Insurance companies are quitting parts of the Irish market rather than insure some businesses because of high legal costs and settlement payouts, research from the Central Bank shows.

Insurers that provide liability and property cover to businesses lost money on average in the five years to 2019 despite rising premiums, making many lines of business unprofitable, according to new figures from the National Claims Information Database (NCID). Meanwhile, insurance costs have doubled in some sectors, dramatically increasing the baseline costs of doing business.

Providers recorded a sector-wide operating loss on employer’s liability, public liability and commercial property insurance of 3pc of total income in the period 2015-2019, reversing modest profits of 5pc in the preceding five years. Premiums rose in this period by 24pc for most policies, however, increasing the cost of doing business for small business customers. Yet with 63pc of total income being spent settling claims – primarily in the courts – insurers are still losing money, making the Irish market unviable for many of them.

The NCID data reveals that personal injury settlements of less than €150,000 which go through litigation cost on average 21 times more than those processed through the Personal Injuries Assessment Board (PIAB). As 84pc of all claims are now settled via court action – a figure that has been rising for years – litigation is now a dominant factor in the cost and availability of commercial insurance in Ireland.

Compounding the problem, insurance companies have been making less in investment income to offset unprofitable underwriting, while the cost of reinsurance has also eaten into profits. Increasingly, insurers are exiting portfolios in certain segments of the market where the long-term finances are unsustainable, making it impossible for certain businesses to operate.

Insurance costs have doubled in some sectors. Arts, entertainment and recreation businesses experienced a 105pc increase in premiums in the period 2009-2029, almost all of it in the second half of the decade. Other businesses, notably creches, have become effectively uninsurable as companies willing to provide cover have dwindled or disappeared.

“This report lays bare the scale of the greed that has driven the current insurance crisis, enriching underwriters, brokers and lawyers at the expense of Irish charities, community and voluntary groups, sport and cultural organisations and SMEs struggling to make ends meet,” said Peter Boland, director of the Alliance for Insurance Reform. “It is clear that personal injury litigation is the mother lode of many Irish solicitors’ income, at the expense of plaintiffs, policyholders and society.”

Premiums are expected to continue rising for years to come as insurers try to earn their way through this part of the underwriting cycle, although new judicial guidelines on injury awards should push more cases to lower courts of the PIAB, reducing claims costs.

Irish Independent, 14 July 2021