It's time for another investigation into our motor insurance prices
Published 02/10/2015 | 02:30
The fatalistic message from Insurance Ireland is that we should prepare for the worst because charges are going in only one direction - up.
As explained on Prime Time of September 22 last, there is a €1bn gap between premium and the records of injury compensation awards published by Personal Injuries Assessment Board (PIAB) and by the courts. In over 70pc of claims every year we have no transparency. But a new piece of the jigsaw was added on Wednesday when the Central Bank (CB) published the 2014 insurers' statutory returns with totals of payments and income. That picture is now far from as simple as we were led to believe.
Because of the long tailed nature of personal injury claims it will be many years post-accident before the final cost is known except in those uncontested cases finalised through the PIAB where the time limit is nine months. It is, therefore, somewhat misleading to look at just one year's insurer results. More indicative trends can be identified from a three, five or 10 year review as set out in the table below.
What I also found troubling is that for statistical robustness one must exclude (or model separately) half by value of the 10 insurers who are actually underwriting motor and liability business. The reason for that is that in statements by two companies, Royal Sun Alliance and FBD, we are told they did not set aside enough money for claims arising from accidents some years ago - unlike most companies who release provisions from prior years which explains why the cost of claims incurred over the longer term in the table above is lower than the amount paid in claims.
In my own opinion data on Liberty should be viewed separately is because it is a relatively recent market entrant.
The story about mounting losses does not hold true for all insurers on a longitudinal analysis. While 2014 looks like a loss of 12pc, if you exclude the three outlier companies that loss reduces to 1pc. Similarly, excluding just RSA and FBD from the three-year and five-year analyses then reported market losses turn into profits of 6pc and 17pc. These results seem to be a reasonable return on capital for those who invest in insurance companies.
The Motor Insurance Advisory Board (MIAB) in 2002 and 2004 had access to raw data which is not now available, nor can I pretend to have yet completed analyses of the high level data just released. Preliminary indications, however, do not convince me that the reasons for premium increases are solely or primarily those asserted by insurers underpinning their reform proposals which include reducing compensation levels by two-thirds in Ireland to equate to awards in the UK.
Within the confines of this article it is not possible to fully explore all the issues involved. Making proper financial provisions for future payments resulting from this year's accidents is complex. Volatility is a recurrent feature of this specialist area. Judges make different decisions and new legislation retrospectively increases liabilities. It might be wise to examine whether those challenging functions are being competently undertaken before going on to consider other measures, such as reducing compensation. However, we should be wary of following our nearest neighbour whose reforms led to litigation costs actually exceeding the amount of compensation and this year required the introduction of stringent deterrents to exaggerated claims which mirror similar sanctions adopted here from 2004.
So what is to be done? Given that the other implemented MIAB recommendations reduced insurance costs by 40pc between 2002 and 2013 some of the other recommendations which were not fully implemented could be usefully reviewed, particularly in terms of the transparency required for consumers at this time - as well as further measures to discourage exaggerated claims and excessive costs in sections of the Civil Liability & Courts Act 2004 that were never progressed.
There is also another idea. Since August 2014 anyone (usually insurers) paying injury compensation must notify the Department of Social Protection so that welfare benefits can be repaid. That procedure might be usefully extended.
Those readers who have been unfortunate enough to require medical treatment will know that a private health insurer sends the policyholder details of how much was paid to the doctor, the hospital etc.
If we extended this to motor claims then policyholders would know how much was paid out on their behalf to injured parties, to experts and in litigation costs. It might not make the policyholders happy but at least they would know where their money was going. All those notices could then be readily collated through modern IT systems to undertake sophisticated data analytics to properly inform public policy when considering what further reforms for what seems to be an emerging crisis.
Until some independent analysis of the facts is undertaken, we would be unwise to rely on data fed to us by insurers. I say that not just from recent events but also from the experience of the MIAB which, among other things, found that the profits relative to premium for Irish insurers were many multiples of their English counterparts. Does anyone know whether that has changed?
Dorethea Dowling was chairwoman of the Injuries Board for 10 years until she retired last year. She is also a former head of claims for the CIE group.