Premiums? Why the ball is firmly in the insurer’s court

From car accidents to workplace falls, in Ireland the sums handed out to injured plaintiffs for injuries across the spectrum of severity and situation have been a bugbear, in different ways, for multiple vested interests – the legal profession, insurance providers and brokers, and of course Government – for years now.

Like most complex subjects, the figures on the surface bely the contributing factors below.

Until recently Irish awards for the bread and butter of personal injury claims – soft tissue injuries like whiplash – were notoriously high (an average of roughly €23,000 in 2018), as much as four times the size of those awarded in the UK, the nearest comparable market, which itself was considered an outlier in European terms.

This in turn led to ever-increasing insurance premiums, most notably perhaps in the case of car insurance quotes, with the industry pointing the finger of blame firmly at the legal firms representing the plaintiffs.

If lawyers weren’t extracting such high awards out of judges then premiums wouldn’t need to be so high, was the thinking.

For many, the insurers lost the moral high ground when the common practice of dual pricing was laid bare by Sinn Fein’s Pearse Doherty in 2019. This sees loyal customers penalised with higher premiums than those either willing or capable of shopping around.

Dual pricing has little to do with personal injury, and to an extent it can be explained as being a legitimate – if opaque – business practice in use across industries (the idea being discounts can only be offered to intrepid customers at the expense of those who don’t shop around), but it does give the lie to the idea that insurers will always have the best financial interests of their clients at heart.

Change to Ireland’s injury claims system has come trickling slowly. After a clamour of outrage over the size of awards, with a popular perception that people were gaming the system for larger payouts from the courts, a great deal of political pressure was brought to bear from 2015 onwards.

The Personal Injuries Commission

That led to the setting up of a Government cost of insurance working group in 2016. After a year of deliberation, it recommended the establishment of the Personal Injuries Commission, to be chaired by High Court judge Nicholas Kearns, in February 2017 with a view to investigating the reasons behind Ireland’s outlandish claims culture. 

Soft tissue injuries were taken as the benchmark by the Commission for claims internationally. The Commission came out with two reports, which recommended that Ireland standardise its approach towards diagnosing and treating soft tissue injuries. 

More importantly, the PIC recommended that the then-proposed Judicial Council (which came into being last year) be tasked with the creation of guidelines in order to standardise claims awards. Previously awards in the courts had been dictated, to the extent that they were by anything, by judges looking to PIAB’s book of quantum – which by 2015 hadn’t been updated in 10 years.

In Ireland, any personal injury claim which cannot be resolved directly through the insurer must first go through the Personal Injury Assessment Board (PIAB), the State body with responsibility for settling claims. The problem with PIAB, prior to the establishment of the Judicial Council, is that only about 50% of claimants accepted its terms (the figure is closer to 90% for the insurance companies and the people or companies they represent). 

The remainder were happy to take their chances in court, where the chances of a heightened payout were greater. It gave the impression that PIAB’s powers had to be strengthened, something the Personal Injuries Commission was well aware of. With claims guidelines standardised between PIAB and the courts, the impetus to take a case the legal route has, in theory, largely been removed.

And change does finally appear to be happening. Last week Tánaiste and Minister for Business, Enterprise and Innovation Leo Varadkar brought the first implementation report of the Action Plan for Insurance Reform before Cabinet, and dropped a bombshell while he was at it – new personal injury guidelines introduced in April by the Judicial Council had seen the average payout decrease by an average of 50% across just under 600 claims.

Those guidelines strip injuries down to bands of severity and treatment required, and have seen recommended awards for claims of less than €100,000 slashed.

What Mr Varadkar said has yet to be independently verified, PIAB says, because the guidelines introduced by the Judicial Council in April only apply to new cases. And people aren’t yet clear about what the judiciary (which did not vote unanimously to adapt the new guidelines – 44% of the Judicial Council members who attended the poll meeting voted against them) is up to.

But it seems progress is being made.

“Previously whiplash would have seen an award of between €15,000 and €20,000,” a senior insurance industry source told the Irish Examiner. “That is down to less than half that now, but we don’t yet know whether or not those offers are being accepted by both sides (PIAB says such data won’t be available until later this year).” 

Insurers now see the issue as being in “a good place”, according to the same source. “We’ve got a policy-led solution and legislation to back it up now. The idea was to bring the judges into the fold, and that has been implemented.” 

So, people can expect their insurance premiums to fall now?

“That is a legitimate expectation, yes.” A PIAB spokesperson said that 78% of awards since the new guidelines came into place were under €15,000 in value, compared to 30% in 2020.

“The ultimate impact that we should expect to see from the new guidelines is a reduction in the cost of insurance, and in time the consistency and transparency gained from the guidelines’ usage should attract more competition into the Irish Insurance market,” they said.

Nevertheless, not everyone is happy, for two main reasons: premiums aren’t falling far enough, and the new guidelines have recommended awards which are too small. These questions bring the issue of personal injury claims back to its most basic conflict – finger pointing between the legal and insurance professions.

Stuart Gilhooly – personal injury solicitor, the Law Society’s representative on the Personal Injuries Commission, and a vehement critic of insurers – says that premiums are “unlikely to fall significantly” despite the fall in the size of awards.

“Why? Because damages were never the reason for high premiums. They are a factor, but not the dominant one,” he says. 

“Really it comes down to whatever excuse the insurance industry gives at any one time. The main reason is profit.”

“They’ve set it up as costs versus claims, and it isn’t. Insurers take their premiums received and invest them for a return. If an insurer’s costs are 95% of the premiums they’re taking in then they’re profitable. Anything less than 95% and they’re very profitable indeed,” he says.

That figure in fact was 56% in 2019, per a report on insurance costs published by the National Claims Information Database (NCID) last week.

“Insurers will make more as the cost of claims goes down. They’ll give something small back but it’ll be a token, crumbs from the table, like the €30 people got back on their car insurance during the early days of Covid when no one had a need for cover. But when their profits go up they’ll find another reason why premiums can’t reduce.” 

Insurance Ireland, the representative body for the industry, said that it cannot comment on premium costs “for competition reasons”, but a spokesperson said “all insurers can do is point to the fact that the last time action was taken on insurance reform, with the introduction of PIAB (in 2005), prices did come down”.

The body’s chief executive Moyagh Murdock, formerly head of the Road Safety Authority, is similarly tight-lipped on the subject of premiums, though she concedes that the guidelines being enacted is “definitely a promising move” adding that she would be “optimistic” that the new guidelines would have a positive impact on premium prices.

Ms Murdock said she and Insurance Ireland would be “anxious” to see that the judiciary is replicating the manner in which PIAB is making use of the guidelines. She said it’s “fair to say” that motor insurance premiums are coming down at present.

This is a stance not accepted by Mr Doherty, Sinn Fein’s spokesperson on Finance and the most notable campaigner for insurance reform within the political sphere.

“Insurance Ireland relies on the CSO, and that’s fine, but the problem is the CSO phones up the insurance companies and uses the information gathered for price comparisons. What they report is what the insurance companies tell them,” he says.

“Nobody relies on the CSO any more because now we have two Central Bank reports (produced by the NCID in 2019 and the aforementioned report from last week) which tell us where we are at.

“So in terms of motor insurance there have been some small falls, but nothing compared to previous increases, while for employment and public liability, those premiums are increasing out of hand,” he says.

“We now know that the number of claims are coming down, the cost of claims has dropped substantially. In 2019 the insurers told the Oireachtas that they could reduce premiums by 15% and 20% for motor and public liability if claims costs were cut, which they now have been. We need transparency from them to pass on those euro for euro reductions,” Mr Doherty says.

Insurance payouts

Meanwhile, in terms of awards under the new guidelines being perhaps too low, Mr Gilhooly insists that is indeed the case.

“I was on the Personal Injuries Commission. I still think the levels are too low and that people are being undercompensated while the insurance companies make ever-greater profits,” he says.

He does acknowledge however that the chances of a massive payout from a rogue judge are “a lot less likely now”.

“Judges have to follow the guidelines now. And if they want to ignore them – while the option is there, the reason can’t be that they simply don’t agree with them.” For policyholders themselves, there has been little effect on premiums since the new guidelines came into play.

“For years now the people paying the premiums have been the meat in the vested interest sandwich of the legals and the insurers,” says Peter Boland, director of the Alliance for Insurance Reform, which represents civic and business interests.

He says that despite it being “clear that we are making progress with reductions in guidelines and awards”, premiums have yet to fall.

“They should fall significantly, about 20% is our expectation, and they should have fallen the moment the guidelines went live on April 24,” he says.

“And the reductions should keep coming, given there should be a consequent fall in legal fees as well due to Covid. There has been very little give from insurers on either the judicial guidelines or Covid.” Mr Boland has little time for the legal profession’s contribution to the claims issue.

“There is no benefit to the plaintiff in engaging in litigation on minor injuries,” he says, since the difference in payout tends to be negligible in comparison to the cost of retaining a solicitor for an extended period of time.

“One of the easiest things to say in this situation is that it’s the lawyers’ fault, because no one likes lawyers,” counters Mr Gilhooly. “It has nothing to do with lawyers, they don’t set the premiums, insurers do. All lawyers do is their job.” 

So, claims awards have dropped, but premiums haven’t. Legislation has been enacted. 

What should happen next?

“We need to reduce legal costs by strengthening the role of the PIAB,” says Pearse Doherty who argues that the evidence from the two Central Bank reports shows that rejecting the assessment board offer in terms of smaller claims just means delaying a settlement figure which is likely to be little different than what was initially on offer but with the added encumbrance of several years’ worth of legal fees.

“If people knew that, they would be much less likely to go through the courts. The finger pointing between the insurers and lawyers is a sideshow. It frustrates me that the Government has never developed an information campaign to show there is little point to rejecting PIAB,” he says.

This is what PIAB wants also. “Too many cases are entering the litigation system and the value that PIAB can bring as evidenced in the Central Bank reports needs to be further harnessed,” the Board’s spokesperson said.

Peter Boland agrees. “There is no benefit to the plaintiff in engaging in litigation on minor injuries,” he says. He argues that Ireland needs “additional competition” in its insurance market “as a matter of urgency.” 

“That’s where the Government comes in. It needs to intervene robustly on this. Neither the legal nor insurance professions will give up their profits. But if Ireland is to recover from the pandemic then it has got to resolve insurance,” Mr Boland says.

“It is the victims who are being done a disservice at the moment. They’re the ones waiting a year for their claims to be processed, and they’re the ones who end up paying the legal fees.”

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