Raymond Friel, Director of Research at the School of Law, was on Live95FM’s Limerick Today with Joe Nash at 11.10am on November 8. He was asked to respond to a report from Standard and Poor that blamed increased insurance premiums in motor insurance on the recent amendments to the financial jurisdiction of the Circuit and District Courts.
Friel indicated that changes to the Circuit Court financial jurisdiction are likely to lower the legal costs for contested motor insurance cases. Previously many cases were heard in the High Court which is significantly more expensive for all litigants. So to say that the increased jurisdiction of the Circuit Court has led to an increase in the quantum of awards is simply not true because it completely ignores the reduction in the number of cases and awards being made in the High Court.
In truth, Friel continued, legal costs represent a relatively small percentage of motor insurance claims costs. Many claims are settled without recourse to lawyers, particularly through the Injuries Board process (formerly PIAB) and relatively few will involve a full blown court hearing in any event.
Friel believes that there are two primary causes of the recent round of insurance premium rises.
The first has more to do with the inadequate provision against potential losses made by the insurance companies over the last 10 years or so. The Central Bank has now required that this be dramatically increased in line with international financial solvency rules. Essentially the Central Bank is afraid there could be another Quinn Insurance out there. Whether it is over-provisioning for such losses is another issue, but this will be a temporary measure while insurance companies build up the necessary prudential reserves.
The second is that as a society we are willing to be more generous in compensating victims of accidents than other jurisdictions. It is the amount of compensation paid to the victim that is the dominant factor in the calculation of insurance premiums. That is a choice for us as a society: lower compensation for victims is the easiest path to lower premiums. But you cannot have lower premiums and the same level of compensation awards as we currently do.