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Will insurers pass on the injury award savings by reducing premiums ?

28th May, 2021

The Oireachtas Joint Committee on Finance, Public Expenditure and Reform heard from Sinn Féin TD Pearse Doherty that insurers should pass on to consumers ‘euro for euro’ the savings they will make as a result of reduced insurance pay-outs.

On 24 April, the cost of claims pay-outs was reduced by a significant amount, with the introduction of the Judicial Council Guidelines.

The TD said he had no faith that the insurers would pass on the savings but that he hoped he was wrong.

The Joint Committee heard last week (19 May) from representatives of FBD Insurance, Zurich, and Aviva.

Despite the Judicial Council guidelines now in operation, Doherty asked why costs had not reduced, given that pay-outs on claims had reduced by up to 60%.

Doherty said that the public wanted to see significant reductions in the cost of premiums.

Now that the Judicial Council had done its work, Doherty said he was concerned that the insurance industry would “pocket much of the benefit from it”.

Cost of claims

Figures from the National Claims information Database show that, over the past decade, the cost of claims has reduced by 9%, the number of claims by 45%, but premiums have risen by 35%, Doherty said.

Insurance industry representatives had been “begging and screaming” for this reduction, but have not, over the past three weeks, delivered reductions in the cost of renewal premiums, he said, citing a number of cases of flat or increased cover costs.

Declan O’Rourke of Aviva responded that “insurance is not a three-week game”.

“We are committed to passing on the savings and in our view, we have passed on a lot of that already,” he said.

Doherty asked the industry representatives when premiums would actually reduce, given the pledge to do so.

“I have to be very careful about using numbers here today,” Anthony Brennan of Zurich told the committee.

Brennan said that answering clearly about planned reductions could be seen as “signalling” to the market.

Brennan said Zurich was working to reduce costs for all its customers.

Percentages

Percentages drawn from the 2019 National Claims Information Database would still apply on motor claims, but Brennan said he could not signal to the market the actual level of reductions.

On liability insurance, the same level of savings was not coming through, Brennan said, because the types of injury that fed into employers’ and public liability insurance, were of a moderate to severe level, and did not have the same level of reduction.

Under the new guidelines, in some cases, this was down less than 50%, he said.

Pearse Doherty TD challenged Brennan that he was “changing the tune, after the fact”, given that pay-outs for minor soft-tissue injuries had now reduced by 60%.

He said he had surveyed 1,000 people, and only 20% had seen a reduction in premiums, while 60% had seen rises, with 20% broadly the same as the previous year.

Brennan responded that he was surprised at these figures since his firm had seen a 4% reduction in premium costs over the first quarter, compared with Q1 last year.

Huge sums

The TD said insurance firms were pocketing huge amounts of money as a result of premiums being written in the last three weeks, as they knew “damn well” that the claims or awards paid out would be significantly reduced.

“When are you and your company going to pass on these reductions to policyholders?” Doherty pressed.

He added that pay-outs in moderate injury cases were dropping by 20-30%, but in larger cases wouldn’t drop at all.

‘Not particularly profitable’

The motor-cover industry was not particularly profitable in Ireland, he said, with most firms seeing a five-point margin.

Doherty asked whether the industry was “spinning a yarn” that expected pay-out changes had been “priced-in” ahead of time.

O’Rourke said that pricing responded to varying factors, and did not change on a single day, but there had been significant decreases in the past two years, with average premiums now at 2010 levels.