Insurance crisis is hurting businesses’ cashflow

Businesses now have to eat into their everyday cash flow in order to pay off the high insurance costs. What can be done?

In 2019, representatives of small businesses appeared before the Oireachtas Finance Committee to highlight the difficulties in securing public liability insurance amid this climate of increasing costs.

The media has reported plenty of examples of children’s play centres across the country closing their doors, citing a 300pc rise in their public liability insurance costs. Many businesses in the sector say they are also at risk of closure because they either cannot afford the insurance renewal quotes being offered or cannot even secure a quote. Some play centres have given examples of a premium rise of 1,040pc over the past six years.

An example of a business affected by the spiralling insurance costs is the travel agency Click&Go.

Founder and chief executive Paul Hackett revealed how his business is being held back by sky-rocketing rises in insurance costs. His firm has seen its insurance costs surge by 700pc, according to a report in the Irish Independent, in only two years and blames high levels of claims in the courts and large pay-outs for the insurance crisis.

The cost of cover for his firm has gone from €49,500 two years ago in 2017 to €400,000 now. This means the business is unable to take on new staff, profits are being squeezed and he is unable to give his 60 employees a pay rise.

Irish businesses have begun looking outside of Ireland for more affordable insurance premiums as the spiralling price of cover becomes an increasingly existential threat.

Insurance costs are rising – why?

A Cost of Doing Business report was compiled by the Oireachtas Business Committee following meetings with 30 representative organisations between last October 2017 and May 2018.

Unsurprisingly, the rising cost of insurance captured a significant portion of its attention – the issue was identified by one contributor as a ‘societal threat’ undermining the functions of businesses, charities and voluntary groups. Many businesses fear facing closure and a lot of community and volunteer groups have had to reduce the number of activities they are involved in as a result of rising insurance premiums.

In April 2019, FBD Insurance chief claims officer Jackie McMahon told an Oireachtas Joint Committee on Finance, Public Expenditure and Reform that was discussing Insurance Costs for SME Businesses that an estimated 20pc of claims submitted to them were fraudulent. Of these, only about half were ‘exposed as fraud’. McMahon said most of these claims were “staged accidents”. He said a “huge amount of effort and resources” were used to investigate fraudulent claims, adding that the “bar to prove fraud was very high.”

What is being done to reform the insurance industry?

ISME is calling for the reform of the insurance industry to be ‘personally led by a Cabinet minister’ and preferably the Minister for Justice.

The organisation’s chief executive Neil McDonnell told the committee that the process of reform had stalled, and that people were “losing jobs and businesses because of legislative inaction.” He said there was a “complete absence of material reform” in the industry.

McDonnell said it was now “socially acceptable” to “sue someone for the most minor of inconveniences.”

In its formal submission to the committee ISME accused the legal system and judiciary of being “unjustly pro-plaintiff”, and in need of immediate reform. It said legal costs represented a “significant component” of the costs of insurance. The submission states that the “extravagant size” of awards in minor injuries cases – as well as what it calls the “non-existent investigation of fraudulent claims” – has created a “massive incentive for fraud.”

ISME said that legislation introduced in 2015 had failed to reduce legal costs. 

The business organisation also said that general damages are now too high and need to be capped by law, adding that there is, in its view, no constitutional impediment to doing so. It added that the only reforms currently taking place were “administrative in nature” and would not materially reduce the cost of insurance and that there was currently less information available on the insurance industry than there had been five years ago.

The message from the Alliance for Insurance Reform is the same; small businesses are being crippled by increasing insurance costs and forcing many of them to close. Spokesperson Peter Boland told the committee that firms were “closing on a weekly basis” due to “savage increases in liability insurance renewals.”

Boland criticised what he called the “frustratingly slow” pace of reform, and said the crisis was spreading to a broader range of SME sectors, including nursing homes, travel agents and retailers.

He said businesses now have to eat into their everyday cash flow in order to pay off the high insurance costs.

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Published: 11 March 2020