The debate is full of red herrings - and without robust data, reform is stalled
Published 22/06/2016 | 02:30
It took 10 years of hard work by a wide range of people to reduce the cost of motor insurance by 40pc from the time of the Motor Insurance Advisory Board's (MIAB) report in 2002 to the level reflected in the CSO index at year end 2013.
Since then it seems those savings have been squandered.
Back to basics
Put simply, motor insurance is compulsory so that the genuine seriously injured can be compensated when an accident is caused by someone else's negligence.
That is the primary interest that is to be protected under national and EU law. The second interest is that of premium-paying policyholders, because the economic theory is that insurance is the most efficient way to provide for those policyholders' potential liabilities to injured parties.
Those are the only two relevant interests - and they are often in conflict. But both must be weighed in the balance. The crisis we are experiencing now did not result through failure of regulation but from the absence of any regulation to protect the two aforementioned legitimate interests. There is an absence of joined-up-thinking.
For example, the compensation jurisdiction of the lower courts was substantially increased from February 2014 [the Circuit Court limit from €38,000 to €60,000 and the District Court from €5,000 to €15,000].
There was no data to justify that decision by the Department of Justice, and it proceeded in the face of all-round opposition even though the potential negative effects on insurance inflation were acknowledged.
This created volatility that serves the interests of neither plaintiffs nor defendants, as many of these higher awards are now being reduced on appeal.
Turning to the Department of Finance and the Central Bank, their main priority is the stability of financial markets. Legitimate as those concerns for solvency may be, they cannot be monitored in isolation from what is happening in the claims environment. But again, it seems there was no overarching plan to absorb, in an orderly manner, the new EU requirements for greater solvency margins, which were foreseeable since at least 2007.
Recent debate is replete with red herrings, anecdotes and false analogies. For example, one of the excuses for recent premium increases is the estimated €90m cost to the Motor Insurers Bureau (MIB) of those injured by vehicles insured with Setanta, which placed itself into liquidation in Malta.
Despite clear decisions by four judges (in the High Court and three in the Court of Appeal), plaintiffs and policyholders wait while insurers prolong the litigation. This is based on a false analogy with Quinn and PMPA, but those companies were taken into administration under the supervision of the Irish High Court and were run as going concerns until sold. A more accurate analogy is with the liquidations of Equitable and of Independent Insurance, where the third party claims were dealt with by the MIB.
Policyholders are paying one way or another, so why this waste and wait?
No one is denying the right of insurers to make a profit if they competently run their businesses. However, the analogy between the value of a whiplash in England versus in Ireland, as though that were the key to profitability, does not withstand scrutiny. Motor insurers in England have not broken even since 1996. In contrast, when you exclude three outlier companies, the technical result (profit before investment income) in Ireland for the five-year period to 2014 was 6pc, or €215m on the €5.2bn of motor premium income, and 17pc, at €1.4bn, on the €11.3bn of 10 years' premiums.
We can account for only €300m paid out annually on injury from data published by the Courts on their 1,500 awards and by the Personal Injuries Assessment Board on their 12,000 awards (of which 61pc have been accepted every year since 2006). That is a lot of money for us not to know who is getting what and why.
Indeed there are false claims, although most questionable claims involve people who might otherwise consider themselves to be honest, but who when claiming exaggerate their injuries or losses. There are stringent measures against misleading claims in the Civil Liability and Courts Act 2004 under which all entitlement to compensation may be lost with penalties ranging from fines of €100,000 to 10 years in jail. The fact that we are not good at fighting white collar crime is not limited to insurance. Given the low level of injury trials, judges may not fully appreciate the extent of claims exaggeration so it falls to defendants to present the necessary evidence.
Just as the Minister for Jobs cannot actually create jobs, we cannot expect a minister to wave a magic wand at the myriad of issues involved in the current crisis. However, I suggest that people do expect one identifiable minister to be responsible for the overall tackling of this challenge.
Unusually, I am not focusing on litigation costs because we know what we need to do on that front. The legislation for the establishment of the Legal Services Regulatory Authority, with an Independent Cost Adjudicator, has passed through the Oireachtas but has yet to be commenced.
That said, considerable costs could be avoided by insurers availing of mediation to resolve inter-defendant apportionments rather than pursuing multi-party litigation. But we cannot even 'pass go' on the next stage of the insurance reform journey without robust data. Only insurers have that detailed data. They refuse to yield that up for analysis. One can only wonder why.
Dorothea Dowling is former chairwoman of the MIAB