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Aviva Insurance Ireland CEO: ‘There is still a huge incentive for solicitors to push for litigation’

Declan O’Rourke on re-entering health insurance, and how he ended up in the top job

Declan O'Rourke, CEO of Aviva Insurance Ireland. Photograph: Bryan Meade

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Joe Brennan
Fri May 17 2024 - 06:00

Declan O’Rourke, the chief executive of Aviva Insurance Ireland, may be a GAA diehard. But the Tipperary native knows the value of the group’s naming rights to the cathedral for Irish rugby and soccer.

“It’s one of the best sponsorship assets in the country,” O’Rourke says of the Aviva Stadium, which over the next six weeks alone will play host to the Uefa Europa League final between Atalanta and Bayer Leverkusen and pop stars Pink and Taylor Swift.

“It’s known by everybody in the country. It is brilliant for building awareness as well as allowing us to do things with our customers, like getting tickets for different things.”

The original 10-year deal signed in 2009 – at a cost of €4 million a year – was subsequently lengthened by five years. That comes to an end next year.

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“We’d be keen to extend it again, if we get the right deal,” he says in an interview from his corner office at Aviva’s Irish base in Cherrywood Business Park in south county Dublin, within earshot of the M50 motorway.

O’Rourke, who took over the helm of Aviva’s Irish general insurance business in September 2020, may be playing well into what could be considered extended time at the organisation, judging by the company’s recent experience of CEO turnover. But his tenure has brought a degree of stability to the business.

What attracted the executive, who had viewed himself a lifer at US insurance giant AIG (where he worked for 27 years), to a company where he would be the eighth chief executive in a decade?

“Sometimes you get to the stage where you need a new challenge. And I saw a lot of opportunities at the time at Aviva. There were some segments of the market that they were in in the UK but not in Ireland. And I thought I could push things on into these areas,” the 53-year-old says.

[ Will Aviva’s return to the Irish health insurance market reduce premium prices? ]

He declined to comment on the circumstances that led to his hiring. Former incumbent John Quinlan went on leave the previous November, before launching legal proceedings against the company eight months later. The case was settled in late 2020.

UK-based Aviva plc, formed out of the 2000 merger of Norwich Union and CGU (which owned Hibernian Insurance in Ireland), did away with having a chief executive for its entire business in the Republic in late 2019. Since then, it has had a CEO for its general insurance business and a separate one (currently Barry Cudmore) for its life and pensions unit, which grew substantially in 2018 through the €130 million purchase of Friends First.

Some 1,500 people are employed in the Irish operations, which have about an 11 per cent slice of general insurance activity in the State and close to a 15 per cent share of the life and pensions market.

Under O’Rourke, Aviva Insurance Ireland – the third-largest motor, property and commercial liability insurer in the State – has moved into so-called financial lines insurance, covering the likes of professional indemnity, directors and officers liability and the growing area of cyber crime. “Financial lines has grown from zero to be our third-largest line of business now,” he says.

The Irish unit has also taken over a lot of larger Irish accounts – “I won’t give names, but you’re talking about businesses that range from large retailers to industrial companies” – that previously were handled from London.

Operating profit in Aviva Insurance Ireland rose by 125 per cent last year to €72 million as premiums increased 5 per cent to €521 million and its investments portfolio reversed a loss from the previous year, when the values of bond holdings were hit by rising interest rates.

The company’s combined operating ratio – a gauge that compares claims, costs and expenses as a percentage of premiums – remained stable at 96 per cent. A figure below 100 per cent indicates an insurer is writing business at a profit. Insurance companies typically target a ratio of 90-95 per cent in a functioning market.

Following a period in which Irish motor insurance bills shot up more than 60 per cent between 2013 and 2017 amid soaring claims costs, the average premium fell 22 per cent between their peak in late 2017 and the end of 2022, according to Central Bank data, on the back of a series of industry reforms. However, rates edged up 5.9 per cent in the year to April, according to the Central Statistics Office, as a result of a spike in vehicle repair costs amid wider general inflation.

Sometimes you get to the stage where you need a new challenge. And I saw a lot of opportunities at the time at Aviva

Insurers have come under fresh pressure from the Government and business lobby groups to cut premiums since the Supreme Court last month shot down a challenge to the validity of judged-approved guidelines that have reduced awards for mainly minor personal injuries.

The judicial guidelines recalibrating personal injuries awards in the Republic were issued in April 2021. They followed a sharp spike in claims over the previous decade that had, for example, resulted in whiplash-type damage awards in Ireland being typically 4.4 times higher than in the UK, according to a government-commissioned report completed by former High Court president Nicholas Kearns in 2018.

The Injuries Resolution Board’s (IRB) latest published annual report shows that its average award for 2022 had fallen a third to less than €15,900 from 2020, before the guidelines came into effect.

Motorists holding out for further large premium reductions in the near term may be left disappointed, even if O’Rourke and other insurance executives refuse to comment on pricing for fear of incurring the wrath of competition authorities.

“The average price for car insurance in Northern Ireland on a quoted basis, according to [price comparison website] Confused.com, is currently the equivalent of €1,100. A price comparison that Chill.ie did in January for the Republic of Ireland indicated the average here was about €670. That’s the first time in my career that I have seen car insurance cheaper in the Republic than in Northern Ireland – and [the wider] UK as well,” he notes.

O’Rourke says Government-led reforms in recent years – also including improved industry data, an expansion of the role of the IRB (previously the Personal Injuries Assessment Board) and new duty-of-care reforms to address the issue of “slips, trips and falls” – have delivered “a lot of progress”.

However, he says legal fees for cases that end up in litigation remain a big issue to be tackled.

The average award for litigated cases where claims were for less than €100,000 – 94 per cent of claimants – was €24,856 in 2015-2020, according to Central Bank data. The average for an IRB settlement was €21,856. However, the legal costs of claims settled through litigation was €15,567, compared with €686 for cases resolved through the IRB.

Figures for more recent years have been distorted by a higher percentage of litigated cases stemming from accidents that took place before the new guidelines took effect.

“There is still a huge incentive for solicitors to push for litigation,” O’Rourke said. He says a way of addressing that would be for a form of system of scaled fees for litigated cases.

Although O’Rourke says the IRB’s new mediation service might deliver progress, his “fear is that we’ll be sitting here in two years’ time and the rejection rate [of IRB awards] will still be over 50 per cent” – in line with the long-term average.

I was told at school that it would be a good qualification if you wanted to travel. It was as simple as that

Meanwhile, he sees scope for further award reductions as the Judicial Council currently reviews the exiting guidelines, where payments for minor neck injuries range from €500 to €12,000, depending on pace of recovery.

In the home coverage market, O’Rourke says he’s concerned about levels of underinsurance by homeowners that have not kept track of the sharp increase in rebuild costs in recent years amid soaring general inflation.

He recalls a case earlier this year where the owner of a house destroyed by fire had failed to keep their insured value up to date with rising rebuild costs. “The insured value ended up being about 40 per cent of the replacement value,” he says.

Although Aviva, rivals and brokers have sought in recent years to raise awareness about the issue, O’Rourke says that about 60 per cent of its home customers have not increased their insurance limits over the past three years.

“You might, of course, say that we’re just looking for more premiums, but this is a real issue if a place burns down,” he says. Aviva estimates that there could be a €39 billion underinsurance problem across the Irish personal home market.

O’Rourke hails from Thurles, Co Tipperary. His father was a garda and mother a nurse. He went straight from finishing school at the local CBS in 1990 to studying accountancy with Coopers & Lybrand (now part of PwC).

“I was told at school that it would be a good qualification if you wanted to travel. It was as simple as that.”

Immediately after qualifying, he joined AIG’s London office where he worked in internal audit, travelling around the world for about two years to where the insurance giant had business. “The first place I went to was Turkey, then Poland, Lebanon, Saudi Arabia,” he recalls. “That was followed by Latin America – including Argentina, Brazil and Ecuador – and Bermuda.”

O’Rourke then worked for a period for AIG in New York, before returning to Ireland in 2001 – a week before the 9/11 terrorist attacks. He was initially appointed as financial controller here before becoming financial lines manager in 2004.

The wider AIG group found itself at the epicentre of the financial crisis in September 2008 when it suffered enormous losses from insuring debt linked to US sub-prime mortgages, through esoteric financial instruments called credit default swaps. It required a $182 billion (€167 billion) US taxpayer rescue after the sub-prime bubble burst.

“It certainly was an interesting period. I remember us being out and about at the time explaining our creditworthiness and how claims would be paid, often to people who, shortly afterwards, would end up doing the same thing,” he says.

A move by the Irish government to guarantee the country’s banks in September 2008 would ultimately lead to the Republic succumbing to a €67.5 billion international bailout in late 2010.

O’Rourke became general manager of AIG Ireland in 2012, holding the position for eight years before being lured by Aviva.

Last month saw O’Rourke announce his biggest strategic move yet at Aviva: a plan to bring the company back into the health insurance business, eight years after exiting it.

[ Will consumers benefit from Aviva entering the Irish health insurance market? ]

It plans to launch a 50:50 joint venture in the second half of this year with a group including the insurer’s former chief executive, Jim Dowdall, one-time VHI head Oliver Tattan and fellow medical coverage executive Stephen Loughman. The three had set up Vivas Health in 2003 and sold it to Aviva five years later, before going on to establish GloHealth in 2011. Irish Life took control of both businesses in 2016 and renamed them Irish Life Health.

The idea came about when O’Rourke got chatting to Ruth Bailey, a close associate of the trio who had worked in the two previous ventures, on the sidelines of an under-12′s hurling match in Naas, Co Kildare, where both had sons playing.

“Ruth told me that the team were looking at going again and I said, ‘Brilliant, we are looking at doing something in this area, too’. They’re the experts. We have the capital,” he says. “They’re moving at lightning pace.”

He declines to say whether Aviva made an attempt to buy Laya, the second-largest player in the market, which AIG put on the market last year. He had actually been a key player in AIG’s purchase of the health insurer back in 2015 for €80 million. Axa Ireland, the State’s largest insurer, ended up acquiring Laya in October for €650 million.

He also refuses to be drawn on further details on the planned health joint venture.

“All will be revealed in the big reveal in the second half of the year,” he says. “That’s not too long to wait.”

Name: Declan O’Rourke

Position: Chief executive of Aviva Insurance Ireland

Family: Married to Liza; they have five children

Lives: Kilteel, Co Kildare

Something about O’Rourke readers might expect: “As a Tipperary man, I’ll be shouting for Tipp in Semple Stadium on Sunday” in its clash against Cork in round four of the Munster Senior Hurling Championship

Something that might surprise: “I really like deserts and went on a camping trip in the Namib and Kalahari deserts over Christmas with two of my children.”

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