Key Terms - National Claims Insurance Database (NCID)

General Terms

Accident

An event that gave rise to a claim.

Average Premium

Average premium is calculated as the total cost of premiums divided by the number of underlying policies.

Bodily Injury or Injury Claim

A claim is deemed to be an injury claim where compensation relates to the bodily injury, disease or death of the insured or a third party.

Claim

An insurance claim is a formal request by a policyholder to an insurance company for coverage or compensation for a covered loss or policy event. The insurance company validates or denies the claim. If it is approved, the insurance company will issue payment to the insured or an approved interested party on behalf of the insured.

Claims Management Expenses

The expenses related to the processing and resolving of claims, including certain legal and adjusters’ fees and internal costs of processing claims payments.

Commercial Property

Commercial property insurance indemnifies the insured against loss or damage to their buildings and its contents from perils such as fire, theft, and natural disaster.

Commission

A percentage of premium that is retained by the selling agent or broker as compensation for selling and servicing business on behalf of the insurer.

Cost of a Claim

The average cost of a claim is calculated as the total cost of claims divided by the number of claims giving rise to those costs.

Cost of Claims per Policy

The cost of claims per policy is calculated as the total cost of claims divided by the number of policies that could have given rise to that cost.

Damage Claim

A claim is deemed to be a damage claim where compensation relates to the loss of or damage to property.

Employers’ Liability Insurance

Employers’ Liability indemnifies the insured against legal liability to compensate an employee or their estate for bodily injury, disease or death suffered, owing to negligence of the employer, in the course of employment. Loss of or damage to employee’s property is usually also covered.

Frequency

The total number of claims divided by the total number of policies which could have given rise to the claims.

Loss Ratio

The loss ratio is the total cost of claims divided by the total premiums earned in the same period.

The Loss Ratio is calculated as:

Loss Ratio = gross ultimate claims costs / gross earned premium

By accident year and expressed as a percentage.

Management Expenses

The expenses related to product development, system improvements, salaries to general managers, auditing costs and regular day-to-day costs i.e., electricity bill, rent for accommodations, and IT costs.

Package

Policy with two or more cover types included; this could be any combination of EL, PL or Commercial Property covers.

Periodic Payment Order (PPO)

A PPO is a series of payments made to an injury claimant to pay for the cost of their care for the rest of their life. The NCID allowed for the collection of data in respect of PPOs. As at the end of 2021, no PPOs had been awarded in respect of private motor accidents.

Policy

An insurance contract between an insurer and a policyholder.

Premium

The amount that an insured entity pays an insurer in exchange for an insurance policy.

Public Liability

Public Liability indemnifies the insured against legal liability for the death of or bodily injury to a third party or for damage to property belonging to a third party, other than those liabilities covered by other liability insurance.

Reinsurance

Reinsurance is a mechanism by which insurers pass some of their risk on to a reinsurer. The insurer pays a premium to the reinsurer and, in exchange, the reinsurer pays some of the insurer’s claims and expenses.

Salvage

Insurers receive salvage rights over property on which they have paid claims, such as cars that have been written off. The insurer may sell the car (e.g., for parts) in order to offset the cost of the claim.

Standalone Policy

Policy with an individual cover of either EL, PL or Commercial Property.

Subrogation

An insurer’s legal right to pursue a third party that caused a claim which was paid for by the insurer. This is done in order to recover the amount of the claim paid by the insurer.

Claims Settlement Costs

Compensation

The amount paid to a claimant in respect of a claim they have made. For the 2019 to 2021 settlement years, compensation costs are split by:

General Damages

Compensation for non-monetary loss suffered by the claimant, e.g., pain and suffering; and

Special Damages

Compensation for financial loss, e.g. loss of earnings or medical expenses.

Legal

The legal fees paid by an insurer in the course of settling a claim. For the 2019 to 2021 settlement years, legal costs are split by:

Own Legal Costs

Legal costs incurred by the insurer in the course of settling a claim; and

Third Party Legal Costs

Legal costs incurred by the claimant in the course of settling a claim, and which were paid by the insurer.

Other

All other expenses incurred by an insurer in the course of settling a claim. This may include the cost of assessing claims (e.g. medical or engineering), administration costs or recoveries from a third party claimant (where they are found to be liable).

Claims Settlement Channels

The settlement channels analysed in the NCID report are of two types. For claims settled in 2019 onwards, claims are collected in five settlement channels:

• Direct before PIAB: Claims settled directly between claimant and insurer before PIAB involvement and before the initiation of legal proceedings.
• Direct after PIAB: Claims settled directly between claimant and insurer after PIAB involvement but before the initiation of legal proceedings.
• PIAB: Claims settled through the Personal Injuries Assessment Board (PIAB).
• Litigated before Court Award: Claims settled following the initiation of legal proceedings, but which did not proceed to an award set by a judge.
• Litigated with Court Award: Claims settled following the initiation of legal proceedings, for which the compensation award was set by a judge.

For years 2015 to 2018, claims are collected in three settlement channels only:

• Direct: both before and after PIAB.
• PIAB
• Litigated: both before and with court award.
  

Private Motor Terms

Types of Motor Insurance Cover

Comprehensive

The majority of motor insurance policies purchased in Ireland have comprehensive cover. Comprehensive policies cover all claim types: third party injury, accidental damage, fire & theft, third party damage and windscreen.

Third Party Fire & Theft

Third party fire & theft policies cover fire & theft, third party damage and third party injury.

Third Party Only

Third party only policies only cover third party injury and third party damage claims. Third party only cover is the mandatory minimum cover for motor insurance in Ireland. 

Types of Motor Claims

 Third Party Injury

Claims arising from injuries caused by the policyholder while driving. This does not include injury of the insured person.

• Large Injury Claims: Third party injury claims valued at greater than €250,000.
• Attritional Injury Claims: Third party injury claims valued at less than or equal to €250,000.

 Accidental Damage

Claims arising from damage to the policyholder’s own vehicle.

 Third Party Damage

Claims arising from damage caused by the policyholder while driving. This does not include damage to the policyholder’s own vehicle. 

Fire & Theft

Claims arising from arson or theft of the policyholder’s vehicle.

Windscreen

Claims arising from damage to the policyholder’s windscreen.

Key Concepts and Methodologies

Ultimate Claims

In the Claims chapter of the annual NCID reports (Part 2 of recent annual reports), claims are grouped together by accident year, the year in which the accident occurred. Not all of these claims are paid in the year of the accident. Some claims, injury claims in particular, can take many years to be fully paid.

In order to calculate the cost of claims for a particular accident year, insurers estimate the cost of claims that have not yet been paid. This is added to the paid claims to give an ultimate cost of claims. The ultimate cost of claims is recalculated regularly, based on the most up-to-date information available. The more time that has passed since the accident year, the more certain the ultimate cost of claims. For the most recent accident years, the ultimate cost is more reliant on estimates.

Earned Premium and Policy Count

Premiums and policy numbers are sometimes presented in NCID reports as being collected on an “earned” basis. This means that they are allocated to the year(s) they were in force. A policy can be in force over more than one calendar year. For example, a typical motor policy will provide cover for 12 months. If a policy comes into force on 1 October 2018, with a premium of €800, that policy will be in force from 1 October 2018 to 30 September 2019. 25% of the premium for that policy will be accounted for (i.e., earned) in 2018, and the other 75% will be accounted for (i.e., earned) in 2019.

This earned basis corresponds directly with the accident year basis on which claims were collected and reported in Part 2 of recent NCID annual reports.

Written Premium and Policy Count

Premiums and policy numbers are sometimes presented in NCID reports as being collected on a “written” basis. This means they are allocated to the year(s) in which the policy comes into force, regardless of whether the policy is in force in whole or in part over a later calendar year. In contrast to earned premium, if an annual policy comes into force on 1 October 2018, all of the premium for that policy will be accounted for in 2018 on a written basis.

The Underwriting Cycle

The pricing of insurance risks will generally depend on the position in the insurance underwriting cycle. The cyclical nature of property and casualty (liability) insurance is well recognised. Insurance markets tend to move between hard and soft markets, as illustrated below.

A hard market is characterised by higher premiums, stricter underwriting criteria and (relative) profitability. A soft market is characterised by lower premiums, looser underwriting criteria and (relative) unprofitability. An underwriting cycle lasts a number of years, typically 6-9 years.