While more moderate rises in motor insurance are likely, property cover is set to climb, writes Dominic Coyle

It was one of the abiding images of 2002 - the Taoiseach, Mr Ahern, standing up to his knees in water surveying the damage after Dublin's Tolka river burst its banks in north Dublin.

Adding insult to injury, the floods came just days after Minister for Finance Mr McCreevy cut back the allocation on flood relief for 2003 as part of the exercise to make the Estimates add up.

For the people left to rescue what they could of their belongings and for the insurance industry facing another hefty bill, it was even more unwelcome. In many ways, that reflected 2002 as a whole. When it comes to insurance, it was a year in which there were no winners.

Private individuals were confronted with massive increases in the cost of motor insurance and businesses were faced with impossible choices when the cost of liability cover went through the roof if quotes could be got at all.

For the industry, it was a year when companies were forced to face up to the consequences of relying too heavily on investments gains through the most extraordinary bull run in modern history. To make matters worse, insurers were confronted with not one but three "extreme events" - the big New Year freeze and floods in both February and November.

Still, it wasn't all bad news, for 2002 also marked the publication of a report from the Motor Insurance Advisory Board (MIAB) that signalled for the first time a real determination to tackle some of the underlying problems that have bedevilled the industry in Ireland and ratcheted up the cost to the consumer.

Chairwoman Ms Dorothea Dowling may have been at loggerheads with the industry in its preparation but she oversaw the production of a report which was remarkable as much for the way its 62 recommendations have been accepted by all sides - with the possible exception of the legal profession.

"Although I would have taken issue with some of the spin at the time of its publication [on the opportunity for and scope of premium reductions], the report itself is quite sound and provided the basis for more reasoned debate," says Mr Dick O'Driscoll, director of underwriting at Hibernian Insurance.

According to Ms Dowling, the insurance industry expects savings of 31 per cent once all the MIAB recommendations are implemented. Getting the MIAB recommendations operational will be the main focus for the industry, the Government and the customer in 2003. Mr Dermott Jewell, chief executive of the Consumers Association of Ireland and a member of the MIAB, accepts that some of the proposals will take time but adds that "everything has a finite date".

"People want to see lower premiums," he says. "We have had a great amount of promises from the Government, industry and the legal profession. Now, we need to see how far they go."

The good news for motorists, in particular, is that while the recent annual report on the insurance industry for 2001 shows continuing underwriting losses in motor insurance, companies are cautiously optimistic that 2002 may yield the first positive return in the sector since 1999.

That won't stop premiums rising in 2003 but it does mean that those rises will be more in line with the consumer price index rather than the draconian increases of recent years.

The implementation of penalty points will help but Mr O'Driscoll stresses the importance of enforcement. "If people feel, there is no danger of them getting 12 penalty points [and facing disqualification], they will slip back into their old habits."

While people may look forward to more moderate rises in motor insurance premiums, the same cannot be said for the cost of insuring property. Last year saw the inexorable rise in claims on property policies continue and premiums are set to rise dramatically in 2003 as a result.

The floods of February and November alone wiped out 20 per cent of the market's home insurance premium income, according to an estimate by Royal & Sun Alliance, the State's largest home insurer. "In the wake of what is now a litany of bad weather events, insurers' budgeting and pricing models are being changed to reflect the probability of a major weather event occurring twice in any one year rather than the previous 'once in every three years' modelling," says Royal & Sun Alliance spokesman Mr Patrick Nally.

Insurers are looking for a move from junior minister Tom Parlon on the creation of a national flood defence strategy and warn that if the recent trend continues, certain properties will simply become uninsurable.

"If the current trend persists, insurers may be left with no option but to withdraw flood related cover in parts of the country," warns Mr Nally. "Insurers cannot continue to foot the bill for what are increasingly foreseen events."

For business, liability cover was one of the major issues of 2002. As premiums rose and some insurers left the market, the question became whether companies could get cover at all, never mind the price. For those who could, premiums rose sharply.

"Hindsight is, of course, a great thing but it is fair to say that, over the past decade, insurers did not pay sufficient attention to adequately pricing this facility," says Mr Nally. "Corrective action was therefore essential."

He holds out the hope that, after the short sharp shock of 2002, customers may see greater stability in premiums this year.

That may be so but reinsurance companies are still counting the cost of claims from decades old exposure to asbestos and worry about the possibility of similar action in years to come over issues such as mobile phones and transmission masts. Premiums are likely to climb, even if not at last year's rate.

Much hope is being vested in the Tanaiste's intention to set up a Personal Injuries Assessment Board though some fear it will simply add another layer to the bureaucracy surrounding claims' settlement. A book of quantum setting down principles on the cost of particular injuries is also seen as pivotal alongside a clampdown on fraudulent claims, which is currently the subject of consultation.

One of the clouds overhanging premiums this year - especially in property and liability cover - will be the performance of the reinsurance industry. After two disastrous years that have seen blue-chip firms like Zurich Re and Munich Re downgraded, reinsurers are much more cautious about the risk they will accept and the price they will charge for those risks.

The only certainty about 2003 is that, after three years of stock markets losses, the insurance industry will not be relying on investment gains to put a gloss on their books. That means a continued emphasis on producing a profitable result on underwriting.