Minister of State with responsibility for Financial Services and Insurance, Michael D’Arcy TD, today welcomed the publication of the First Report of the National Claims Information Database (NCID) on private motor insurance in the Irish market. The Report has been published by the Central Bank of Ireland, as required under the Central Bank (National Claims Information Database) Act 2018.
The NCID, which comes on foot of a key recommendation of the Government’s Cost of Insurance Working Group (CIWG), is intended to facilitate a more in-depth analysis of annual trends in motor insurance claims. This was seen as key to developing an understanding of how claims costs are impacting premiums, in particular understanding the relationship between the price paid by a customer for motor insurance and the cost to insurance undertakings.
The CIWG, in 2018, published its own Motor Insurance Key Information Reports, as the start of a process to improve data transparency in the insurance sector. These two Reports laid the groundwork for the effective establishment of the NCID, and the First Report of the NCID verifies many of those Reports’ initial findings.
Commenting on the contents of the NCID, Minister of State D’Arcy said:
I commend the work of the Central Bank in bringing this Report to fruition. I believe it is an excellent report, which provides an objective overview of private motor claims costs including legal costs over the last number of years.
I would hope that going forward the increased transparency brought about by the NCID, along with other legislative changes, can help to provide more stability in the market, thus avoiding the peaks and troughs for consumers in terms of premium pricing. This should ultimately make the Irish market more attractive to new entrants and I would hope that this might be one of the outcomes of this exercise in time.
Reflecting on the key findings of the first NCID Report, the Minister of State noted:
I believe that the NCID Report shows that the insurance and legal sectors are both culpable for the difficulties we have faced over the last number of years with the price of motor insurance. It appears that insurers engaged in under-pricing in the early part of this decade and then increased premiums beyond levels that were needed to cover losses over parts of the period, particularly between 2014 and 2017, and are now making significant profits as a result. At the same time, the legal sector has been charging considerable fees when one considers that the report indicates that settlement amounts for those settlements under €100,000 are not much higher than settlements in PIAB. In addition, the length of time to settle a claim is nearly 2 years longer than in PIAB, which in itself drives up the cost of insurance.
While it is true to say that the nature or severity of the injury claims settled in the different channels can vary significantly and there may be good reasons for pursuing litigation, I would hope that members of the public will see that in overall terms, PIAB offers the most effective settlement channel and I would hope that its settlement rates increase going forward. This is a key aim of our work in the CIWG.
Notwithstanding the role of the insurance and legal sectors, I believe that the NCID Report also demonstrates why we must address award levels in this country if we want to see cheaper insurance premiums and an increased risk appetite from insurers. The NCID Report shows that personal injury claims have been driving the cost of claims in recent years – representing 75% of the ultimate claims costs over the period. This is not sustainable in my view. This is all the more concerning as the Report shows that these increased costs are not being driven by a higher frequency of claims.
In conclusion, I suspect that figures for employer and public liability insurance may have similar characteristics with personal injury awards and legal fees representing a very high proportion of the cost of claims. I believe that this shows the need for the Central Bank to expand the scope of the NCID in the future to cover such claims information, recognising that these claims can often be more complex and that this may take time. In the short term, the work of the Judicial Council to recalibrate award levels remains extremely important.
Further Notes
Some of the key statistics from the Report are as follows:
- Cost of claims per policy: Between 2009 and 2018, the average cost of claims per policy decreased by 2.5% from €437 in 2009 to €426 in 2018. Between 2009 and 2013 claims costs reduced by 14% to €375, followed by an increase of 14% to €426 in 2018.
- Premium per policy: Between 2009 and 2018, the average premium per policy increased by 42% from €498 in 2009 to €706 in 2018. Between 2009 and 2013, average premiums decreased by 13% to €435, followed by an increase of 62% to €706 in 2018.
- Loss Ratio: Claims were on average 75% of premiums between 2009 and 2018. This peaked at 94% in 2014 before dropping to 59% in 2017. In 2018, it was 60%.
- Number of claims: Between 2009 and 2018, claims frequency reduced by 40%. In this time injury claims reduced by 20% and damage claims reduced by 43%.
- Cost of a claim: Between 2009 and 2018, the average cost of a claim increased by 64%. In this time injury claims increased by 54% and damage claims increased by 2%.
- Settlement channels: In the period 2015 to 2018, 53% of all injury claimants settled directly while 31% of injury claimants settled through litigation; 16% of injury claimants settled through PIAB.
- Direct Settlements: Directly settled injury claims had an average compensation of €11,674 in the period 2015-2018, in addition average legal costs were €1,385, and claims took on average 1.7 years to settle.
- Personal Injuries Assessment Board (PIAB) Settlements: Injury claims settled through PIAB had an average compensation of €22,631 in the period 2015-2018, in addition average legal costs were €753, and claims took on average 2.5 years to settle.
- Litigated Settlements (total): Injury claims settled through litigation had an average compensation cost of €45,390 in the period 2015-2018, in addition average legal costs were €23,031, and claims took on average 4.4 years to settle. Litigated settlements costing more than €100k account for 15% of claimants settling through litigation but account for 53% of total litigated costs and involve a number of very large settlements. These very large settlements can have a significant impact on the average compensation and legal cost figures.
- Litigated Settlements less than €100k: Injury claims settled through litigation with total settlement costs less than €100k (85% of litigated claimants) had an average compensation of €23,199 in the period 2015-2018 (i.e. comparable with the average compensation of claims settled through PIAB) and average legal costs of €14,684.
- 2018 private motor revenue results: Insurers’ Gross Combined Operating Ratio (COR) on private motor business was 81% and Net COR was 88%. As firms do not account for private motor insurance business separately, an income and expenditure statement was prepared on a proportioned basis.
The nature or severity of the injury claims settled in the different channels could vary significantly. This should be borne in mind when comparing the cost and time of settling injury claims in the different channels.