However, that masks volatility seen in certain sectors. The average package premium for manufacturing and construction companies has jumped 68 per cent between 2009 and 2020, while it has soared 111 per cent for those involved in arts, entertainment and recreation. Retailers and wholesalers, on the whole, saw their costs rise 35 per cent.

Still, the premium hikes have not been enough to justify a continued presence in the market for some insurers.

The Alliance for Insurance Reform says that there are dozens of sectors and subsectors across the economy that are currently struggling to get coverage or have been reduced to one provider. These range from adventure centres to bouncy-castle operators, festivals, and minority sports.

The Central Bank report also highlighted that, on average, employers’ liability and public liability claims settled through litigation cost more and take longer to resolve than those dealt with directly with an insurer or the Personal Injuries Assessment Board (PIAB). The average legal fees for claims settled through litigation are also significantly higher.

Some 61 per cent of employer and public liability claims were settled through litigation before going to court with a further 3 per cent resolved in court over the 11 years, the report showed.

For public liability claims under €150,000, cases settled through PIAB resulted in average awards of €26,507 between 2015 and 2020 and legal costs of €1,579. Those that were litigated yielded average awards of €25,401 but legal costs approaching €19,000.

The latest Central Bank report does not reflect the impact of personal injury award guidelines introduced by the Judicial Council in April last year, which led to a 42 per cent drop in average awards assessed by the PIAB during the eight months of operation.

“The report is very clear — PIAB resolves claims with a tiny fraction of the costs of litigation, while delivering similar awards for claimants, much faster,” said PIAB chief executive Rosalind Carroll. “The figures are in line with Central Bank research showing savings in the motor liability area.”

Ms Carroll added: “Small businesses, especially those involved in childcare, leisure or hospitality along with community and sports organisations, are facing major problems with the price and availability of insurance cover. This is a key issue as the economy continues to open up. With consumers and business facing the costs of inflation, this report shows major potential for savings in claims costs and therefore insurance costs.”