Central Bank directs Insurers to raise reserves to cover injury claims

Recent reports from Central Bank have indicated that insurers will need to set out more reserves to cover car crash, workplace injuries and other claims as compensation payouts surge.

An average High Court personal injury award has soared by 34% according to the Courts Service.

The insurance industry in Ireland has been in turmoil in recent years, as companies have failed to raise enough from selling policies to cover claims and expenses. Some companies have not been charging enough as they battle to win market share. That was one problem at FBD, which posted record losses in the first half of the year after raising reserves.

FBD (a loss-making company) have confirmed that Prem Watsa’s Fairfax Financial Holdings will invest in the firm to bolster its capital. Not only that, other insurers have experienced similar or worse fates including Quinn Insurance which went into administration; London-based RSA was forced to inject cash into its Irish unit and Setanta collapsed.

Fairfax had previously invested in Bank of Ireland and will inject €70m in FBD through a convertible bond.
Insurers have increased car insurance costs by 7% within the last month, which brings the annual increase to 25% with a further 25% due next year. (Central Statistics Office).

Another concern for insurers is over increased payouts for claims for injuries and accidents. Insurance lobby groups assign this to a wave of ‘newly appointed judges’ who tend to be more pro-plaintiff.

Settlements of cases are being superseded by plaintiffs taking cases through to the courts process.

But in contradiction to this, the Injuries Board have said it had only seen a 7pc rise in the number of claims for injuries from motor accidents and injuries in the workplace and in public places.

Acting Chief Executive of the board Maurice Priestly said there was an urgent need for more data from insurers to explain why premiums were rising so much.

A total of 17,132 claims were received by the board in the first six months of the year, up just over 1,100 on the same period last year. The average award paid out was similar to last year at €22,375. The total amount paid out in the first half of the year was €128.45m.

Mr Priestly said that a modest rise in claims could be explained by greater economic activity and more cars on the roads.

“Greater economic activity would be expected to generate greater numbers of policies and premium income for insurers. However, what we are seeing are insurance premium increases in the region of 20pc and further clarity is needed on the precise cause of increases of this scale,” he said.  “Our data on claim volumes and the cost of processing claims is at odds with the scale of premium increases taking place in the market.”

Insurers have blamed higher premiums on increased awards being made in the courts due to a rise in the size of award that can be made in the Circuit Court.

The Courts and Civil Law Act 2013 increased the monetary jurisdiction of the Circuit Court in personal injury cases from €38,000 to €60,000.

Founding chairperson of the Injuries Board, and the chair of the Motor Insurance Advisory Board, Dorothea Dowling, said she had warned the Department of Justice that allowing higher levels of awards in courts would encourage people to shun the Injuries Board.

Claims

Large numbers of claims and the cost of settling claims have also been given by insurance companies as reasons for spiralling premiums.
They also blame under-pricing of premiums in the past, under-reserving, more strict rules on the level of capital reserves needed to be kept by insurers, a fall in investment income and fraud.

Injury claims have to be processed through the Injuries Board. If a settlement is rejected, it can then be taken to the courts. Some four out of 10 Injuries Board settlements are rejected by claimants.

Mr Priestly said the number of personal injury cases initiated in the courts fell last year.

There was a need for a full inquiry into all aspects of the claims and insurance costs, he said.  “We strenuously reiterate our call for insurance data sharing and greater transparency in the interests of consumers and wider society,”