Law costs blamed for escalating insurance premiums

LEGAL costs are one of the reasons insurance costs are so high, a group fighting for lower premiums has maintained.

The threat of having to spend huge amounts defending questionable claims means insurers often settle which pushes up prices, the Alliance for Insurance Reform (AIR) said.

Some seven out of 10 personal injuries claims are settled privately by insurers, with just 10pc going to court.

AIR, which represents businesses and charities hit by premium hikes, said legal costs have become an obstacle.

Director of the lobby group Peter Boland said Government reports have found legal and other charges add an additional 42pc to 45pc to injury awards.

A Department of Finance report last year stated that on a €100,000 payout there is another €42,000 in legal costs.

The department reported that injury compensation of €100,000 would result in an average of another €24,900 to cover claimants’ legal and other costs. An additional €17,200 paid the insurer’s overall costs.

Mr Boland said that if an injury case is settled through the Personal Injuries Assessment Board, the delivery costs (legal and other experts) amount to 6pc of the award. The assessment board generally does not pay legal costs.

“However, if the award is rejected by the plaintiff and the case goes to court, then the percentage taken by the legal profession and other experts rockets to 45pc, according to the Government’s ‘Cost of Insurance Working Group’ report,” he said.

Mr Boland added the threat of costs at this level for a defendant, facing a plaintiff who has a ‘no-foal, no-fee’ solicitor, forces many defendants and their insurers to accept what were manifestly unjust settlements. This was preferable to the risks associated with a court case.

Insurance Ireland insisted legal costs were a major factor behind premium rises. It said: “If we want reform of the cost of insurance, we must urgently tackle the cost of claims and the cost of settling them, including our high legal fees.”

Ken Murphy, director general of the Law Society, which represents solicitors, disputed suggestions that rising legal fees are playing a role in the rising cost of motor insurance.

He said the legal profession was being blamed for doing its job of getting a fair deal for clients, while insurers had yet to explain the enormous rises in premiums.