Irish insurance companies will need to hike the costs of car insurance even more if they are return to profitability any time soon, a senior analyst at rating agency Standard & Poor’s said yesterday.
Standard & Poor’s insurance analyst Tufan Basarir also said that though the ratings agency had as yet no “definitive view” on the matter, a scheme allowing people in areas not prone to flooding to compensate people in flood areas may be beneficial here.
Mr Basarir said his report on the Irish Property and Casualty Insurance Sector showed that car insurers here needed to be more “proactive” and to raise premiums, even if they were to lose market share, if the industry is to return to acceptable levels of profitability.
His report assesses that while many of the background effects — including strong levels of economic growth — are at last favouring the insurance industry because the market is expanding, S&P nonetheless views the outlook of profitability as negative.
“The Irish insurance industry had a difficult year in 2015,” Mr Basarir said in the report.
“Although the industry continued to grow for the second year in a row, deterioration in the claims environment arising from changes in the legal, legislative and judicial framework in the past 18 months will likely make 2015 and 2016 loss-making years.”
He told the Irish Examiner that car insurers may likely need to increase motor insurance premiums even more on top of the large increases levied last year.
Some insurance companies “are scared” to lose market share by hiking premiums but they need nonetheless to be “proactive” if the motor insurance lines are return to profitability.
CSO figures show that the cost of motor premiums was only one of two items in the CPI cost of living basket that soared last year.
The latest available figures show that the average cost of motor insurance has climbed almost 26.5% over the year, with young drivers being charged substantially more.
Property insurance premiums are up 6.3% in the year.
The S&P report said that the profitability outlook for the industry here is “negative”.
“Our assessment of profitability also reflects the more volatile nature of the Irish insurance market compared to several other European peer countries, including the UK, Italy and Spain,” it said.
And it projects that profitability in the future will be held back by what it calls structural changes — including the reduction in the so-called discount rate applied to personal injury claims — and a rise in claims frequency and high expenses in the industry.
“Unlike in the UK, there has not been a catastrophic increase in motor bodily injury claims, but we assess the risk from unpredictable settlements as intermediate,” said the report.
Mr Basarir said that the reinsurance scheme recently introduced in the UK that helps people living in flood-prone areas to buy insurance — mainly by increases in cover from people living in regions which are safe from regular flooding — could work in Ireland too.
“This type of approach may be beneficial in Ireland in the long term,” he said.
“On balance, we consider the Irish market is less prone to major natural events than other property and casualty insurance markets,” according to the report.
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