More companies find it impossible to get insurance or are unable to afford it. If an accident happens, a firm could go bust or an employee go uncompensated, writes Mary Canniffe

Spiralling costs of insurance are forcing an increasing number of companies to operate without insurance cover or to try to self-insure, and could cause company closures and job losses, according to the Irish Business and Employers Confederation (IBEC).

Industry sources refer to "distress cases" in the market - companies either unable to get insurance or unable to get it at prices they can afford.

Among the worst affected appear to be former clients of the collapsed Independent Insurance group - mainly building companies, hauliers, large pubs, restaurants and entertainment complexes in urban areas, and high-risk manufacturing or service operations with relatively large number of employees. Where they can get insurance, premium rates quoted represent increases of 100 per cent-plus in many cases for 2002, following the significant increases in 2001 when they had to reinsure for the second half after losing premiums already paid to Independent for the year.

The biggest price increases are in the areas of public and employer liability - insuring against the risk of injuries to customers or staff - and in property risk.

Another big problem area is terrorism cover, which is now almost unavailable in the market. This affects most companies, but shipping and transport operations, and companies trying to insure city property, livestock and food operations are among the worst affected.

Because employers' liability is not compulsory here as it is in Britain, some companies have not renewed this cover on cost grounds, according to industry sources.

"It is a very dangerous situation. The companies who have not been able to pay for insurance cover are the very companies who would not be able to pay out to an employee who had an accident on the premises," according to an industry source.

The same situation may apply in the area of public liability, one source commented. If a company without insurance cover was hit with a claim that resulted in a large court award against it, the company could have to be sold to pay the award, with the possible loss of jobs.

Market sources suggest the level of uninsured driving has increased, and that a number of small businesses are operating without insurance because of the rapidly rising premium rates.

Companies where insurance is a high proportion of their operating costs are under pressure - and the haulage industry is particularly vulnerable.

Where such companies have no flexibility to pass on their insurance cost increases to customers - if, say, their service is based on fixed-price contracts and contract renewals do not coincide with insurance renewals - the insurance cost increases could push a company into losses.

Some companies have been pushed to "self-insure" to try to limit increases to their insurance costs.

Supermac managing director Mr Pat McDonagh, who is concerned about the extent of legal costs and vexatious compensation claims, said his company now pays "a considerable sum" of its claims before it calls on its insurers. Self-insurance is where a company pays out on claims by building up reserves to meet them.

An alternative is accepting very high excesses - where the insured company agrees to pay, for example, the first £20,000 on every claim. In Supermac's case, the excess is so high that the company is largely self-insuring - so compensation awards immediately hit company profits.

While Mr McDonagh is angry with insurers for settling claims he feels should be challenged, he accepts they have to make a "business decision" that is influenced by the legal costs of fighting a case through the courts.

"The problem for insurers' clients is that when compensation is paid out, the client suffers a hefty premium increase at next renewal," he said. Insurance for some Supermac franchises has jumped from about €10,790 (£8,500) three years ago to €76,184 this year, he says.

With companies struggling to pay hefty premium increases, IBEC wants an urgent examination of the factors involved to determine remedial action required.

Insurance premiums in the Irish market are considerably higher than in other jurisdictions, even though the State has the second-lowest accident rate in the European Union, it says.

For every €100 paid in insurance by an Irish company, the equivalent charge in Britain would be €34, while in the Netherlands the cost would be €13, and average awards in the Irish courts were 12 times higher than in Britain.

IBEC wants to know if the fall in the number of firms competing in the general insurance market - because of mergers and takeovers and the demise of Independent Insurance - is one of these factors.