Rising public liability premiums inflating cost of doing business

Ireland must improve on competitiveness, according to a new report by the National Competitiveness Council (NCC).

The report, titled Ireland’s Competitiveness Challenge 2019, points to public liability and legal costs as an input to almost every enterprise in the country.

Liability insurance cover is an operational necessity for every business. The NCC’s report says that if insurance costs in Ireland – a key component of overall business costs – are out of line with other jurisdictions, it increases the cost of doing business.

In extreme cases, this can lead to the closure of businesses, the report warns.

The NCC complained that it was constrained in its research on public liability insurance cost in Ireland due to the lack of statistics.

Evidence

Evidence from business groups, however, suggest that the rising price of public liability insurance is inflating the cost of doing business in Ireland – and adversely affecting competitiveness.

The council calls for the timely implementation of the Cost of Insurance Working Group’s recommendations.

“It is vital that the reforms which aim to increase competition and improve transparency in the sector [are] expedited,” the report says.

Complacency warning

A panel discussion this morning, hosted by the Dublin Chamber of Commerce at its Clare Street HQ, heard NCC boss Dr Frances Ruane warn against complacency if Irish businesses were to compete successfully in international markets.

Dr Ruane was joined on the panel by Dr Ciara Morley, of EY-DKM Economic Advisory Services.

The NCC’s 2019 report examines issues relating to cost and productivity, and makes several recommendations for a range of actions to enhance competitiveness and productivity. These include:

• Digital engagement,
• Infrastructural investment,
• Skills and training,
• The cost of credit,
• Legal services costs, and
• Insurance costs.

External shocks

Dr Ruane noted that “as a small, highly-open and concentrated economy, we are particularly vulnerable to external shocks, as we saw clearly in 2008.

“Consequently, we cannot afford to be complacent about our strong overall performance and must continuously strive for improvement, so that we remain a highly competitive economy.”

Range of recommendations

Dr Ruane added: “The Competitiveness Challenge identifies a range of recommendations that address both immediate competitiveness issues, and more medium-term challenges aimed at enhancing Ireland’s competitiveness and productivity performance.

“It is imperative that progress is made on these recommendations by the relevant Government departments and State bodies over the course of 2020, supporting competitiveness and sustainable economic growth, so that our living standards and quality of life can continue to improve.”

Sources of finance

The report points to access to competitively priced sources of finance as facilitating investment and development of businesses.

A higher interest rate means a higher cost of borrowing, impacting on the competitiveness of businesses that need to borrow for a variety of reasons.

The NCC is concerned that the cost of credit in Ireland continues to be higher compared with other countries in the euro zone. The affordability of credit, particularly working capital, remains a major issue.

Direct impact

It comments that the cost of legal services has a direct impact on the competitiveness of the entire economy.

The NCC claims that Ireland is “both an expensive and a slow jurisdiction in which to enforce a commercial contract”. It says that attorney fees, as a percentage of total enforcement cost, remain high in Ireland compared with Germany, France and Spain.

Digitisation impact

While the digitisation across economic sectors has increased rapidly in recent years, the full impact is not apparent in national productivity figures.

The NCC is concerned that Irish SMEs continue to be less productive than large firms, and that the productivity gap remains larger in Ireland than in most other EU28 countries.

Laggards

Further efforts are needed on lifting digital ‘laggards’ by addressing digital knowledge and financing gaps among SMEs.

The NCC has welcomed increased infrastructural spending under ‘Project Ireland 2040’, but says the challenge remains to deliver effectively connected infrastructural projects that drive future productivity growth, and maximise returns on investment.

Governance measures

“It is vital that appropriate governance measures are in place to ensure value for money and to avoid overheating of the economy,” it says. 

Pipeline

The NCC is also concerned that the growing demands on higher education and the persistent under-resourcing of the sector are placing Ireland at a considerable disadvantage internationally in terms of the pipeline of a skilled and knowledgeable workforce.

It says that reform of the third-level funding model is crucial, in order to increase participation and ensure high-quality graduate output that aligns with enterprise needs.

Vital

In addition, it is vital that the apprenticeship and vocational training systems are aligned with industry demand, and that low-skilled workers at risk of displacement are retrained and upskilled, while investment is made in lifelong education and training to ensure Ireland’s long-term competitiveness.