The newly elected President of the Irish Insurance Federation (IIF), Mr Brian Forrester today spoke about how the recession has impacted on the insurance sector and his hopes for strong leadership from Government and the Financial Regulator in reforming the financial services sector. Speaking at the AGM and Annual Lunch of the IIF Mr Forrester also advised that pension reforms should not be delayed, and addressed the issues surrounding rising motor and house insurance premiums.

“We are now in a position in the life and pensions sector where new investment business has effectively dried up, asset values have been slashed beyond all previous predictions, and margins are so tight and the prospects so bleak that our member companies’ very futures are at stake,” said Mr Forrester.   Last year new business A.P.E (Annual Premium Equivalent) dropped nearly 29% from 2007, and figures for the first quarter of 2009 show A.P.E for new business is down a further 46%, with single premium business having more than halved compared to the first quarter of 2008.

Similar results were shown for the non-life market where claims costs had risen by 26% in 2008.  When combined with intense competition and falling premium volumes (down 7.7% on 2007), this had led to a drop in market profit of over 75%.

Mr Forrester called on the Government to move forward with an overhaul of the regulatory system but warned of the consequences of over-regulation as a reaction to issues that have arisen in the banking sector. He warned that Government should not put undue additional regulatory burdens on the financial services industry, in particular the insurance market.  

Guest speaker David Went, Chairman of the Financial Regulator’s Consultative Industry Panel said: “There needs to be appropriate recognition that we do not have a homogeneous financial services industry and in particular, that we need above all to avoid a ‘one size fits all’ approach.”  He said that it was important not to have a closed mind in the debate on whether a rules-based or principles-based regulatory system was the best way forward, particularly in the case of insurance where the emerging international standard embodied a principles-based approach. Mr. Went also emphasised the need to ensure that IFSC companies operate in a regulatory environment that enables them to continue to develop their businesses, which already employ 25,000 people.

Mr Went said, “All of us in the financial services industry want and need a robust and fair regulatory system that is well regarded internationally. Above all, the decisions that have to be made require appropriate regulatory regimes consistent with international best practice for particular segments of the industry”.

In addressing the need for pensions policy reform, Brian Forrester urged the Government to press ahead with its pensions policy review, and not to use the recession as a pretext for further delay. He also mentioned that the industry is still in discussions with the Department of Finance over the controversial introduction of a levy on life assurance premiums and drew attention to the need for more advance consultation on tax changes in future Budgets.

Commenting on recent rises in household and motor premiums he said significant increases in claims costs were a main factor. “However, despite recent increases, private motor rates are still only two-thirds of the level of 7 years ago[1]. At the same time, there has been a significant drift upwards in personal injury damages which further increases pressure on costs.”

Ireland continues to have higher compensation levels for personal injury than most other countries. Many elements of special damages claims such as healthcare costs and loss of earnings also have to be dealt with by compensation awards in Ireland, where as other countries fund them principally through health and social welfare services.  “These differences ultimately have to be reflected in the cost of motor and liability insurance, and any significant upward movement in claims costs (which account for 90% of expenditure) have to be reflected in the premiums that make up the lion’s share of  insurers’ income – even more so now when investment returns are low or even negative”, he said.