Premium hikes leave us feeling that insurers are really in the driving seat
There is always a power dynamic between consumers and service providers in an industry. Sometimes the power rests with the consumer - usually when there is plenty of demand and plenty of competition. On other occasions the power shifts towards the provider.
This was true of the mortgage market after the property crash when consumers felt like they had to beg for a loan. It was also true back in the days of State monopolies in things like airlines and telephone services.
Remember the cost of flying with Aer Lingus to London or waiting weeks to get a phone in?
The power dynamic has shifted dramatically in recent years in the motor insurance industry. Twenty years ago, customers had to just accept massive insurance premiums. Then greater competition and legal reforms combined to shift the power back to the customer. You could hunt for a better deal.
Now it has gone back the other way again. Drivers feel powerless when it comes to understanding why their insurance premiums are increasing so much.
The insurance companies, which lost money underwriting motor insurance for several years, are hiking prices with very little credible explanation as to how the customer's premium is calculated.
You can tell when the power has shifted in an industry from your own dealings with the service providers.
My motor insurance was up for renewal and I got a renewal notice which quoted me an increase of 13pc.
I was very firmly told, before I even had a chance to ask, that there was no way my insurance premium could be reduced at all.
When I pointed out that I was being asked to pay €740 for a motor insurance policy after driving for 24 years without a single claim, she cut across me saying my policy should actually be even higher.
Particular staff having a bad day etc excluded, I was left with a strong sense that the insurance company was in the driving seat. I don't believe I am alone in feeling that way.
This company was either confident enough that I wouldn't get a better price elsewhere or could live without my business. It was 'take it or leave it time'.
If the insurance companies are telling the whole truth and they are simply trying to get back to writing profitable insurance, how is it they don't come across as struggling operators keen to hang to or win valuable business? Surely when times are bad, an industry will battle for valuable business. With a regulator and a government backing them, they are in a strong position.
It is extraordinary to think that Irish politicians get so worked up about €160 per year in water charges but do nothing about insurance price hikes of double or treble that amount.
There are a number of factors at play here. Firstly, the insurance companies have shown that their underwriting was unprofitable. They have the blessing of the Central Bank which is effectively encouraging premium increases to help them rebuild their balance sheets. They have the backing of the Government which up to now has done nothing to tackle this enormous and growing problem.
Michael Noonan ordered a Department of Finance review of the sector a month before the general election. Getting your department to look into something is a real sign of a pre-election fig leaf. Why not have an independent commission with set terms of reference and a short term deadline to find out what is going on?
Insurance companies are hiding behind the apparent mystery of actuarial calculations and pricing of risk which leaves us all in the dark.
For example, why will an insurance company only apply a no-claims discount where you are claim free for five years? Why not 25 years? The principle is surely the same.
A maximum no-claims discount of 75pc seems very generous. In other words you premium is 75pc lower than it would be if you had a claim. But how did they calculate the original pre-discount premium in the first place?
Why is there repeated anecdotal evidence that insurance companies are penalising drivers of older cars when every car has to be passed by an NCT? The insurance companies will say their statistics point to higher claims from these vehicles.
Very young drivers who are prone to more accidents might drive older cars because they are cheaper. Applying a higher risk to an older car with an older driver, which is fully NCT compliant, doesn't seem right.
Insurance companies say that higher premiums are driven by higher claims costs and there is some evidence to support this, but it has also been called into question by others.
Different companies seem to be shifting the focus of their business into different market segments. Some don't want young drivers, which reduces the number of firms competing for that segment of the market. Some have stopped insuring cars over 14 years of age altogether, which leaves that market segment weakened in terms of competition. The role of penalty points in the insurance system needs to be clarified. Government policy is to increase the points and increase the number of offences that can attract them.
With this in mind speed vans have been set up in places where the likelihood of an accident seems very low. It is a money collection point.
Yet, insurance companies don't seem to spell out precisely what the impact of penalty points is. Most people believe you don't get loaded if you have four points or fewer. That was equivalent to two offences. But the system changed to three points for some offences, raising the question of whether you avoid insurance loading below six points.
Insurance is a genuinely complex industry. It is about managing risk. But surely insurers should be obliged to provide more information as to how they came up with your premium quote. For example, break down the contribution to the price made by different factors, such as where you live, the age of your car, your own age, penalty points etc.
In the meantime, we don't know when enough is enough. One insurance broker with years of experience said in January that price increases in 2014 and 2015 should be enough to restore profitability to the sector and there should not be any need for major hikes in 2016. Yet, they keep coming.
We won't know the profitability of the sector in 2016 until well into 2017. At that point it could be too late and we may all have been fully fleeced.
Michael Noonan's review isn't due to be published until the end of 2016. He is in no hurry. When complete it will have zero statutory status but will simply be the results of a fact-finding mission. If it concludes that changes are needed, it could take another one to two years before anything happens.
Meanwhile, we are supposed to just soak it up and hand over the cash.