Opinion: there's a perception that insurers can afford to pay, but it's ordinary businesses who end up paying through higher premiums - something has to give.

Insurance works on the basis of spreading risk. Instead of being liable for the full value of a loss, a customer takes out a policy with an insurance company, which then agrees to pay some (rarely all) of a loss should it be incurred, in return for a fixed premium. This gives the policyholder certainty in terms of their outlay (the premium plus any cost-sharing measures such as the excess or any loss above the policy limit), while the insurer is able to offset the losses of those who incur them against the zero losses of a majority of policyholders.

The premiums that insurers charge are based on a number of factors – expected claim cost, administration costs, and a return on investment for investors who provide the capital insurers need to cover any unexpectedly high claim costs, less any return on investments that the insurers make that can be used to offset claim costs. 

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There is, of course, also a profit for the insurance company, although if the market is competitive (a point of some debate in Ireland, particularly in certain sectors) then this should not be at an unreasonable level.

Some awards seem to bear little relation to the injuries sustained

Of these, expected claim cost is the most important driver of premiums. This in turn reflects two factors – the likelihood of a claim (the frequency) and the magnitude of loss in the event of a claim (the severity). Much of the discussion in recent times has focused on the latter, with comparisons suggesting that the level of awards in Ireland is a multiple of that in other jurisdictions. Indeed, some of the awards making the headlines do seem to bear little relation to the injuries sustained.

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The Personal Injuries Assessment Board (PIAB) was established in 2004 to try to address increasing claim costs by standardising the level of awards for personal injuries. This followed a previous change from jury cases to judge-determined awards to try to achieve the same aim. However, people still have the option of litigation if they prefer, and some claims are settled directly at an early stage, so PIAB does not review all the claims made.

The second issue – the frequency of claims – has not received as much coverage as the magnitude of claims, however. In this regard, the number of claims being made is likely higher than it would otherwise be, because people who make false or exaggerated claims are not pursued if they lose their claim or if the claim is proven to be false.

Accidents sometimes happen and people need to accept that sometimes it is not anyone else's fault

There have been calls to provide a dedicated unit to tackle this within An Garda Siochana, but this has not yet been done. Although this would entail short-term costs, it would likely be a good investment, as in its absence insurance premiums are putting some companies out of business, with an associated loss in revenue for the State.

The insurers also have a role to play in this regard however, by fighting more cases rather than settling them, and if they win, then by pursuing the losing parties for costs. Although some cases might cost more if they are fought than settled, it might make people think twice about bringing false or exaggerated claims to court, which would save money in the long-run.

The 'no foal, no fee' system needs to be examined

The legal profession also needs to look at its role in this situation. While industry representatives have suggested that they trust their clients to be truthful when they represent them, the 'no foal, no fee' system of not charging clients if they are not successful in receiving an award is likely contributing to a higher number of cases than would otherwise be the case.

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Finally, individual behaviour also needs to change. Some recent cases suggest a perception that personal responsibility is a thing of the past and that, if something happens, someone else (often a body corporate) must be responsible. Accidents sometimes happen and people need to accept that sometimes it is not anyone else’s fault.

In the meantime, some people appear to be willing to ‘give it a try’ in the hope that either they will get a large award in court or that the insurance company will settle rather than go to court. There is a perception that the insurers can afford to pay, but in reality, it is ordinary insurance customers who end up paying through higher premiums. Something has to give.

The views expressed here are those of the author and do not represent or reflect the views of RTÉ