The real reason why motor insurance is at a premium
Published 09/10/2015 | 02:30
Motor premiums have risen by approximately 24pc over the past year according to CSO figures, driven primarily by claims costs. A routine whiplash settles for €15,000 in Ireland as against €5,000 in the UK.
Average High Court and Circuit Court awards in 2014 are up 34pc and 14pc respectively. Legal costs in litigated cases account for 60pc of compensation and fraud continues to be a problem adding approximately €50 to the average motor premium.
Of course motor premiums had fallen in recent years to unsustainably low levels to the point that they were lower than in the UK even though award levels in Ireland are higher. This could not last forever. Some companies like Setanta went to the wall and, having undercut their competitors for years.
Writing in this newspaper last week, Dorothea Dowling rejects this analysis and argues that there is a gap of €1bn between premium income and awards made.
I believe this statement is misleading for the following reasons: the cost of motor claims amounted to just short of €1.1bn in 2014 according to statistics published by the Central Bank - the regulatory authority which supervises the insurance industry and to whom insurers must supply returns. Insurance Ireland estimates that 25pc of this is accounted for by motor damage claims, ie damage that relates to vehicles in all of the motor accidents that happen every day. A further 20pc is accounted for by motor injury award made by the Injuries Board - this is being generous because 40pc of those awards are rejected by claimants. The balance is accounted for by injury claims settlements reached outside of the Injuries Board.
So the view that there is a missing billion is incorrect on two counts. The money is not missing, it has been paid to claimants and the amount involved is around €600m.
The Central Bank requires detailed and frequent returns from insurers, including detailed claims returns, and they publish these statistics annually. An analysis of the Central Bank motor insurance statistics for 2014 reveals the gravity of the situation, the developing claims crisis and the losses that the motor insurance sector is experiencing. In addition, the Central Bank's recent 2015 Macro-Financial Review identifies that developments in the legal environment present a number of uncertainties for the sector.
Insurers are concerned that many of the changes to the legal environment implemented by successive governments and the courts are retrospective in effect. These affect claims that have already been made but have not yet been concluded. Recent examples include the increase in the monetary limits of the courts in February 2014, when the Circuit Court limit went from approximately €38,000 to €60,000 for personal injuries. This has led to heightened expectations on the part of claimants and to inconsistency in awards. Retrospective changes of this nature, however justifiable they may be, increase the cost of claims and therefore have to be funded through premiums.
Insurance Ireland is highlighting the claims crisis and the need for action so that motor insurance premiums can be maintained at affordable levels. Ms Dowling is in denial about the existence of a crisis and is focusing instead on why so few claims are settled by the Injuries Board. Since its inception, the legal profession has exploited flaws in the Injuries Board process, eg solicitors encouraging claimants not to turn up for Board medical examinations or to provide loss of earnings info, making it impossible for the Board to make a realistic award and forcing the claim into litigation.
The investigation that Ms Dowling calls for is already under way. The Central Bank recently produced a report for the Department of Finance assessing the outlook for the insurance sector generally, and is separately carrying out a review of insurers' reserving. The solvency of insurers is the best form of consumer protection and the immediate priority is to stabilise the claims situation. Insurers are taking the necessary action to rectify matters internally within their companies through restructuring.
Insurance Ireland proposes the following measures to limit the increase in premium costs:
• Ensure the Gardai and the Road Safety Authority are supported to maintain an adequate level of enforcement.
• Compensate victims at reasonable levels which society can afford.
• Reduce legal costs.
• Ensure flaws in the Injuries Board process are tackled so that claimants are required to turn up for Injuries Board medicals and to provide loss of earnings information.
• Act to ensure fraudsters are deterred. Suspended sentences are not an adequate deterrent.
• Fix the Setanta problem by amending legislation and the Motor Insurers' Bureau of Ireland(MIBI) Agreement so the roles of the Insurance Compensation Fund(ICF) and MIBI are clear.
These measures are aimed at ensuring that wwe have a sustainable motor insurance industry protecting people at affordable premiums. To do that as a society we need to stop motor accidents happening in the first place, and when they do happen, have reasonable levels of compensation while keeping legal costs to a minimum.
Kevin Thompson is the chief executive of Insurance Ireland and writes in response to Dorothea Dowling's call for an investigation into the rising price of motor insurance