Stephen O’Connor knows his way around the Irish insurance market better than most. The company that he chairs, 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. Mostly, it specialises in niche markets; the sort of policies that the mainstream insurers are not all that interested in. Think go-kart tracks, point-to-point races or climbing walls.
But cracks are starting to appear in this market, and it is having a massive impact on the thousands of businesses around the country who are either struggling to get cover or being hit with devastating price hikes.
In a fascinating interview with Sean last week, O’Connor identified three trends that are pushing Ireland away from Lloyd’s, something that is exposing many Irish businesses. The first reason is predictable: Brexit. O’Connor says it makes it much harder to trade financial services, like insurance, with the UK.
Another obstacle are new rules designed to protect insurance consumers, CICA. A requirement of CICA is that insurers administrate their policies in Ireland, and O’Connor said it looked “like a couple of insurers who would write business in Ireland are struggling with the Consumer Legislation/CICA”.
The third problem is falling investment returns across the global insurance industry, something that O’Connor said makes it harder to write new business.
However, O’Connor came to the interview armed with some potential solutions. The first was a special carve-out in the Brexit deal, to allow insurers to deal with London (in the current climate, O’Connor accepted this was 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, something that would allow businesses to syndicate more easily.
Finally, he proposed a government-backed fund of €25 or €50 million to pool all these difficult risks, which could then be reinsured.
“But if they don’t do that,” said O’Connor, “the cost will fall on the little pony trekking place in Kerry that can’t get insurance, on the go-cart track, and even the hotels, who are finding it hard.”
His message was stark: “Unless we do something, some of these businesses won’t get insurance.”
The Irish insurance industry has been broken for some time. In the last seven years, more than 250 insurance firms (life and non-life) have withdrawn from the Irish market, with very few new entrants to replace them. They have ranged from major departures such as Liberty Insurance from the B2B market, to niche operators like Ironshore Europe, which was one of only two insurance companies serving creches.
Insurance is a difficult business. Making money in the insurance industry is extremely hard, requiring deep pockets and the capacity to absorb losses.
Back in 2020, Brendan Kelly, a former Credit Suisse executive, wrote a fascinating piece in The Currency, explaining why insurance premiums are so high here and making some proposals about what can be done.
In particular, he focused on the cyclical nature of the industry:
“The start of the cycle is typically characterised by intense competition in the market, falling premiums, and low levels of claims. Then something happens such as a natural disaster, extreme weather or a major recession (deferral of vehicle and property maintenance, unoccupied buildings, cash-strapped policyholders claiming for small losses, increased fraud, etc.), which drives up claims or depresses prices unexpectedly, and pushes the overall industry into the red. As a result, firms fail or exit the industry-leading to a reduction in competition.
“Therefore, as the flow of claims subsides, the remaining players can increase premiums and rebuild profitability and their financial reserves. Of course, in time other firms spot this, enter the market and restart the cycle through increased competition and lower premiums.”
Unfortunately, we are at the point now where insurers are making money, and where policyholders are increasingly frustrated.
Scale is also a problem within the Irish market, and with technological change, the country has become less important for larger players. This was a point made by Kelly in his 2020 deep dive into the sector:
“In the past, global or European speciality insurers (in areas like childcare or leisure) would see little risk in hiring a few more people to cover the Irish market, often as an add-on to their UK operations. But now, they need to have a business case for being in the Irish market, and that business case has to be strong enough to justify spending potentially millions of euro adapting their technology to meet Irish regulatory requirements, customer preferences, and integrating with Irish brokers’ systems.”
If it seems that we have been talking about the structural malfunctions within the Irish insurance industry for an eternity, it is because we have been. The 2003 Programme for Government between Fianna Fáil and the Progressive Democrats pledged to “limit the cost of public liability insurance on businesses”.
The government’s Cost of Insurance Working Group has published myriad reports on the subject, making a raft of recommendations. However, while policymakers have sought to tackle spurious claims and legal costs, there has not been an overarching review of the inherent problems within the insurance industry.
There are lots of things the government can do, such as implement O’Connor’s call for a state-backed fund for niche businesses. In his article, Brendan outlined a host of other proposals, exploring whether non-monetary compensation such as direct medical care and income support as in New Zealand or expanding the use of periodic payments, as opposed to lump sums, would be more appropriate.
It just requires a more fundamental conversation about what sort of insurance industry we want, and how much we are prepared to pay for it.
Elsewhere last week, we published a major piece on the Dublin City Council battle over the new City Plan. Developers are alleging that the new plan will blow a hole in the city’s housing supply. The council doesn’t see it that way and is pushing ahead. What happens next?
William Sargent’s Oscar-winning firm Framestore is at the cutting edge of the production industry across the globe. And with Covid receding, the Dubliner is spending much of his time thinking about the nature of work and the future of the office. He talked to John.
Sonia Neary co-founded Wellola with the aim of providing tools for patients to be monitored and cared for at home, rather than in hospitals. The company is now working with the NHS, HSE and VHI and forecasting revenues of €25 million within five years. She spoke to Rosanna in this week’s podcast.
First, it went into examinership. Then a liquidation followed. Now, the company behind Slendertone has gone into receivership following a move by its main backer, the British lender Beechbrook Capital. The move could yet salvage the brand, as I reported last week.
I also examined Nama’s role in the housing crisis, with data showing that the agency sold 5,478 hectares of land with a potential for 86,145 homes to be developed on it since 2011, but that fewer than 11,000 units have been built. “Nama is not solely responsible for this crisis. But as the agency with the largest land bank in our nation’s history, it must shoulder significant responsibility,” I argued.