Three Official Reports Highlight the Rising Cost of Claims in Motor Insurance and Underscore the Need to Tackle Costs – Insurance Ireland
Issued 21 July 2017. Insurance Ireland welcomed the publication of three official reports over two days, from the Central Bank of Ireland, the Department of Finance and the Personal Injuries Assessment Board (PIAB), which all highlight the increased cost of claims in the motor insurance market.
The three reports are the PIAB Annual Report for 2016 (published yesterday), the Central Bank of Ireland Private Motor Statistics 2015 (published today) and the Department of Finance’s Motor Insurance Key Information Report (published today). The Department of Finance report was drafted following the submission of further detailed data by Insurance Ireland as part of the Government’s Cost of Insurance Working Group.
Kevin Thompson, CEO of Insurance Ireland stated “The defining issue in motor insurance is the rising cost of claims which is the level of awards and the costs associated with settling them. These three reports show that the amount paid out in claims, in total amounts and average compensation, are increasing as well as the legal and other costs in the claims system. For instance, the total amount paid out in motor claims by Insurance Ireland members increased by 23% from 2011 to 2016 while in the same years, the amount paid out by PIAB across all classes of insurance increased by 50%.”
“Given that it can take many years for a claim to be settled, there is a ‘long tail’ effect where any increase in awards and delay in settlement can lead to insurers having to revise upwards the cost of settling unsettled claims on their books. This underscores the need for consistency in awards and the importance of strengthening the PIAB legislation to prevent claims proceeding to expensive litigation which the Department of Finance report says can cost upwards of 42% of the compensation paid to claimants”.
“These increases also took place in a claims environment where Irish awards are already out of kilter with other jurisdictions, such as the average whiplash award here being three times that of the UK.”
Kevin concluded; “Awards, and the cost of settling them, are increasing and it’s time to tackle the root causes. With the Department of Finance report using industry data, this is the first time this information has been compiled in this manner and Insurance Ireland is keen that it is used to inform public policy. In addition, Insurance Ireland believes other stakeholders should also provide their data to inform policy solutions to rising cost of claims.”
The key findings are as follows:
Report 1: Motor Insurance Key Information Report by the Department of Finance
The number of claims recorded increased from 15,102 in 2011 to 15,648 in 2016. (Page 17)
Legal and other costs make up 42% of the compensation amount paid to claimants. The Department’s report states that if there is an injury compensation payment of €100k to a claimant, there will be, on average, a further payment of €24.9k to cover claimant legal and other costs and €17.2k to pay for insurer legal and other costs. This would result in total payments by the insurer of €142.4k of which the claimant would receive €100k. (page 4).
The percentage of claims settled prior to and during the PIAB process fell from 56% in 2013 down to 52% in 2016. This is concerning as the report states that “legal costs as a percentage of total compensation are significantly higher for post-PIAB settlements than pre-PIAB settlements” (pages 14 & 15).
Investment income (interest rates on short-term deposits) fell from €64.7m in 2011 to €25.2m in 2016 representing a reduction of 61% for the companies surveyed. This decrease over the period can be attributed to the low interest rate environment. (page 10).
23% refers to the claims paid out between 2011 and 2016. The data is in Chart one on page 16 of the report and refers to line eight which shows an increase from €567.1 million to €698.4 million in 2016.
Between 2013 and 2016 compensation paid for settled private motor personal injury claims increased by almost 15% (€179 million to €205.5 million) (page 14).
Report 2: PIAB Annual Report 2016
From 2011-2016 the number of PIAB awards increased by 32% (from 9,833 to 12,966)
From 2011-2016 the amount paid out in awards by PIAB increased by 50% (from €209.83m to €315.13m)
From 2011-2016 the average PIAB award increased by 19% (€20,434 to €24,305)
Report 3: Central Bank of Ireland Private Motor Statistics 2015
Average cost of year 1 claims for comprehensive policies have increased by 10 per cent from €5,264 in 2014 to €5,776 in 2015. Indeed, the average cost of year 1 claims for comprehensive policies have increased by 45 per cent since 2010 when an average cost of €3,993 was reported.
Report states “Claim costs for an accident year tend to increase as the development years progress as insurers obtain more information on the ultimate cost of the original accident.”
Communications Manager, Insurance Ireland
Tel: (+353) 01 644 7781 / 087 938 3852
Q4 Public Relations
Tel: 01 475 1444 / 085 174 4275