End in sight for business insurance premium hikes
Businesses and car owners alike should benefit from an end to insurance increases, writes Patrick Howett
Corporate insurance customers can look forward to a 2018 with few, if any, increases in insurance premiums. There will, of course, be individual businesses with difficult claims histories, whose experience may buck the trend, but for almost all Irish companies insurance costs over the next 12 months will be stable.
Over the next year, the insurance market faces a number of challenges - some old and some new.
This is a market that, by its nature, is cyclical. We have been through a period of technical increases in premiums as insurers adjusted those premiums to meet the increased cost of claims. We are now at a point where insurers have adjusted for the increase in claims costs and so are able to forgo new increases.
Property and motor premiums for businesses will either be flat or even fall next year, while there is still some pressure on liability premiums. Balancing these out there will be little or no increase in 2018.
There is also good news for consumers, in that motor premiums should be stable in 2018. Indeed, if everything goes well, motor insurance costs could fall next year.
Assuming no big weather event, household premiums will also be stable.
There are still significant challenges in the industry. Premiums are higher in Ireland than in other countries due to higher levels of claims settlement and high levels of fraud or exaggerated claims. Brexit may also provide challenges.
The Irish business community continues to suffer higher premiums than its counterpart in the UK. This is due to our high level of claims awards and these are set by precedent, ie previous decisions of the court. These need to be re-calibrated in order to bring them into line with other countries.
The problem with the high level of awards is it creates a claims culture and an incentive for fraudulent claims. There are constitutional hurdles in regard to re-calibrating the awards. The first report of the Personal Injuries Commission referred to one means of re-calibrating. Hopefully, this can be achieved.
Recently, there have been some extraordinarily-generous claims settlements, which have been overturned on appeal, and there now seems to be a more challenging approach to claims' settlements in the courts.
Insurers are also taking a more aggressive approach to defending claims in order to reduce the level of fraudulent claims and exaggerated claims. The Civil Liabilities Act of 2002 was introduced to reduce such claims. Over the recent number of years, it does not seem to have been effective.
The cost of fraudulent insurance claims is estimated at €200m a year but it is not the true cost. When exaggerated claims are included, the cost is probably a multiple of this figure.
Although 2018 will be a good year for insurance customers, the 'knock-on' effect of these fraudulent and exaggerated claims is that our business community will continue to suffer higher premiums than their counterparts in the UK and other parts of Europe.
We estimate that over 30pc of business liability insurance is now placed in the UK. A hard Brexit could result in a reduction in capacity for the Irish market, which would put pressure on premiums.
This depends, of course, on the final deal that the UK Government enters into with its European partners. UK insurers are taking steps to ensure that they can continue to write Irish and European business by setting up hubs outside the UK. We in Ireland seem to be losing the battle in terms of attracting this business to Ireland.
Insurance is becoming more robotic and data-driven. If the Government does not attract these businesses and develop Ireland as a European hub for insurance, there is a real threat to the local insurance market and with a knock-on effect on employment.
Key decisions will be made from these international hubs, turning our local insurers into brass-plate companies. This would not be in the interest of business in Ireland as Irish insurance rates would be considered peripheral to larger European markets and lack of competition may force premiums higher.
So overall, 2018 should see little or no increase for most businesses in Ireland. However the premiums will continue to be higher than other countries and there is much work to be done in 2018 by the Government and the Personal Injuries Commission to find solutions to this ongoing problem.
We in the insurance industry need to work together to drive through the solutions to leave Irish businesses with the competitive premiums they need to compete in an open economy.
Patrick Howett is managing director of insurance broker JLT Ireland
Sunday Indo Business