Higher insurance claims last year and pressure on investment returns will encourage personal liability and motor insurers to increase their rates, the Irish Insurance Federation warned yesterday.

The body said strong economic growth led to a 32 per cent rise to £6.49 billion (€8.24 billion) in premiums earned last year by the State's life and non-life insurance companies.

The life business generated premiums worth £4.7 billion, up 40.6 per cent, with £753 million derived from new business.

Premiums in the non-life business rose 13 per cent to £1.79 billion. But underwriting losses also rose - to £211 million from £198 million - due to higher claims.

The federation representing insurance companies said it was concerned that the Government's national road safety strategy was not being implemented quickly enough. This was particularly important because the frequency of road accidents in the Republic was very high - the third worst in the EU, according to 1997 figures.

In addition, the Irish Insurance Federation (IIF) said the Government's failure to finalise its response to the McDowell report on regulation in the financial sector, published in May 1999, was "regrettable".

The IIF's chief executive, Mr Michael Kemp, said financial services companies did not know whether a single regulatory authority would be established or if the Central Bank would do the job.

Yet this was only a secondary issue when contrasted with the preparatory work required to set up any new structure, he said in an interview. "We need to know who, when and how its going to do the job."

Training would be crucial in the new environment, said Mr Kemp. "One thing we can't afford is the industry having better people than the regulators."

In addition, Mr Kemp said it would be important to agree a clear definition of the solvency supervision and consumer protection roles of the new body, as well as its rule-making powers and consulting functions.

Looking at the industry figure, the IIF said that in the motor insurance sector, the claims ratio - measuring the cost of claims as proportion of premiums earned - rose to 102 per cent last year from 96 per cent.

Claims incurred in all sectors cost 9.4 per cent more than premiums earned. Only the return on investments allowed the companies to make up the shortfall and record profits.

The IIF annual review said life policyholders' funds and non-life technical reserves rose 19 per cent to £33.24 billion last year.

The body reported that significant volumes of these funds were transferred outside the State last year. Only 59 per cent of investments were held in the State at the beginning of 2000, compared with 72.3 per cent a year earlier.

This was probably due to the euro's introduction at the start of 1999, said Mr Kemp. This meant the placement of funds outside the State was easier.

The report said 56.5 per cent of the investments were held in equities and 26.1 per cent in Government bonds. The balance was held in property and cash.

Mr Kemp also expressed concern about the high rate of workplace accidents. While the cost of employer's liability insurance claims was £138 million, the report stressed that this was the "insured" cost only of compensation for workplace injuries. "Some employers are self-insured, or have no employers liability insurance; in addition there are huge uninsured economic costs through lost production, the impact of accidents on morale and skills lost to industry when experienced workers are unable to return to their jobs."

On the worsening claims ratio in the motor sector, Mr Kemp urged the Government to introduce a penalty points system for driving offences. "Threatening to take the licence away is a greater deterrent than the £50 fine which someone else could pay for you."

More than one person dies in accidents on Irish roads every day. Some 1,867 people suffered serious injuries last year - many of the injuries were permanent and disabling.

Mr Kemp pointed out that the fine to release clamped vehicles was £65 while motorists caught speeding, a frequent cause of injury and death, incur a smaller fine.

A pilot scheme using automatic cameras to detect speeding should also be extended, he said. While the system was good at detection, follow-on processing work by the Garda had to be improved, Mr Kemp added.

Stating that investment in manpower and technology was required, Mr Kemp said: "It has to be seen as investment, not just as expenditure."

Under changes introduced in the Budget last year, the taxation of life policies will change next January. While policy-holders previously paid tax each year, an exit tax will be levied on the maturity or earlier withdrawal of funds from new life policies.

Mr Kemp accepted that the new structure would bring the Irish system into line with other European states. He called for the abolition of stamp duty on life policies, which is currently charged at £1 per £1,000 sum assured on new policies. He called for a differential rate of tax to compensate for the later limit for payment of the new tax which would apply to non-Irish companies.