Irish motor insurers’ profits soar as claims collapse amid Covid restrictions

Irish motor insurers last year enjoyed their highest level of profitability since at least 2009, as the level of road accidents and claims declined during Covid-19 restrictions, according to a Central Bank of Ireland report.

The €163 million of operating profits generated by the industry amounted to 12 per cent of total income in 2020, even as the average earned premiums declined 7 per cent last year, according to the third annual Private Motor Insurance Report.

*The gross profits swell to €307 million when €144 million of income ceded to reinsurers - mostly related companies owned by their overseas parents – are included. This higher figure means the industry generated a gross profit equating to 22 per cent of total income.

Insurance Ireland said, however, that even in cases were risk is passed on to other entities within a group, most of this ends up being packaged up in wider group reinsurance deals with other parties in the international reinsurance markets.

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Motor insurance profits masked by reinsurance deals

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“The cost of this reinsurance protection is then charged back to entities by the group in proportion to the risk ceded,” a spokeswoman said.

The Central Bank report draws on the National Claims Information Database (NCID), which goes back to 2009.

The scale of profitability in motor insurance in recent years has partly been used by general insurers to subsidise loss-making underwriting of public and employers’ liability, and commercial property insurance. The wider sector has also been hit by business interruption claims stemming from the Covid-19 crisis.

Almost half of the average motor premium reduction, to €622, was a result of insurers offering a total of €42.5 million of rebates, equating to 3 per cent of gross earned premiums, as road traffic figures plunged during the pandemic. However, some insurers declined to offer refunds, saying they would decrease premiums as policies were renewed.

The profit figures are likely to fuel criticism that insurers have been seeking to make up for years of heavy motor losses around the middle of the past decade by making above-average profits in recent times - taking advantage, most recently, of the Covid-19 crisis.

The latest Central Bank report does not reflect the impact of personal injury award guidelines introduced by the Judicial Council in late April, which had led to a 40 per cent drop in average awards assessed by the Personal Injuries Assessment Board (PIAB) during the five months of operation, according to PIAB.

People seeking compensation for injuries must first go to PIAB for an assessment. If the award suggested by PIAB is not accepted, they can take their claim to court. However, the streamlining of awards guidelines is expected to result in more cases settled before or during the PIAB process. Industry sources say that motor premiums have continued to decline at a moderate pace this year.

Claims payouts

The latest industry report underscores, again, how claimants in most cases gain little financially, and lose time, by taking the litigation route. The average award for litigated cases where claims are less than €100,000 – which is 94 per cent of claimants – was €23,454 between 2015 and 2020. However, the average for a PIAB settlement was €21,845.

Legal costs for litigated cases in this category averaged €15,235 and took 3.7 years to be finalised, compared to €665 and 2 years for PIAB cases.

Last year saw the frequency of motor injury and damages claims declined by 26 per cent, according to the report. However, the average cost per claim increased by 9 per cent.

The report also shows how commissions for insurance brokers - the channel through which almost half of motor policies are negotiated - increased from 14 per cent of premiums sold in 2015 to 17 per cent last year. The broker industry is currently going through a wave of mergers and acquisitions.

"This report illustrates just how much money is being made by underwriters, brokers and lawyers at the expense of Irish charities, community and voluntary groups, sport and cultural organisations and SMEs struggling to make ends meet," said Peter Boland, director of the Alliance for Insurance Reform.

“More recently, the collapse in economic and social activity in 2020 was met with a derisory average rebate of 3 per cent with many insurers giving no rebate at all. It is clear that the incumbent insurers have responded to developments in recent years in ways that suit themselves, not their customers.”

The minister of state with special responsibility for insurance Seán Fleming welcomed the publication of the new report, adding that the NCID “remains the best tool to holding both insurers and the legal profession to account for their respective contribution in influencing the cost and availability of insurance”.

*This article was amended on November 17th, 2021 to clarify that the larger figure related to a gross profit, and to add comments from Insurance Ireland about reinsurance.