Whiplashed Irish Insurers Face Higher Reserves as Watsa Enters

  • Central Bank to publish report on claims spike in weeks
  • Irish insurers posted underwriting losses since 2013

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 nation’s central bank will tell insurers the results of a review of claims payouts within weeks, Sylvia Cronin, the Dublin-based institution’s insurance director, said in an interview on Monday. The average High Court personal injury award soared 34 percent last year, according to the courts service.

“A number of companies would be a lot more optimistic than others in their approach to reserving,” Cronin said. “On average, they will have to increase reserves.”

Ireland’s 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 Plc, the loss-making Irish insurance company, said on Wednesday that Prem Watsa’s Fairfax Financial Holdings Ltd. 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 Ltd. entered administration, London-based RSA Insurance Group Plc has been forced to inject cash into its Irish unit and Setanta Insurance Co. Ltd. collapsed.

“Insurance companies have been quite optimistic in terms of their assumptions, particularly in terms of pricing and claims,” said 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 haven’t 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 Plc, will inject 70 million euros ($79.1 million) in FBD through a convertible bond, the company said.

Companies are moving to address prices. Insurers increased auto coverage costs by 7 percent last month, bringing the annual increase to 25 percent, according to the Central Statistics Office. A further 25 percent increase is in store next year, lobby group Insurance Ireland said Tuesday.

A second concern is over claims. For example, the average award for whiplash in Ireland is 15,000 euros, three times the rate in the U.K., 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.”

Cronin said that claimants are sidestepping settling cases or state assessment in favor 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, an Irish judge awarded 13.5 million euros to a child injured during birth, assuming that the payment would return 1 percent a year. Traditionally, Irish courts assumed such an investment would return 3 percent 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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