The Irish Hotels Federation (IHF) will this week tell the Joint Oireachtas Committee on Enterprise & Small Business that a recent survey of over 900 hotels and guesthouses reveals that the average insurance premium in the sector rose a massive 351% between 2000 and 2003.The IHF maintains that although the issue of rising insurance costs have been widely discussed, no effective action has resulted to improve the situation. The IHF states that the time for action is long overdue. Radical reform is urgently needed to ensure the viability and survival of the hotel and guesthouse sector, whose spiralling operating costs are seriously eroding competitiveness. Hotels and Guesthouses are closing down or going out of business due to increases in insurance costs or the inability to get insurance.

The IHF submission outlines that the reality of the current situation for both obtaining quotations for insurance and the subsequent exorbitant premiums being charged is crippling the hotel and guesthouse sector in Ireland. The survey's respondents support this citing insurance costs now being the biggest threat to the viability of their business in the near future. The IHF stresses that effective action now would bring down insurance costs in the short term and would resolve the difficulties facing IHF members.

The IHF's submission puts forward four core issues impacting negatively on the insurance systems in Ireland. It suggests;
· there is insufficient competition in the insurance market to bring down costs;
· fraudulent and exaggerated claims are an endemic problem adding to costs;
· legal and professional fees are unnecessarily high drivers of costs and are under-pinning increases in claims costs;
· Ireland has higher compensation costs than all other European countries where benchmarking provides standardisation of awards.

The IHF is calling for the speedy establishment of the Personal Injuries Assessment Board (PIAB). However, it states it will be a 'white elephant' if its remit is not extended to include public liability cases. Ireland has the highest average awards for personal injury in the EU. A Book of Quantum based on awards in the UK and other European countries should be immediately introduced and made binding on the judicial system.

According to Jim Murphy, President, IHF, the Federation sees clear and immediately workable solutions to this issue. "Despite widespread concern on the rising costs of insurance and uniformity of view that radical reform is needed, it is unacceptable that no action has occurred to improve the situation. Insurance is the biggest single overhead cost item for hotels and guesthouses. The sector is attempting to be competitive but it is a low margin business and sensitive to price increases. Given that insurance, local authority rates, the tax regime and staff costs have all seen major increases in the last number of years these are seriously eroding and in many cases putting hotel and guesthouse businesses into serious loss-making situations," Mr Murphy states.

The protection against fraudulent and exaggerated claims is viewed as an area of immense importance by the IHF. Whilst, the IHF is not suggesting that any new system should mitigate against genuine claimants, it cites the current system as being unbalanced in favour of the claimant to a degree where the insured parties rights are grossly under weighted and insurance companies settle spurious claims without referring to the insured.

The current system encourages and facilitates fraudulent and exaggerated claims.

"Insurance companies should no longer able to settle claims without prior discussions with the insured party," says Mr Murphy. "Claims should not be admissible unless the person in charge of premises is informed of the incident at the time of an accident. It is not acceptable that the first notice is a letter from a solicitor, in many cases, months and even years afterwards. Businesses must be afforded the basic right of being able to effectively investigate incidents and appraise the extent of the injuries and determine where the injuries were incurred."

"We also strongly believe that a criminal charge of insurance fraud should also be introduced and resources for its enforcement be made available. This would reduce the number of spurious claims," he continues.

In relation to bringing about changes in legal systems, the IHF suggests that there is a great need for a separate division of the courts service to deal with personal injuries cases overseen by specialised judges using a Book of Quantum as a reference resource. In addition, to act as a further disincentive to fraudulent and unmeritorious claimants, the courts should have no discretion, in such cases, but to make orders for costs against claimants.
"Awards in Ireland for some compensation categories are up to 12 times higher than those in the UK. For minor soft tissue injuries lasting up to one year, the awards in UK start at £500-£1,000 and rise to £4,000 for injuries lasting two years. In Ireland, awards of €10,000 and €20,000 are commonplace for the most minor of soft tissue injury," maintains Mr Murphy. "In addition, the number of junior, senior counsels as well as lawyers in very minor trials is unwarranted and this over staffing practice has become a part of the system due to the ability of claimants to recover these fees from the defendants insurers which ultimately all add to higher costs".

Mr Murphy concluded by stating that there was no transparency in how insurance premiums are calculated with seemingly no correlation between premiums and a properties claim history.

"We have examples of our members who experienced 75% increases in insurance premiums with no claims being made in recent years. We believe that the insurance industry should be open and transparent about how it calculates the increases and work in better partnership with its clients to ensure an equitable and fair fee is charged for cover.

"For two years now the whole issue of insurance increases has been widely discussed and aired in the media. Businesses throughout the country not just in the tourism industry are going out of business due to the absence of tangible government action on the matter. It is equally as important and in many rural areas more important to prevent indigenous Irish businesses from going out of business that trying to attract new industries whose sustainability is dependent on circumstances outside our control."

"The Government must now act to reduce insurance costs to at least the level in other EU countries and address this issue with the same commitment that was successful in having the lowest level of corporation tax in Europe."

"Doing nothing effective, immediately, is fiddling while businesses go to the wall," says Mr Murphy.

FOR FURTHER INFORMATION:
Siobhan Molloy/Niamh Boylan Tel: (01) 676 01 68
Weber Shandwick FCC 086 817 50 66

DIRECT QUOTES FROM SURVEY UNDERTAKEN BY IHF ON INSURANCE
RESPONDENTS HOTEL AND GUESHOUSE OWNERS