Minister for Finance Michael Noonan was urged by the outgoing Central Bank governor last year to consider a "no-fault" insurance regime, which would cut legal costs that are fuelling rising motor claims costs and consumer premiums.
New Zealand and parts of Canada are among jurisdictions that operate such systems, where parties in vehicle collision turn to their own insurance companies to cover their losses, irrespective of who was at fault.
The aim of no-fault insurance is to avoid expensive litigation and to lower premiums customers must pay. While the system may appear unfair to the victim’s insurer, accidents typically happen between drivers insured by various companies with equal chances, meaning the odds eventually even out at industry level.
Last August, then Central Bank governor Patrick Honohan said in a letter to Mr Noonan said: "Consideration should be given to the introduction of a no-fault regime."
The letter was released by the Department of Finance to Pearse Doherty, TD, Sinn Féin's finance spokesman.
Insurance Ireland, the industry lobby group, said in its annual report for last year that legal costs in litigated general insurance cases account for more than 60 per cent of compensation.
Mr Honohan, who stepped down in November after six years at the helm of the Central Bank, acknowledged that introducing no-fault insurance in Ireland would involve a “bigger change to the legal environment” than new book of quantum, or guideline of injuries and value ranges for appropriate damages.
The Personal Injuries Assessment Board issued the guide in 2004 when it was set up. It is only currently going about updating the list, following years of criticism by both lawyers and insurers. Mr Honohan said the setting up of PIAB itself "has had only partial success."
Ireland’s insurance industry has been in a state of turmoil in recent years for a number of reasons as companies failed to raise enough from premiums to cover rising costs and expenses.
Motor claims have been rising as more cars take to the roads in a recovering economy. Court awards have been increasing. And insurers have been less able to rely on investment income to cushion the blow, as they grapple with record-low global bond yields.
In an effort to return to profitability, insurers have hiked motor coverage rates by 35 per cent in the year to May, according to the Central Statistics Office, with house insurance rising by almost 10 per cent.
In the letter, Mr Honohan lays much of the problems in the loss-making sector firmly at the door of insurers.
“Before the financial crisis, the insurance industry enjoyed premium growth and increasing employment levels,” he said. “As a result, a number of non-life insurance companies took a very optimistic view of the future economic outlook, built up an unsustainable overhead and followed an imprudent pricing and underwriting approach across most business lines.”
The Central Bank said on Tuesday in its latest half-yearly macro-financial review of potential risks in the financial system that all of Ireland’s main insurers reported underwriting losses last year, with an aggregate shortfall of €284 million.
