Motor insurance premiums in Ireland have increased by an average of 28 per cent over the last year and as much as 50 per cent in some cases, but a new report says they may go even higher.
The report by S&P Global Ratings, which looks at Ireland’s insurance industry, said average prices for car insurance stood at €900, and it expected to see a further rise of 10 to 15 per cent before the middle of 2017. In the latter half of next year, price hikes are expected to slow to “sustainable levels” of about 5 per cent.
“Although this growth rate is high by western European standards, the market is only now starting to regain a decade of lost premiums,” it said.
The report also noted that 2013 to 2016 was the only three-year period of continuous growth recorded since 2003.
Irish property/casualty insurance market gross premiums rose by 7.7 per cent last year, the report said, with growth expected to stay about 5 per cent for 2016 and 2017.
Overall, the S&P report said it had revised its assessment of market growth prospects to positive from its previous neutral rating, as there were “clear signs of growth” for the non-life insurance market.
The industry and country risk for the Irish property/casualty insurance sector was rated as intermediate, with a low country risk and moderate industry risk.
S&P rated the profitability of the market as negative, with the agency expecting the market average combined ratio to remain above 110 per cent in 2016-2018. A combined ratio of more than than 100 per cent signifies an underwriting loss.
The Irish market is also considered more volatile compared with countries such as the United Kingdom, Italy, and Spain.
Claims costs
“An improvement in market profitability will be contingent on the evolution of claims costs and Irish P/C insurance companies’ actions on premiums, underwriting, and risk selection,” the report said.
An increase in court awards, high legal costs and a rise in the frequency of claims as economic activity expands are among the factors expected to act as a drag on profitability.
The report also covered the potential impact of Brexit on the Irish insurance industry. Britain’s exit from the European Union may not be in Ireland’s insurance industry’s long-term interests, the report said.
The report said a “weakened” London insurance market may not benefit Dublin’s industry in the long term, with the effects of a downturn in the British market potentially spreading here.
“The industry is already highly competitive and under pressure,” it said. “Dublin-based insurance firms have tended to benefit from their proximity to the London market.”
However, the report did acknowledge there may be some benefit as trade currently based in London may relocate, with Ireland well placed to take advantage of this.
Advantages
“Given that more than 50 per cent of the world’s leading financial services firms already have subsidiaries in Dublin, it is conceivable that such firms might seek to utilise their Irish bases to minimise any adverse trading implications and retain their ability to efficiently service European financial markets while continuing to write consistent volumes of EU business,” it said.
“Ireland has unique competitive advantages to offer insurers in the event of Brexit; it is the only other English-speaking location in the EU, it has a common law system, it is geographically close, and many of those institutions considering a move may already have some form of presence in Ireland.”
