Friday 23 February 2018

Time for greater transparency in car insurance, regardless of raids

Allegations of anti-competitive behaviour are all the more serious in the motor insurance market because drivers legally cannot opt out of cover. Stock photo
Allegations of anti-competitive behaviour are all the more serious in the motor insurance market because drivers legally cannot opt out of cover. Stock photo
Richard Curran

Richard Curran

European Commission officials conducting an anti-cartel investigation raided insurance company offices and those of the industry association, Insurance Ireland, during the week.

In motoring parlance, they didn't just look 'under the bonnet', they had a good root inside the glove compartment too. And so they should.

Allegations of anti-competitive behaviour in any industry are serious. But it is even more serious in a sector where, if you want to drive a vehicle, you are legally obliged to become a customer.

Anti-competitive practices can be difficult to spot and therefore difficult to prove where they are going on. So regulators need to be thorough, irrespective of whether there is wrongdoing or not. It is about getting access to all of the facts and then deciding.

Unfortunately, when it comes to buying motor insurance as a customer, insurers tend to hide behind formulas, risk assessments and loading criteria, rather than explaining how they have come up with a particular premium.

The rise in motor premiums in recent years, of the order of 70pc, has been truly shocking. Yet there is very little by way of explanation as to exactly who is paying what and why.

For example, insurers seem to have it in for older cars. We are told it has to do with the number of claims in which older cars are involved. Yet this could be fraudsters staging accidents as cheaply as possible with older cars.

Prohibitive motoring costs mean many younger drivers are opting for older cars because they are cheaper. Perhaps that leads to speeding and more accidents. If so, the car isn't the problem. The driver is.

Some insurers are refusing to even quote business on older vehicles, regardless of the age profile or claims history of the driver. Bear in mind that we have NCT tests, which clearly say there is nothing wrong with the vehicle.

Yet the costly and legally compulsory exercise of doing the NCT doesn't seem to count when it comes to insurance.

How many times in recent years have many of us received an insurance quote down the phone and been left with the distinct impression that the number was plucked out of thin air and bore little resemblance to your real risk profile?

I know of one 20-year-old male who needs a car to drive 25 miles each way to work in a small town. There is no bus. Without the car, he doesn't have a job. His insurance is a staggering €4,500 per year.

On paper, there appears to be lots of competition in the motor insurance market in Ireland. But not all companies will quote all kinds of business.

Some kind of herding is going on, where certain companies operate certain sections of the market. They are legally entitled to do this because they are under no obligation to universally insure the entire market.

However, insurance is a very important service, not least because the economy cannot function without proper access to it.

But also, it is legally compulsory to have motor insurance.

This creates a captive market for those who operate in it. It isn't compulsory to have a mobile phone, or broadband or health insurance. But if you drive you must be insured.

This fundamental legal proviso should make the sector more accountable, more transparent and more closely regulated than other businesses. You cannot have the benefit of providing a legally necessary service without carrying additional regulatory burdens and standards of transparency.

Yet regulation of insurance in Ireland is all about financial stability and the Central Bank. And even that has failed us all several times. The consumer-protection element of it should be monitored more closely.

Insurers have legitimate points about the rising cost of claims, court awards and legal fees but it is a sorry state of affairs when you have European Commission officials standing in offices in Dublin, demanding laptop passwords and confiscating mobile phones, regardless of whether there is a breach of the law or not.

Ireland is still not creating enough high-skilled jobs

The rate of unemployment in Ireland has fallen back to a new nine-year low of below 7pc. It is quite an achievement, given that it was running at 15.2pc just five years ago.

What are all these newly employed or re-employed workers doing?

Tourism is big. So is commercial construction, along with IDA client companies in technology.

But according to a senior analyst in the OECD, all might not be so rosy in the garden.

Mark Keese told a Brexit event on future skills in Dublin last week that unlike many other EU countries, the demand for high-skilled jobs remains weak in Ireland.

He provided figures which showed the number of high-skilled jobs created between 2013 and 2016 was not significantly higher than between 2011 and 2013. It seems a large part of the jobs recovery has been based on low- and middle-skilled jobs.

Yet in the UK, Spain and across the EU average, there has been a much greater increase in the demand for highly skilled jobs in the last few years, compared to after the financial crash.

This is a rather worrying trend, which might at the same time explain why so many people complain of not feeling the benefits of the recovery, despite being back at work.

Keese went on to point out that 34pc of EU workers are either over-qualified or under-qualified for the jobs. But in Ireland, the figure is 44pc. Those who are over-qualified for their jobs take what he called a "wage penalty" of earnings below what they are qualified to do.

He said the EU average was 25pc but in Ireland it was over 30pc - more grounds for discontent among those who "get up early in the morning".

Time for Naughten to make a decision on rural broadband

The latest delay to the National Broadband Scheme is truly appalling. We keep hearing about how the Government should allocate more money for vital infrastructure such as housing and broadband.

Yet when you look at how badly this vitally important initiative has been handled, you have to wonder whether money is the real problem at all.

One could have some sympathy for Minister Denis Naughten, who inherited a slow bicycle race and found that Eir wanted to go it alone on 300,000 of the 840,000 rural homes and businesses previously earmarked for the scheme.

There is only one winner in all of this and it is Eir. The company is pressing ahead with its own fibre roll-out to the more profitable rural homes, while everybody else is left stuck in the traps.

The longer the delay goes on, the greater it will benefit Eir. Rival bidders for the contract may pull out, leaving the field to Eir. If it doesn't get the National Broadband Scheme contract, it will have bagged the more profitable 300,000 anyway.

It actually isn't Eir's fault. It is simply applying a commercial rationale to a commercial problem.

Eir is also providing a real benefit to those 300,000 rural homes where it is delivering high-speed broadband. It is particularly difficult for those homes and firms just 200 yards on the wrong side of the telegraph pole, who may now have to wait until 2023 to get a service their neighbours currently enjoy.

It is time for the minister and the department to make a decision about what they want to do, and go ahead and do it.

Hiding behind the "complexity" of the contracts just isn't working any more.

Sunday Indo Business

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