Saturday 3 December 2016

Celtic Tiger-era legal costs now fuelling rising insurance bills

Published 12/04/2016 | 02:30

Richard Bruton: wants action on fees to cut insurance costs. Photo Steve Humphreys
Richard Bruton: wants action on fees to cut insurance costs. Photo Steve Humphreys

Legal services costs have remained stubbornly high despite the impact of the recession, according to the Government's competitiveness adviser.

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And the stinging rise in insurance premiums is now being linked to the high legal costs.

Prices for legal services failed to decrease significantly following the collapse of the Celtic Tiger and have now risen to their highest level in six years, the advisory body says.

The analysis is contained in a National Competitiveness Council report for Jobs Minister Richard Bruton, released to the Irish Independent under the Freedom of Information Act.

"Throughout the recession, and relative to other professions, prices for legal services in Ireland proved extremely sticky and did not adjust downward to the degree that might have been expected, given economic circumstances," the report said.

But the claims have sparked a furious row, with the Law Society disputing the accuracy of figures cited by the council and insisting legal fees have been significantly reduced.

CSO data published in a separate council bulletin suggest that legal costs in the third quarter of last year were on a par with those seen just before the crash in 2008.

The bulletin said prices last autumn were 5.8pc higher than in 2010. In comparison, accountancy costs had slumped 8pc in the same period, it said.

Insurers claim higher-than-expected damages awards and legal costs are fuelling the 30pc rise in premiums in the past year.

Mr Bruton is seeking to cut back on the level of insurance claim cases ending up in the courts. He met with the President of the High Court, Mr Justice Peter Kelly, earlier this year in an effort to get judicial support for new compensation guidelines, known as the 'book of quantum', due this summer.

Officials said the minister hoped that if judges abided by the guidelines, claimants would be discouraged from going to court and seeking higher awards than those available through the Personal Injuries Assessment Board (PIAB).

However, the council has cautioned the new guidelines being developed by independent consultants on behalf of PIAB "could result in higher costs and ultimately higher premiums". It suggested the new book of quantum should be complemented by a benchmarking exercise, comparing Irish award levels with those in other EU countries.

Law Society director general Ken Murphy hit out at the statistics used by the council, saying the figures were based on a sample of just 16 solicitors' firms out of 2,220 in practice. The council acknowledged in the bulletin that efforts were required to expand the sample.

Mr Murphy cited a report that the Law Society commissioned from Fitzpatrick Associates, which found that gross incomes for self-employed solicitors fell by 43pc between 2007 and 2012 and employee numbers decreased by a fifth between 2008 and 2012.

"Legal fees are not driving up insurance costs," he said. "Blaming the legal profession for increases in insurance premiums is a complete red herring. Indeed, we have seen legal costs go down."

Mr Murphy said years of undercharging and under-reserving in the insurance industry were to blame for the recent hikes in insurance premiums.

Irish Independent

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