Anyone hoping for a big reduction in their insurance premiums following last week’s Supreme Court decision should not hold their breath.
This includes solicitor and senior counsel Stuart Gilhooly, the Law Society’s representative on the personal injuries commission which led to the Personal Injuries Guidelines that the Supreme Court has ruled are constitutional and legally binding.
The guidelines — introduced in March 2021 — stipulate awards that are significantly below the level of the awards under the book of quantum used previously.
Gilhooly was of the view that the court’s decision removed “the last remaining excuse for the insurance industry for not reducing premiums – it’s time for the insurers to put up or shut up”, he said.
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His optimism is welcome, but he probably hadn’t read the statement issued by Moyagh Murdock, chief executive of Insurance Ireland, in the wake of the decision.
The lobby group which represents Irish insurance companies said the decision was “a very welcome outcome for consumers with the veracity of the Personal Injuries Guidelines upheld, which has been the most important piece of the Government’s insurance reform agenda in seeking to bring down the high cost of personal injury awards in Ireland”.
It’s the last bit that is important. The objective of the exercise — in the opinion of the Insurance Ireland — is to reduce the size of awards. It is not to reduce premiums. The two may be related, but they are not the same thing.
Insurance companies exist for one reason and one reason to only; to make money for the people who own them. They are not a public good. If something happens that drastically improves their bottom line there is no legal obligation on them to pass these savings on to their customers via lower premiums. Some might argue their obligation is actually to return as much of the windfall to shareholders as possible. In theory, competition from rivals will give them an incentive to cut premiums if they can, but that is not always the case. And that is when the Government is supposed to step in.
Insurance Ireland promised to “consider the findings in depth over the coming days” and that it was “is too early in the process to see the full impact of today’s judgment”. This can be roughly translated as: give us a moment while we think of some other reason why your premiums are not going to come down any time soon. And they won’t have to look to far to find one.
Every year the Central Bank of Ireland — that regulates insurance companies — publishes two reports based on its database of insurance claims. One looks at motor insurance and the other looks at employer’s liability, public liability, and commercial property insurance. Between them they cover the bulk of personal injury claims. The reports for 2022 have just been published. Helpfully, they contain sections looking in detail at the impact of the personal injuries guidelines on claims costs. They found substantial reductions in the costs of settling claims under the guidelines, compared to similar claims that were settled before their introduction.
In the case of employers’ liability, the reductions ranged from 17 per cent to 33 per cent depending on the route used to settle the claim, and in the case of public liability, they ranged from 33 per cent to 41 per cent. It is a similar pattern when it comes to motor insurance. Claims settled under the guidelines are between 32 per cent and 47 per cent less than claims settled under the book of quantum.
The bad news is that these only relate to cases settled either before, during or after engagement with the Injuries Resolution Board (formally Piab) which was set up by the Government as a lower cost alternative to settling claims via the courts.
Most cases are still settled via the courts, and according to the central bank, it will take time for the guidelines to have an impact on court settlements. This is because the guidelines only apply to cases that commence after their introduction in 2021, and many of the cases before the courts predate their introduction.
Personal injury claims going through the courts take an average of five years to settle, which means that it could be another two or three years if not longer for cases that are not subject to the guidelines to wash out of the system.
Consequently, while the impact of the Personal Injuries Guidelines on claims settled directly and via Piab is significant, they have not yet had a marked impact on the overall claims settlement cost, say the central bank. What is not clear is whether last week’s court ruling changes any of this.
There does not seem to be any good reason why insurance companies cannot use the certainty brought by the decision to start reducing premiums. They now have a pretty clear picture of the number of outstanding claims that will be settled under the guidelines, and the ones that will be settled under the book of quantum over the next few years. This should let them smooth premiums over the transition to the point in time when substantially all claims will be settled under the guidelines at significantly lower cost.
But why would they want to do that if they don’t have to?
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