The Personal Injuries Assessment Board (PIAB) said last week that it is delivering personal injury compensation four times cheaper than lawyers are.
The PIAB, which was set up last year to deal with all personal injuries claims in a bid to reduce legal costs, published its first annual report last week. According to Patricia Byron, chief executive of the PIAB, substantial savings have already been made from the board’s handling of personal injury claims and such savings will grow substantially over the coming months.
For every 1,000 personal injuries claims received, the PIAB expects to save about €4 million in litigation costs.
Insurance costs
One of the main aims of the PIAB was to bring down insurance costs. But who is benefiting from the PIAB’s savings – insurance companies or consumers?
Last year, the Irish insurance industry made profits of €1.1 billion, which was over 40 per cent higher than 2003, according to the Financial Regulator’s annual insurance review, which was also published last week. Profits for the motor insurance industry increased by 30 per cent last year to €514 million.
As third-party motor insurance is compulsory in Ireland, it is the motor insurance sector, more than any other which affects consumers. Similarly, as the majority of personal injury claims made to the PIAB so far related to motor accidents, the motor insurance sector will be one of the main beneficiaries of the PIAB’s work.
Although only in its infancy, the PIAB seems to have already affected the bottom line of insurance companies. Insurers have previously argued that the high cost of claims pushed up the cost of premiums.
Last year, the cost of motor insurance claims for Allianz Ireland fell by almost 40 per cent and the insurer’s profits jumped by about 19 per cent, according to the Financial Regulator’s annual insurance review. Hibernian, the largest motor insurer in Ireland, saw its profits increase by 80 per cent.
“Insurance profits are at historical highs, especially in motor insurance,” said John Evans, policy manager with the Competition Authority.
“Insurers’ costs have fallen because of the PIAB and other industry and government-led reforms.”
Premium reductions
Although Evans said that insurance premiums have fallen over the last few years, he stressed: “The question is not ‘are premiums falling?’ The question is ‘are premiums falling fast enough?’ Often in an environment where costs are coming down, the big danger is that these cost reductions are not being fully passed onto consumers.”
Also, where insurance costs fall and profits soar, new entrants will generally come into that market.
However, according to Evans, this is not happening in Ireland.
“Customers tend to be locked into contracts,” said Evans. “Similarly, new firms are locked out of the market.”
Competition Authority report
According to the Competition Authority, the latest figures from the Financial Regulator reiterate the pattern of profitability highlighted in its report into the non-life insurance sector, which was published in March. Non-life insurance includes motor insurance, employer and public liability insurance.
The Competition Authority report found that the cost of insurance was being kept artificially high.
“Consumers and businesses rarely complain when prices fall even if, in reality, they should be falling more,” said John Fingleton, chairperson of the Competition Authority at the launch of the report.
“The lack of full and rapid pass through of cost reductions in the insurance sector is evidence of sluggish competition in the market.”
The insurance industry vehemently denies any claims that premiums are not falling fast enough.
“There is clear evidence that consumers are benefiting from falling claims costs,” said a spokeswoman for Hibernian.
“Average premiums are significantly lower today than they were two or three years ago.”
Hibernian declined to comment on its profits and claims costs, as outlined in the Financial Regulator’s report.
A spokesman for Allianz said that the cost of motor insurance for consumers fell by at least 40 per cent over the last two years.
According to the Irish Insurance Federation (IIF), which represents insurers, motor insurance premiums fell by 25 per cent over the last few years.
“Undoubtedly, for a combination of reasons, there’s been a reduction in claims costs and that has flowed into premium reductions,” said Michael Horan, non-life assurance manager with the IIF. “Motor insurance premiums are back to 1999 levels, and they are still falling.”
Are consumers losing out?
The Consumers Association of Ireland (CAI) was sceptical of claims that insurers were passing on savings to consumers. “Yes, motor insurance costs are coming down but they are not coming down anywhere near as much nor as quickly as they could be,” said Dermott Jewell, chief executive of the CAI.
“The latest figures [from the Financial Regulator’s insurance review] show the cost of claims has gone down and that profits continue to rise. What does that tell you – insurance companies are taking more profit than ever out of that sector and giving even less back to consumers.”
Jewell said that it would be industry, rather than consumers, who would benefit from the PIAB. “Consumers are benefiting in one area – that is, the compensation process is quicker and they’ll generally get the same compensation through the PIAB as they did before.
“But there it ends. Consumers are not benefiting from the falling cost of claims, and these costs are being significantly reduced. Consumers are still paying as much as they ever did and that is ridiculous.
“It just shows you how consumers are bled dry on every occasion and motor insurance is probably one of the clearest examples of this.”
