While the Irish insurance market has endured a troubled period since the economic downturn, a number of recent developments suggest better times are on the horizon
The Irish general insurance market has faced a tough few years as the economy has fought back from the brink of meltdown in the wake of the global financial crisis. In the five years to the end of 2012, gross earned premiums contracted by almost 30%, with most major classes returning substantial losses.
During that time the casualty list of insurers in crisis has grown, headed by Quinn Insurance, which went into administration in 2010. RSA also discovered £200m of losses in its Irish business had been covered up late last year, and the bad news kept coming over the Easter weekend – the already ailing Setanta Insurance finally collapsed, leaving 75 000 car and van drivers without cover (see box).
This sorry tale of boom and bust has many echoes over the decades, with numerous crises in the general insurance market during the past 30 years – the most serious of which was the collapse of PMPA Insurance in 1983, which at the time dominated the private motor market with a 32% market share. Renamed Primor, the firm finally came out of administration in June last year.
All this turmoil has cost the Irish insurance industry and its policyholders dear, with the 2% levy on all GI policies introduced to fund the Quinn losses collecting €66m (£54.4m) last year, according to figures announced by Finance Minister Michael Noonan recently. Noonan confirmed a further €15m had been collected this year to the end of March, bringing the total paid out under the levy to €126.3m.
Although the High Court in Dublin was told in March no further money would be required from the state‑backed compensation fund to meet claims of Quinn policyholders this year, the levy is likely to be in place for several years, warned opposition Fianna Fáil Teachta Dála (MP) Michael McGrath.
He said: “This 2% insurance levy is likely to be with us for many years to come. The government is saying that, in the worst case scenario, the final bill for covering the losses at Quinn Insurance could possibly exceed €1.65bn. In that scenario, this levy could be with us for up to a quarter of a century.”
In the wake of these years of crisis, the Irish insurance market is attempting to seize the initiative. Its trade association, Insurance Ireland, commissioned PWC to produce a five‑year strategic plan for the sector, and an 86‑page report was published on 9 April.
Insurance Ireland chief executive Kevin Thompson says of the report: “We know much of the downturn in the industry over the last few years has been a reflection of the economic crisis. The national car fleet has fallen, property prices have moved sharply downward and business activity has been very depressed. However, premium rates over that period have remained stable – so there is a sound platform for recovery.
“This report highlights the significant role the insurance sector plays in the Irish economy. Our goal now is to take our contribution to another level. We believe our ambition to add 3000 high‑quality new jobs to our sector over the next five years is a very realistic target.”
Thompson says the Irish market’s track record in innovation will be one of the keys to its expansion, with 1750 of those 3000 jobs coming in ‘innovation centres’ along the lines of the Zurich IT Service Management Centre and the Aon Centre of Innovation and Analytics, both of which are already up and running in Dublin.
The quality of staff in Ireland has been one of the key underpinnings of its insurance market and has contributed to the success of Ireland’s international sector since the International Financial Services Centre was established in Dublin 25 years ago. International business now accounts for half of all non‑life premiums in Ireland (see graph).
“There is a well‑trained workforce [here] and the IFSC remains vibrant. This means there is a concentrated skilled workforce based in and around Dublin,” says Tom Tannion, managing director of Overseas NEIL, a nuclear property insurer based in Dublin.
Thompson says the well‑publicised problems of some insurers have not deterred multinational firms from wanting to participate in the domestic Irish insurance market. He explains: “They appreciate the nuances of the Irish market, which is predominantly serviced by the subsidiaries of multinationals like Allianz and Aviva. They clearly see value in the market and if it didn’t make commercial sense to stay here, they wouldn’t hang around.
“My sense with some of the companies that have failed is that they are unrepresentative of the market as a whole,” he continues. “Quinn came from a non‑traditional insurance background and, going back, PMPA was similar.”
You cannot write about insurance in Ireland without mentioning RSA. Yet despite its headline‑hitting problems and boardroom departures, the firm remains confident in its capabilities in the Irish market. “Ireland has been identified as a market in which we can make a return for all our stakeholders – shareholders, brokers, staff and policyholders”, says Patrick Nally, marketing director of RSA in Ireland.
“Our footprint is strong and extensive and will remain so. We’ve seen very little impact on our business because people appreciate that we took very strong and decisive corrective action.”
As well as quickly injecting fresh capital into its Irish operation, RSA has restructured its management team. It is soon to be headed up by Ken Norgrove, who is moving from a similar role at Zurich General Insurance Ireland.
Alongside these remedial moves from major players such as RSA, there is also positive news on the claims front. Costs are coming down – especially in personal injury, where a series of legal reforms have begun to bite, according to Insurance Europe non‑life insurance manager Michael Horan.
“In the bad old days legal costs were adding 46% to the cost of compensation. The Injuries Board [set up in 2003] has had a major impact on cases where liability isn’t an issue,” he says. “Another factor has been the general improvement in the road safety environment, as well as the insurance industry’s anti‑fraud efforts. [There have been] publicity campaigns and the insurance companies have ramped up their efforts using anti‑fraud specialists, many of them retired members of the Garda Síochána [Irish police].”
The legal environment has also improved since the Civil Liability and Courts Act was passed in 2004, introducing €100 000 fines and prison sentences of up to five years for insurance fraud.
More recently, the attitude of the courts towards marginal and exaggerated claims has also improved, says Ecclesiastical Insurance Ireland MD David Lane: “The courts in Ireland have tended to be more generous to plaintiffs – as they still call them here – than in the UK. During the recession there were people progressing claims that wouldn’t have been made before such as slips, trips and falls. There is evidence of toughening up, with some claims for slips on a wet floor in a nightclub being rejected.”
Lane is referring to two important long‑running cases against one of Dublin’s best‑known nightclubs, Copper Face Jacks, which have both been rejected with costs awarded against the claimants.
But Aidan Carr, head of Berrymans Lace Mawer’s Irish office, believes there is still scope for further improvement: “The claims procedure in Ireland is still quite slow. It is based on the system we used to have in the UK. There is no automatic disclosure and no case management – it is still like prosecution by ambush.”
Carr says there is a growing consensus among the insurance industry, legal profession and government that the way cases are managed needs to be overhauled – but funding and resources are holding back reform.
Niall Stratford, executive adjuster with McLarens, highlights the differences between the UK and Irish legal systems: “Perhaps the obvious difference is the procedural aspect. It is still possible to be ambushed in the days preceding trial in the Republic of Ireland, notwithstanding the disclosure rules.”
Another issue facing the Irish insurance industry that will be very familiar in the UK is the challenge of providing affordable flood insurance for homeowners in high‑risk areas. Insurance Ireland says its members face paying out €46m following the appalling weather in January and February.
Frustration over the progress of talks with the industry recently prompted Environment Minister Phil Hogan to threaten a new 1% levy on all personal lines insurance policies to create a fund to help the 50 000 households he claims cannot buy flood cover.
A further 1% levy would bring total levies on insurance products to 6% – adding to the 2% levy introduced in September 2011 to cover the losses at Quinn Insurance, expected to continue for another two decades, and the longstanding 3% stamp duty on insurance products.
Insurance Ireland said it was still working with government to find ways of resolving the issue without the introduction of an additional levy, and at the end of March announced an agreement with the Office of Public Works on a Memorandum of Understanding on Flood Defence Data.
Under the terms of this deal, the Office of Public Works will provide Insurance Ireland with data on all completed flood defence schemes, which will show the design, extent and nature of the protections offered by these works. Insurance Ireland members will then take this information into account when assessing exposure to flood risk within these areas from 1 June.
With a ringing endorsement from Noonan for its five‑year plan, Insurance Ireland will be hoping the memorandum proves effective and heads off the threat of a levy. The insurance industry produces €1.6bn in taxes every year – 4% of the government’s total tax take – and the 27 000 people it employs represent 1 in 80 people of working age, so Noonan’s backing is hardly surprising.
Ireland and its insurance industry have been through tough times but have survived. As Tannion says: “You shouldn’t underestimate the devastating impact of the financial crisis. It hit hard, and the recovery has taken longer than the length of World War Two. But signs of recovery are evident – more cars on the road during the morning commute and more ‘sold’ signs on property. Domestic insurers have been bruised and battered, but are coming through.”
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