Aviva boss Declan O’Rourke on why car insurance costs so much
Declan O’Rourke is acutely aware that the insurance industry has been getting a bad rap.
“One of my kids came home from school and said he was afraid to tell the teachers that his dad worked in insurance,” says the chief executive of Aviva Ireland’s general insurance arm.
“But it was okay – the dad of a guy in his class worked in plastics, and they were destroying the ocean. So it wasn’t so bad.”
In the minds of children, those threatening the environment might be the worst offenders, but their parents might be more tuned to the barrage of criticism aimed at the insurance sector. Car insurance in particular has garnered significant attention recently, contributing to conversations about ‘rip-off Ireland’.
In results for 2022, Aviva reported premiums had come down 9pc last year, and were down 40pc from peak prices in 2016.
However, campaigners have argued that extensive efforts by Government to bring down fees – the Personal Injury Guidelines in particular – should have had a greater impact.
“I think it’s a brilliant industry. When you look at what we do, we pay out billions of euro every year to people when terrible things happen,” says O’Rourke referencing his son’s view of the business.
“In Aviva, we pay out €400m [a year] when there is an injury, a death, a fire or a natural disaster. I think that’s a real big contribution to people in that moment of crisis.”
‘The UK called themselves the whiplash capital of the world, we’re actually way worse’
According to O’Rourke, the size of court awards continues to be the heart of the problem. Large payouts means other policyholders have to cover the cost.
“We’ve always been a really high jurisdiction for minor injury awards. Despite the fact that the UK called themselves the whiplash capital of the world, we’re actually way worse.”
He says the lowest level whiplash in the UK equates to a payout of £545 – versus €3,000 here.
Efforts have been made by successive ministers to reduced the costs to consumers. So surely they should be making more of a difference at this stage?
“We’ve seen a lot of progress down the years, where they’ve tried to get the judges to set a kind of a menu of awards – the Personal Injury Guidelines – which would replace the old book of quantum. So the judges have set those, and then the independent body – the Personal Injuries Assessment Board (PIAB), which is a state body – actually makes assessments of those awards.”
Aviva says it expected the guidelines would bring consistency to court awards and assessments, and reduce the number of the Personal Injuries Assessment Board (PIAB) assessments being rejected and litigated to 51pc. But it says that the number of PIAB rejections in litigation has in fact increased – from 50pc to 61pc – for motor claims.
“We have the highest amount of litigation on PIAB assessments since the start of the PIAB in 2003,” says O’Rourke.
A criticism often aimed at the industry has been the tendency to settle cases.
“We’re fighting all of these cases and it’s costing us a lot of money. I guess the problem is we’ve had 16 cases now – and in every case the PIAB award has been beaten.”
So there remains a strong incentive for claimants to go to court seeking a higher award.
He also believes the legal profession is incentivised to go down the judicial route.
“The plaintiff lawyer gets zero in PIAB – but they get €16,000 once it comes out of PIAB.”
The legal profession would argue that it has a duty to get the best outcome for clients.
‘One of my favourite places was Beirut – I had Terry Waite’s old room in the hotel’
“I can understand why they would say that. It is also very much in their interest to bring it with the legal fees and everything else,” he says.
As for the narrative that insurance companies are making bumper profits from high premiums, he says that Ireland is not a particularly profitable market for the sector.
“Insurance is a very simple business. We cover our costs, and we aim for a 6pc margin. So, our costs are the legal fees, the injury costs, the awards, and unfortunately the people who end up paying for this are the customers. That’s not what we want. We want happy customers.”
O’Rourke (52) is originally from Thurles, Co Tipperary. His father was a garda and his mother a nurse. After school he went straight into accountancy, studying with PwC. But travel was his main interest at that stage.
“The minute I qualified I left Ireland and went to AIG, working in internal audit for a few years travelling. One of my favourite places was Beirut – I had Terry Waite’s old room in the hotel.”
(Waite was a hostage negotiator who was himself held hostage for four and a half years in Lebanon.)
He spent a couple of months working in each location.
“The Middle East was interesting, as was Argentina – where I had a game of hurling, which was great fun back in the day.”
After a couple of years he settled temporarily in New York, spending seven years there before deciding to come home to Ireland – a week before the attacks of 911 – and start a family.
Initially working as head of finance with AIG in Ireland, he then moved into the underwriting side of the business, before becoming chief executive for eight and a half years. Then two and a half years ago he joined Aviva as CEO of general insurance.
Insurance costs for young drivers is another big issue he encounters.
“There’s 190,000 uninsured drivers in Ireland, and if you look at somewhere like Scotland there’s 40,000. Customers pay for this. There’s no hidden pot in the insurance industry that can pay for things like this – it has to be passed back to customers.
“We’ve had a number of claims, even in the last few years, that are north of €10m,” he adds.
“Unfortunately, in those scenarios the premiums of the many pay for the claims of the few.”
Recently, Aviva has been encouraging home insurance customers to have a fresh look at the valuation of their homes, as this can affect the premium they pay.
“We have a big campaign at the moment to try and make people aware of underinsurance – we’re seeing huge issues with that at the moment. People aren’t aware how much rebuilding costs have gone up – and they’re not insuring their houses for the correct amounts.
“So we’re contacting all our customers on that. But we’re disappointed with the level of take-up of people buying higher levels.”
More than half of Aviva’s business is now commercial, including professional indemnity cover. And a new cybersecurity product has been launched.
Another new product is family policies for high net worth individuals who may own valuable cars, art work, jewellery, and holiday homes. They will pay a bit more for a flexible policy, says O’Rourke.
Aviva has also increasingly insured businesses in the leisure market, hotels, charities, and in community areas.
He said premiums for many of these type of properties had “settled down”, though challenges remain.
“If you take a small club that has two claims every year for €40,000 each – that’s €80,000 a year, and that has to be funded by the members of the club. So groups running risks like that are still struggling with cover – but for most areas, I think it’s settled down quite a bit.”
But he says liability insurance in Ireland has rarely made money over the years. Higher risk businesses are difficult here, he adds – particularly since Brexit.
‘I think the market needs more specialist insurers and better access to UK markets’
Those type of policies in Ireland could once be grouped together with similar ones in the UK – but that has become more difficult.
“One of the examples I give is if you have a mountaineering club facing a €5m claim. There aren’t really enough other mountaineering organisations to pay you for that kind of a claim, and for it to make sense.”
Aviva is the third largest player in the market with a 12.5pc market share – and he believes there are more opportunities.
“There are in car insurance. There are probably too many insurers in that market.
"You might say: ‘You would say that.’ But say it’s a scaled business, with certain fixed costs that every insurer has. So the lower your fixed cost, the bigger your scale, the cheaper it is for your customers. It’s as simple as that.
“But in commercial insurance, I think the market needs more specialist insurers and better access to UK markets for high-risk areas.”
As for the frustration they have with the Personal Injury Guidelines, O’Rourke is hoping Government will move to ensure alignment with the guidelines and court awards.
“We want stability,” he says.
“It’s a boring industry in many ways – but the shareholders want returns to be predictable, consistent, and deliverable every year.
“And unfortunately, in Ireland the cycle of insurance has much higher peaks and lower troughs than any other territory I’m aware of. There’s no great consistency.”
Name: Declan O’Rourke
From: Thurles, Co Tipperary
Family: Married to Liza with five children
Education: Thurles CBS
Favourite hobby: “I love the GAA and I coach an underage hurling team in Naas. I play a little bit of squash and the very odd round of golf.”
Currently reading: A Modern History of the Kurds by David McDowall
Favourite movie: The Banshees of Inisherin
What would surprise people about working in the insurance industry?
“It’s very interesting. You’re trying to balance the books all the time. So it’s almost like the job of a bookie. It’s almost like the bets of the many playing paying for the winners — and trying to balance the book and make a small margin.”
What’s the best bit of business advice you ever got?
“Never take yourself too seriously.”