Insurance premiums per capita in Ireland are now four times higher than the EU average, the International Monetary Fund has warned.

In a technical note attached to its recent post-bailout assessment, the Washington-based fund highlighted some of the peculiarities of the the sector here.

While noting the Central Bank’s oversight was “generally stringent and up-to-date”, there was still room for improvement, it said.

Specifically, it warned of the need for frequent reserve and credit risk exposure assessments of the various market participants.

Insurers have blamed increased premiums on rising legal costs and the collapse of Malta-based Setanta Insurance, which left a potential €90 million bill hanging over the industry.

Mortgage rules

In its note on the financial sector, the IMF endorsed the Central Bank’s new mortgage lending rules, suggesting the restrictions had reduced price pressure in the market while moderating expectations around future increases.

It said the rules were intended to enhance the resilience of both lenders and borrowers to macro-financial shocks. This was also reflected in separate notes on the property sector.

The fund also noted that property price inflation had moderated from 16 per cent to 6.6 per cent since the rules were introduced in February 2015.

As a result, it urged the Central Bank to maintain the rules while conducting regular impact analyses to evaluate their effectiveness.

‘Policy leakage’

It also suggested the bank to examine if there had been any “policy leakage” as a result of its intervention with credit migrating from mortgage loans to unsecured consumer loans.

This might be prevented by transforming the loan-to-income restriction, which limits buyers to borrowing three and a half times their income, into debt-to-income caps to ensure affordability, it said.

The Central Bank is currently conducting a review of the rules amid a clamour from industry for the rules, particularly the restriction around loan-to-value, to be eased.

The Government is also considering some form of income tax rebate scheme for first-time buyers, which experts believe will run counter to the Central Bank’s rules.

The fund also advocated the Central Bank develop a strategy to attract and retain top staff amid the current economic restrictions.

Responding to the report, Insurance Ireland, the representative body, said the figure for Ireland is higher than some countries such as Italy and Germany but lower than others, such as the United Kingdom and The Netherlands.

“A factor which needs to be noted, particularly when making comparisons with other European states, is certain countries have higher taxation rates and more developed social insurance systems,” it said.

“Therefore, a greater proportion of the costs associated with accidents are catered for through the social insurance system.

“This has an impact on the level of compensation awarded for insurance claims made against insurance companies and ultimately on premium rates and volumes.”