Insurer attacks on government inaction are only half the story
INSURANCE companies are not happy about the rate of progress the Government is making in reforming the judicial and injury claims assessment process. Two years after the publication of the first Cost of Insurance Working Group Report, many of the recommended measures have not been introduced.
In fact, if you follow what the insurance industry is saying, not a lot has been done at all. And Insurance Ireland chief executive Kevin Thompson is right in much of what he says about the pace of change. Solid recommendations in the report around a dedicated Garda unit for tackling insurance fraud and the introduction of a personal injuries assessment board, have not yet come to pass.
The insurance industry has come out of its corner fighting at the start of 2019 and it has put the Government on the back foot. So much so, that in desperation to cover up for the slow rate of progress, the Government has ended up pointing to recent insurance premium cuts as a sign of progress.
Insurance premiums have come down by an average of 23pc since their peak in July 2016. For some people, premiums are still rising, but as reflected in a single figure, they have come down.
It isn’t at all clear how that drop in any way reflects government action other than to force insurers to share and publish data claim settlement costs. A helpful initiative, but just the beginning of the process.
Between 2013 and 2016 premiums rose by an average 70pc. At the time insurers said the higher cost of claims, fraud and higher court awards were forcing them to put up premiums in what had become an unprofitable business. If we accept all of those reasons for why premiums rose by 70pc, then why have they dropped at all? Let’s face it, very little has changed, so why or how can insurance companies cut premiums?
One obvious conclusion is that they put up premiums during those years by more than they needed to in order to achieve big profits. If the sector is right, and not a lot of progress has been made in tackling the underlying causes behind the original hikes, then insurers should not be able to, for financial reasons, cut premiums at all.
Why did premiums go up by that extra 23pc that has been sliced off prices in recent years? Meanwhile, the Government appears all over the place in trying to point to lower prices as an indication that it is doing a great job. Surely it should look to introduce all of the ideas in the original report as soon as possible and see where premiums end up?
Junior minister Michael D’Arcy told RTE on Thursday that the Garda Commissioner Drew Harris is not supportive of the idea of insurance companies financing a new anti-insurance fraud unit. Mr D’Arcy said he agrees with Mr Harris.
I think they are right that we should not have private sector interests with a vested interest funding units of the police force.
But why doesn’t the government just go ahead and finance the new unit anyway?
The cost is relatively modest and could make a significant difference to many people who are paying excessive premiums because of insurance fraud. There is an obvious case for tackling insurance fraud with a dedicated unit. It shouldn’t be beyond the financial capability of the State to fund it.
High insurance costs are eroding living standards, business competitiveness and impact on whether people can take up jobs in rural Ireland where public transport is minimal.
If we accept that insurance companies needed to rebuild their balance sheets by hiking up premiums a few years ago, we have to ask how they can cut premiums by 23pc while claiming that nothing substantial has changed.
Take an insurance premium that was €500 in 2013. It went up to €850 by 2016 (increase of 70pc). It has since come down by 23pc, so it now costs €655. Somebody is still doing pretty well. Bank boards learn lessons of inexperience during the crash I had the pleasure of interviewing Paddy Power Betfair chairman Gary McGann at the Pendulum Summit in Dublin during the week. Mr McGann was in a very open mood and answered a range of questions including his reflections on his role as a non-executive director of Anglo Irish Bank.
As far as he was concerned, the experience was one he would rather forget but he said he had learned a lot from it.
Interestingly, he suggested that despite the Anglo board of the time being made up of high-achieving Irish corporate blue bloods like himself, they were not necessarily experienced enough, in the banking sector, as a group, to do the job better.
It was an argument based on the idea that despite their business experience, they lacked the expertise, collectively as a board, to really see the risks that were being taken.
McGann does not believe bank boards should be made up exclusively of former bankers, but the mix around the boardroom table should be more heavily weighted towards ex-bankers with industry experience.
If he is right, then how do the boards of AIB, Bank of Ireland and Permanent TSB stack up now? Have these lessons been learned? It would appear they have. AIB has a board of 11. Excluding the two executives on the board, there are nine non-execs. Six of the nine have a career background in banking or financial services. The other three consist of the chief executive of Eir, a marketing executive from Boots and a former Intel executive.
At Bank of Ireland there are nine non-executive directors. Six of the nine have had careers in banking, financial services or bank regulation. The others have varied backgrounds in things like health insurance, electricity supply, consumer foods and betting.
Over at PTSB they have eight non-executive directors with five having had careers directly in banking and financial services. The others have had careers in law, consultancy and the civil service.
It looks like the McGann analysis has been taken on board. The breakdown of boards supports that and the similarities of the backgrounds of the three bank boards is quite striking.
But is McGann right when he suggested that it took a level of industry expertise to fully and collectively grasp the risks involved at Anglo and the weaknesses involved in its business model?
Professor Morgan Kelly of UCD was the person who truly called out that the banks could go bust. He is a professor of economics, but was certainly no career banker.
He specialises in economic history and two of his academic papers in 2010 were on The Little Ice Age and Living Standards and Mortality Since the Middle Ages, both with his colleague Cormac O’Grada.
Sometimes you don’t have to be a banker. Sometimes if it looks too good to be true, it’s because it is.