Irish insurers will have to set aside significantly more reserves to cover car crash, workplace injuries and other claims as compensation payouts surge, according to the industry’s regulator.
The Central Bank will tell insurers the results of a review of claims payouts within weeks, Sylvia Cronin, the bank’s insurance director, has said.
The average High Court personal injury award soared 34% last year, according to the courts service.
“A number of companies would be a lot more optimistic than others in their approach to reserving,” said Ms Cronin.
“On average, they will have to increase reserves.”
The insurance industry has been in a state of turmoil in recent years, as companies failed to raise enough from selling policies to cover claims and expenses.
FBD Holdings, the loss-making insurance company, said on Wednesday that Prem Watsa’s Fairfax Financial Holdings will invest in the firm to bolster its capital.
Andrew Langford, the company’s chief executive officer, quit in July, as its share price plunged.
In the past five years, Quinn Insurance entered administration, London-based RSA Insurance Group has been forced to inject cash into its Irish unit, and Setanta Insurance collapsed.
“Insurance companies have been quite optimistic in terms of their assumptions, particularly in terms of pricing and claims,” said Ms Cronin, who joined the central bank in October after a career working in the industry.
“They haven’t managed the downside risk particularly well.”
Some companies have not been charging enough as they battle to win market share.
That was one problem at FBD, which posted record losses in the first half of the year after raising reserves. Fairfax, which previously invested in Bank of Ireland, will inject €70m in FBD through a convertible bond.
Companies are moving to address prices. Insurers increased auto coverage costs by 7% last month, bringing the annual increase to 25%, according to the CSO.
A further 25% increase is in store next year, lobby group Insurance Ireland said on Tuesday.
A second concern is over claims. For example, the average award for whiplash in Ireland is €15,000, three times the rate in the UK, according to Insurance Ireland, and FBD said last month that rising payments may be partly down to a wave of newly-appointed judges, who “tend to be more pro the plaintiff”.
Ms Cronin said that claimants are sidestepping settling cases or state assessment in favour of going to court. Moreover, costs may be about to increase further, according to the State Claims Agency, which handles cases taken against government agencies.
Last year, a judge awarded €13.5m to a child injured during birth, assuming the payment would return 1% a year. Traditionally, courts assumed such an investment would return 3% a year.
Applying the lower figure means insurance companies have to pay out more, and the decision is being appealed by the claims agency.
With challenges looming, the Central Bank is pressuring insurers to overhaul their boards.
“We’ve seen for life insurers there are high levels of technical competence, whereas on the non-life side, it’s very much a varied mix of people,” she said.
“Since I joined the bank, it’s a message that I would have been giving out to companies.”
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