Drive through the suburbs of Ireland at this time of year and you’ll eventually come across a bouncy castle.

Bouncy castles are difficult to insure, says Stephen O’Connor, chairman and founder of The Underwriting Exchange. The Underwriting Exchange is an insurance broker specialising in exporting Irish business to the Lloyd’s market. This year, it’s expected to export about €100-110 million worth of insurance from Ireland to the UK and European markets. 

A bouncy castle is difficult to insure because there’s a small chance of a very serious injury, and because bouncy castles are a niche business — there are dozens rather than thousands of bouncy castle companies. 

Ireland’s domestic insurers can handle the most common types of insurance product: pub insurance, farm insurance, motor insurance. They can bundle those contracts together and reinsure them. But Ireland isn’t big enough for the likes of FBD to insure bouncy castles in-house. There simply aren’t enough of them.

To insure niche businesses like bouncy castles, zip lines, go-kart tracks, point-to-point races or climbing walls, the solution has traditionally been the Lloyd’s market in London. Lloyds is a global speciality insurer.

“The more difficult stuff has traditionally gone to London,” said O’Connor, “And the reason being, if it’s a mine — there’s three mines in Ireland, whereas the UK has 600 mines, old mines, closed mines. They have expertise to write it. If it’s a stadium, there’s so many football stadiums in London, we have three or four. So they have the underwriting ability to to manage that, and they also have a portfolio of that business that it fits in.”

The problem for Irish mines, bouncy castles and stadia is that the Lloyd’s option is no longer on the table in many cases.

The first issue is Brexit. Brexit makes it much harder to trade financial services, like insurance, with the UK. O’Connor said: “With Brexit, one UK guy put it to me, ’it’s easier to do business in Australia or New York than it is with our nearest neighbour.’”

“So the individual lines underwriter, the guy I would have gone to in the past,” said O’Connor, “He wrote a bit [of business] in Ireland. But he was UK-centric. And he was happy to come over and back, he liked the social side, but he also understood the business. It was very akin to his UK portfolio.”

“They’re saying to me ‘Stephen, it has to go to my European office, it’s hassle for me internally, it raises a flag, it’s more work. And it’s easy to do more business in Manchester.’ So that bit of business falls away,” he said.

“Now, because of Brexit, [the business] has to go into a European department. And it goes into some head lady who’s underwriting – she could be writing storm risks in Eastern Europe. But now this bit of a portfolio falls under it, she doesn’t understand it. And actually, it’s nearly easier for her not to do the business,” he added.

Three distinct problems

It’s not just a matter of finding a new underwriter in Europe. The problem, said O’Connor, is that Europe operates under a totally different legal framework, which means European underwriters don’t fully appreciate how to insure Irish risks. 

“And we are now the only country in Europe that has employer’s liability,” he said. “In Europe, they all have workers comp, or they have general liability. So we have employer’s liability, and we have public liability. It’s a different product.”

The industry has tried to come up with ways to get niche businesses insured: by, for example, having them club together into a syndicate, pooling their premium, and insuring the syndicate. But another obstacle gets in the way here, said O’Connor: new rules designed to protect insurance consumers, called CICA. A requirement of CICA is that insurers administrate their policies in Ireland. It “looks like a couple of insurers who would write business in Ireland are struggling with the Consumer Legislation/CICA,” he said.

“Some of the underwriters are saying to us, because they’re consumers, it’s not that they don’t want to do it, but they haven’t got the wherewithal to do it. They’re not based on the ground here,” he added.

Those issues – Brexit and CICA rules – are specific to Ireland. On top of that, there’s another problem for the global insurance industry: falling investment returns, which make it harder to write new business. 

“What happens is investment returns are very low. So now [insurance companies] are finding they have to write to a lower loss ratio to make money… So as a result, they have to charge more, or else they have to be more selective.”

Is this hurting The Underwriting Exchange directly? “Coming up with solutions is slower and more expensive,” said O’Connor, “We’re not losing businesses, but there’s limited capacity. We’re somewhat in a pickle because things are taking more time.”

Solutions

What’s to be done? O’Connor sees three potential answers. The first is a special carve out in the Brexit deal, to allow insurers deal with London. That, he concedes, is unlikely. 

The second is an amendment to Ireland’s CICA legislation that would raise the threshold below which a buyer is considered to be a consumer, and therefore has to comply with CICA. That would allow businesses to syndicate more easily, said O’Connor.

The third is a government-backed fund to pool all these difficult risks, which could then be reinsured. The cost, said O’Connor, would be in the order of €25 or €50 million. And there’s a chance it could be profitable for the government. 

“But if they don’t do that,” said O’Connor, “the cost will fall on the little pony tracking place in Kerry that can’t get insurance, on the go-cart track, and even the hotels, who are finding it hard. 

“Unless we do something, some of these businesses won’t get insurance.”