Lower legal bills would drive down motor insurance costs

The eye-catching level of profitability of insurers offering motor coverage in the Republic last year should ordinarily lure a flood of new entrants to a market.

The €142 million of operating profits delivered a combined operating ratio – a key figure that compares claims, costs and expenses to premiums – of 83 per cent, according to the Central Bank. A figure below 100 per cent indicates an insurer is writing business at a profit. Insurance companies typically target a ratio of 90-95 per cent in a functioning market.

The insurance industry may be a cyclical one but the Irish market is more of the boom-bust kind.

The past decade has demonstrated how the industry has been shockingly incapable of pricing risk – with Quinn Insurance imploding after leading industry premiums down to a dangerously low level, RSA Insurance Ireland relying on a major bailout from its UK parent, and FBD needing a rescue investment from a Canadian group.

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Whiplash awards

Between 2013 and 2016, motor insurers in the State racked up €757 million of losses. The industry’s staggering shortcomings was not helped by a legal system that, as a Government-commissioned report found in 2018, doles out whiplash awards that are more than four times that in the UK.

Drivers have endured their own form of whiplash, with the average premium falling by 13 per cent between 2009 and 2013, before soaring 63 per cent in the five years to 2018 and subsequently easing back 9 per cent last year, according to the new Central Bank report.

It will well into next year before the recently-established Judicial Council sets new guidelines for personal injuries court awards, which are expected to lower payouts.

The only ones who seems to have benefitted consistently from the chaos over the past decade are lawyers.

Legal route

The Central Bank report found that for claims of less than €100,000 that went down the legal route – which amounts to 94 per cent of such cases – resulted in only a marginal financial benefit for injured parties over the past five years compared to going through the Personal Injuries Assessment Board.

The average €15,000 legal bill associated with such litigated cases was a multiple of the €500 legal expenses attached to typical PIAB case. There’s clearly a pressing need to make it more difficult to get around the PIAB process.