With the recent announcement by Ulster Bank and KBC that they are to leave Ireland, it focusses the lens on the General Insurers in Ireland and the viability of shareholders return. There are more players in the Insurance industry compared to the Banking industry, which has resulted in more competition. However, that being considered, the various Insurers are caught between a rock and a hard place when it comes to managing various stakeholder expectations:
The expectation from policyholders and the public is to bring premium costs down with the political class continuously beating that drum to gain favour with the public. However sometimes these stakeholders forget or ignore that the cost of claims and to a lesser extent the cost of regulation are the main factors which drives the premium amount.
The recent adoption of the Personal Injury Guidelines by the Judicial Council on 6 March 2021 is welcome news. The guidelines will replace the Book of Quantum and provide a recalibration on damages awards in personal injuries claims. The upshot from the guidelines is a reduction in whiplash and minor injury awards and that more actions would begin and end in lower courts meaning that insurance companies will incur lower claims costs and legal fees. However, Ireland is still on the upper end of the awards scale when compared to similar claims in the UK and Europe.
On the other hand, medical costs, legal and reconstruction costs, to name a few, are all on the rise which is feeding into cost increases on larger claims.
The political parties are taking aim at dual pricing in the insurance market, however, banning dual pricing would remove an insurers ability to attract new policyholders and may have a negative effect on insurance competition. The appetite to go for the low hanging fruit of dual pricing will have minimal to no effect on insurance premium reduction. It does, however, obscure the reluctance to tackle the thorny issues of Law Reform, Claims Culture and increasing the powers and resources of An Garda Síochána to deal with insurance fraud. All of these topics, combined with the Government's Action Plan for Insurance Reform, would yield a far bigger dividend by reducing insurance claims costs and, in turn, reduce insurance premiums for the policyholders.
The Central Bank of Ireland and the European Insurance and Occupational Pensions Authority are constantly increasing and refining their supervision of the Industry, which is welcome but also comes with a cost that is ultimately borne by the policyholder.
The last and probably the most important stakeholder to consider is the shareholder, they expect a return for the capital they have invested and with solvency rules the amount of capital invested can be very significant.
Insurance is capitalism's closest attempt at some form of socialism. The essential ingredient in the concept of insurance is the pooling of risk and in order for any insurance system to work there has to be at least some extent to which the fortunate pay the expenses of the less fortunate. Insurers have many stakeholders to consider but at the end of the day a satisfactory return for shareholders is required to keep shareholders interested in maintaining a presence in Ireland.
Originally published 19 May 2021
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