The profitability of Irish motor insurers fell last year to its lowest level since 2017, as settled claims costs jumped 39 per cent to €693 million, driven by damage claims, according to a Central Bank of Ireland report.
The sector would have made a loss in 2023, had insurers not released significant levels of reserves that had been set aside for prior-year cases which turned out to be less costly to settle than initially expected, the bank’s report said.
Settled damage claims rose 56 per cent on the year to €362 million in 2023, reflecting a surge in costs of labour and spare parts that insurers highlighted in recent times.
Injury claims rose by 23 per cent, with an increased rate of accidents following the pandemic only partly offset by a decline in individual injury claims costs as more cases fell under the judicial guidelines introduced in 2021.
Operating profitability fell to 8 per cent of written premiums, the report said. This points to a profit of about €102.5 million. The sector would have made a loss on 2023 claims, had insurers not released a total of €122 million of prior-year reserves, it added.
Almost all cases settled directly or through the Injuries Resolution Board (IRB) in the second half of year were done so under the judicial guidelines, where payouts, on average, are much lower than the previous book of quantum benchmark. Claims costs settled directly under the guidelines were 38 per cent lower than the second half of 2022, while those resolved through the IRB were 22 per cent lower.
Still, 73 per cent claims settled through litigation in the second six months of 2023 were done so in reference to the book of quantum.
The average written premium per policy rose 2 per cent last year to €568, according to the report.
“Claims costs have increased, returning to pre-Covid levels and we note a change in the composition of claims. The frequency and costs of damage claims have increased, while the frequency and costs of injury claims have decreased,” said Robert Kelly, director of economics and statistics at the Central Bank. “Overall in 2023, we see an increase in claims costs as a percentage of premiums.”
The 2021 judicial guidelines recalibrating personal injuries awards 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 latest industry report underscores, again, how claimants in most cases gain relatively little financially, and lose time, by taking the litigation route. The average award for litigated cases where claims are less than €100,000 – which is more than 90 per cent of claimants – was €20,334 in 2023. The average for a IRB settlement was €16,541.
Legal costs for litigated cases in this category averaged €18,097 and took 5.1 years to be finalised, compared to €649 and 2.7 years for IRB cases.
Brian Hanley, chief executive of the Alliance for Insurance Reform, said that while inflation undoubtedly contributed to the increased cost of vehicle repairs in recent times, he noted that this has begun to stabilise. “We need this to quickly result in premium stability for policy holders too,” Mr Hanley said.
“We welcome the fact that the personal injuries guidelines are more frequently in use in settling litigated injury claims, having risen from 3 per cent in the first half of 2022 to 27 per cent by the second half of 2023,” he said. “This should lead to greater savings in respect of injury costs as is clear from the savings the guidelines have generated in other settlement channels.”
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