Motorists left subsidising insurers’ loss-making lines

The publication late last year of a Central Bank report on motor insurance raised eyebrows as it showed that insurers operating in the Republic reported a €142 million operating profit for that business line in 2019, up 9 per cent on the year.

It resulted in the industry posting a combined operating ratio (COR) – the cost of claims and administrative expensive relative to premiums earned – of 83 per cent.

A figure below 100 per cent indicates that an insurer is writing business at a profit. Industry players typically target a ratio between 90 per cent and 95 per cent.

Industry figures explained the eye-watering figures away as a highly cyclical industry trying to recover some of the hundreds of millions of euro lost in the middle of the last decade as motor claims spiralled out of control, amid over-the-odds court awards for personal injuries.

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Earnings spike

The earnings spike had occurred even as premiums had fallen back by 9 per cent between mid-2018 and the end of 2019, following a 66 per cent spike over the previous 4½ years.

However, figures published this week into the traditional data mystery box that spans employers’ and public liability insurance and commercial property coverage confirm the extent to which these three insurance lines, usually sold as a package to companies, have been one lossmaking mess in recent years.

The average premium for package policies fell by 16 per cent between 2009 and 2013, before surging by 24 per cent in the subsequent six years to 2019. This segment of the market has been unprofitable for much of the latter period, even allowing for a small surplus in 2019 that was driven by income from insurers’ investment portfolios.

Litigation costs

The employers liability line has proven to be the main problem area, delivering a COR of 137 per cent between 2015 and 2019.

Much of the losses are down to massive litigation costs, even though the data shows that for the majority of claims cases, involving settlements of below €150,000, injured parties receive broadly similar amounts going the legal route as they do through Personal Injuries Assessment Board (PIAB) settlements.

Legal costs for the vast majority of public and employers’ liability cases that go through PIAB average about €1,000 compared to €21,000 for litigated claims.

The hope, of course, is that the setting in April of Judicial Council guidelines for public-injury awards will dramatically reduce the level of expensive litigation. Otherwise we are left with the prospect of motorists, already paying over the odds for coverage, continuing to subsidise the unprofitable liability lines of general insurers.