Tuesday 25 October 2016

If we ignore the facts, no action will be taken to correct issue of rising costs

Kevin Thompson

Published 23/06/2016 | 02:30

The Insurance Statistics produced by the Central Bank of Ireland state that motor gross incurred claims have risen from €900m in 2011 to €1.1bn in 2014
The Insurance Statistics produced by the Central Bank of Ireland state that motor gross incurred claims have risen from €900m in 2011 to €1.1bn in 2014

It was with some sense of relief that we received the news that the issue of motor insurance was going to be debated in Dáil Éireann. As an industry, we took it as a sign that after 18 months of highlighting the rising cost of claims, concrete actions were going to be taken to remove the entirely unnecessary level of volatility which has become a feature of the Irish insurance market.

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We cannot continue to ignore the facts on why motor insurance rates are rising in Ireland. We must take concrete steps to normalise the market and remove volatility.

It is not in the insurers' interests for premiums to continue to rise. All that does is lead to more uninsured drivers, adding to the cost for all road users. Stability in the market is better for motorists, consumers and businesses. The elimination of claims volatility in the market will encourage the incumbent insurers to increase their capacity in the market, it will also enable further capacity by attracting in new players, which will be good for consumers.

The figures referred to below are not industry figures - they haven't been commissioned, edited or compiled by the insurance industry. They are from independent sources (all listed) and are simply the facts of the situation.

The Insurance Statistics produced by the Central Bank of Ireland state that motor gross incurred claims have risen from €900m in 2011 to €1.1bn in 2014.

The frequency of claims is rising in Ireland. In 2008, the Personal Injuries Assessment Board processed 24,722 claims, while in 2015 it processed 33,561 claims. This is an increase of 36pc (Annual Reports of the Personal Injuries Assessment Board), while cumulative economic growth over the same period was only 13pc.

The Irish level of awards is out of kilter with international norms. The guidance for the value of an injury is contained in a document called the Book of Quantum. The current Irish Book of Quantum states that a standard whiplash claim is worth €15,000. The current UK Book of Quantum says that a standard whiplash claim is worth €5,000.

The cost of legal services in Ireland is too high. The OECD has stated that out of 32 countries Ireland is the eighth most expensive country in which to enforce a contract. The CSO stated that legal costs in 2015 were on a par with 2008. The National Competitiveness Council has said that "reform of legal services is also urgently required to reduce legal costs". The Personal Injuries Assessment Board has stated that its costs are 6.5pc, as opposed to 60pc in ligated cases.

Investments by insurers have always been tightly regulated and continue to be so, with the majority of such investments in low-risk liquid assets to ensure that we can meet claim payments.

We acknowledge that motor premiums had got too low as existing and new operators competed for market share. Meanwhile, our award levels were still higher than the UK.

A correction was inevitable, however, competitive issues, a material change in the market rules (ie. the increase of the lower court levels in 2014 which affected all claims notified but not settled) and the ruling relating to Setanta have resulted in the need for a much more marked correction over a relatively short period of time.

The solutions

For all solutions, the underlying principle has to be that claimants are adequately compensated in a timely fashion. The role of the Personal Injuries Assessment Board must be strengthened as a matter of urgency. It has been extremely successful in settling claims in a timely and equitable manner.

As far back as 2014, we argued that there would be a need to compel claimants to turn up to medicals scheduled by the board, and that a failure to notify the board of injuries at the time of submitting a claim would make this information inadmissible at a later stage.

There is a need to abide by the impending Book of Quantum -however, awards must be benchmarked against other countries.

This is vital to ensure that we are fairly compensating those who are injured, while ensuring that premium costs level out.

As a result of a court decision, the motor insurers in this market are responsible for the bad debts of Setanta, which is now in liquidation. They are also liable for the bad debts of any future failure. This is similar to asking Tesco to pay for the bad debts of Supervalu and it needs to be fixed.

Anyone who makes a fraudulent claim should face criminal prosecution and should be compelled to pay back any compensation they received as a result of their fraudulent activity.

The insurance sector is held to a high standard in terms of reporting - and rightly so - we must as an industry continue to work with our regulator to ensure that our data is presented in a way our consumers easily understand, while respecting the laws that govern data and competition law.

If we continue to ignore the facts, no action will be taken to correct this issue of rising costs. Motorists, consumers and businesses will continue to pay for the unnecessary volatility.

The industry wants to be part of the solution. We are aware that the views of others differ from ours. We want to see a thorough review of the facts and action taken to remedy the situation.

Kevin Thompson is chief executive of Insurance Ireland, the representative body for the industry.

Irish Independent

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