In­surer at­tacks on gov­ern­ment in­ac­tion are only half the story

Sunday Independent (Ireland) - - Business -

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.

Ju­nior min­is­ter Michael D’Arcy has said Garda Com­mis­sioner Drew Har­ris isn’t in favour of in­sur­ance firms fi­nanc­ing an anti-in­sur­ance fraud unit

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