The new chief at insurer FBD has made a trenchant defence of the industry’s huge premium rate hikes, but warned motor insurance costs could still rise by a further 9% next year if the judicial claims system is not overhauled.
CEO Fiona Muldoon said the troubled insurer was hopefully past its worst, saying that a 11% climb in its shares yesterday probably indicated some investors judged that the company was on its way to meeting its target to return to full-year profits in 2017.
FBD yesterday posted a pre-tax loss of €3.7m for the first six months, but analysts hailed the better-than-expected figures as showing the company was on the road to recovery.
Ms Muldoon was confirmed as CEO late last year after the insurer had hurtled into crisis and massive losses. Since then, FBD has dropped loss-making business lines, cut costs, and overseen a €70m recapitalisation by Canada’s Fairfax Financial Holdings.
Along with the rest of the industry, it has hiked motor insurance prices at the fastest rate for over 12 years.
At €6.85, FBD shares are still only around levels of a year ago. They were trading as high as €17.87 in early 2014. CSO figures show motor insurance costs across the industry have soared by almost 39% in the 12 months to July.
No other item on the consumer price index has risen at such a rate.
Ms Muldoon said the company was “increasingly confident” that its recovery plans were starting to pay off even though, she said, all customers, including farmers, small business owners, and motorists, had endured large increases in their insurance costs.
She said FBD had in the past made unwise decisions such as insuring drivers and types of cars in urban centres which it should have avoided because the claims history worked out poorly for the insurer.
“We would not have much of an appetite for ‘unconnected’ young drivers. We wouldn’t have much of an appetite for urban cars older than 15 years,” she said.
“In the past, we thought that was a good risk indicator. It was a good risk indicator if you were a farmer.
"We assumed in the past that the urban and old cars would behave the same way as rural old cars, but they didn’t. We just got more sophisticated in how we are pricing and differentiating risk.”
FBD has cut the number of policyholders to over 500,000 from around 600,000 by dropping its broker sales channels and other “risky” types of business.
She said that FBD had tried to insulate farmers from the worst of the price increases but that every policyholder had nonetheless suffered some sort of price hike.
Calling for an overhaul of the Personal Injuries Board, she squarely put the blame for the price hikes across the industry on rising costs of claims awarded by courts and the long delays in settling claims that contribute to huge legal costs.
Motor insurance prices would, however, still likely rise by up to 9% next year before they reached a plateau, Ms Muldoon warned.
“All those [steps] taken together mean that we have an inherently a less risky pool of business,” she said. However, she insisted that the FBD premium increases were justified.
“So until claims costs come down, I can’t see premium costs coming down,” she said.
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