Jump in cost of settling motor claims leads to fear of price hike

Fears have been voiced that they will put the brakes on motor insurance savings.

This is because insurers have started to see an increase in the cost of settling claims for damage to vehicles and comes at the same time as a huge drop in the cost of settling injury claims.

New figures from the Central Bank show premiums came down by around 7pc last year, but profitability remains strong.

Motor insurers in Ireland collectively made profits of €159m last year, with an operating profit margin of 12pc.

Between 2021 and last year, the average premium cost per policy fell to €568.

Last year was the sixth year in a row of profits for the motor insurance sector after several years of losses, according to the annual Private Motor Insurance Report of the National Claims Information Database (NCID) from the Central Bank.

The bank said motor insurers had seen a large drop in the cost of settling injury claims, especially since the introduction of the Judicial Guidelines that slashed the level of payouts.

However, the cost of settling claims for damage to vehicles rose sharply for insurers last year, in line with the general increase in inflation.

The Alliance for Insurance Reform called for insurers to continue to reduce the cost of motor premiums.

Brian Hanley of the alliance said there should be further reductions in motor premiums.

“We welcome the 7pc reduction in motor premiums in 2022,” he said. “In the context of the range of reforms prior to and since this figure was calculated, it is the least motorists deserved.”

Mr Hanley said that as the Judicial Guidelines filtered through into more cases that were being settled in the litigation channel, this should lead to further reductions despite inflation.

The alliance added that businesses across the country are also left wondering why premium reductions could be passed on in the context of motor insurance, but have not been forthcoming for public or employer liability policies, which remain stubbornly high.

“The reforms apply to and should benefit everyone,” Mr Hanley said.

Robert Kelly, director of economics and statistics at the Central Bank of Ireland, said: “The data released shows that premiums continued to fall in 2022. Claims costs have increased, returning to pre-Covid levels, but driven by an increase in the cost of damage claims.

“The sector, however, remained profitable in 2022, earning a 12pc profit.”

He said half of all claims last year had been settled with reference to the Personal Injuries Guidelines.

This meant significant reductions in average claim costs were seen in claims settled directly by insurers and those that went through the Personal Injuries Assessment Board (PIAB).

But Mr Kelly added: “However, it is still not possible to determine the impact of the guidelines on claims sett-ling through litigation due to the small number of claims settling through this channel.

“This is important to note as 77pc of all injury costs were associated with litigated claims.”

Almost half of injury claims made to motor insurers were settled directly by the insurers, but 37pc of injury were litigated.

Claims settled directly made up 16pc of injury claim costs, but 77pc of the cost when they were litigated.

The Central Bank report shows that the average compensation for a claim processed by the PIAB is €15,500, with average legal costs of €755.

For litigated claims, the average compensation is €22,400, with nearly €18,000 in legal costs.

Minister of State for Financial Services, Credit Unions and Insurance Jennifer Carroll MacNeill said the Central Bank report shows the new Personal Injuries Guidelines are working, with half of all injury claimants who settled in 2022 doing so under the guidelines, compared with 16pc in 2021, including the majority of claims that were settled either direct or through PIAB.

“We need to keep working to ensure the guidelines continue to stick and that all solicitors engage fully with the PIAB process,” Ms MacNeill said.

She added that the Central Bank’s report highlights that litigation remains a main driver of claims costs.

The minister said she would raise this issue directly with firms in the industry and with the Law Society of Ireland.

Lobby group Insurance Ireland welcomed the motor insurance report from the Central Bank, which it said shows a 20pc reduction in motor insurance premiums over the past five years.

It said this showed insurers were committed to the Government’s reform agenda for insurance.