[Article] Top firms go 'self-insure' to by-pass huge costs

Victor

This is a very dangerous route for small traders to take. My advice would be to ask for a bigger excess rather than go for self-insurance.

Top firms go 'self-insure' to by-pass huge costs
From:The Irish Independent
Saturday, 21st June, 2003
Charlie Weston

CRIPPLING insurance costs have forced a growing number of Irish companies to stop paying insurance and instead risk all in the hope they will not have to pay out if they are sued.

Business leaders warned last night that companies with no insurance are in grave danger of going bankrupt if they are forced to pay a big compensation award.

Several companies feel they have no choice but to stop paying premiums which have rocketed by around 350pc in many cases.

Supermacs, the fast food chain which vigorously contested a number of fraudulent claims against it, has now decided to "self-insure". And Avis, the car hire company, is also self-insuring for its business in Ireland.

Companies which take the "self-insure" route blame soaring premiums, which for one employer went from €212,000 to €328,000 in one year, and the widespread suspicion that insurance companies do not fight enough claims.

But this development is putting the health of the entire economy at risk, business leaders said.

Companies that self-insure decide to stop paying their insurer a premium. Instead the companies will put money aside to cover any claims against them.

However, uninsured business people who are subsequently forced to meet a big compensation payout were warned that they are not only risking their business, but their homes. This is because many smaller firms use houses to guarantee debts.

There is also a strong chance that company owners whose firms crash under the weight of a large payout could be prosecuted for fraudulent trading, according to Gerry McGaughey of the Alliance for Insurance Reform.

Mr McGaughey, who owns timber building firm Century Homes, said the growing trend of companies self-insuring would stifle entrepreneurship once uninsured companies start collapsing under the strain of compo claims.

IBEC director Brendan Butler said: "Self-insurance has become a more and more prevalent feature of Irish business, but it is a high-risk strategy."

The trend to self-insurance was most common among smaller and medium-sized companies, Mr Butler said. But he warned companies that do this were putting their entire business and jobs at risk. He said: "I have no doubt that many companies going the self-insurance route are putting nothing aside to pay for claims and are hoping nothing will happen." "It is just a wing and a prayer stuff."

IBEC said action on insurance was being taken by the Government but the problem was it was taking 18 months before results come through.

Earlier this week, the Oireachtas Committee on Enterprise and Small Business, chaired by Fianna Fail TD Donie Cassidy, was told that one employer took out employers' liability in Wales for stg£35,000 (€50,000) while the cost for his company in Ireland, which had slightly fewer workers, was €150,000.

Irish Insurance Federation manager Michael Horan said the problem was the frequency and high level of awards by Irish courts. He said insurers were paying out €140 in claims and management expenses for every €100 paid in premiums.

The State has self-insured most of its property for years - it is considered cheaper to pay up if one of its buildings burns down than to insure hundreds of buildings every year.

Another growing trend is for companies to accept a larger and larger excess on their cover for employers' liability and public liability insurance. Effectively, a number of firms are deciding that they will cover the first €250,000 of any claims against them.

Hotelier Liam Griffin, who owns hotels in Wexford and Kilkenny, said the only way he could stay in business was to accept an excess of €250,000, while still paying a premium of €212,000 a year.