The pain for motorists will just continue as long as the insurers are making losses
Insurance premiums have continued their upward march again this year. The question is why now and why by so much? As with many other issues, the answer to that question depends on one simple thing - who do you believe?
The issue for insurance companies is straightforward. They have lost money as an industry, underwriting insurance every year since 2012. They make their money in two ways. They take in cash by selling insurance and they invest that money. They have to pay out on insurance claims and spend money running their businesses.
The lower the cost of accident claims, the lower their pay-outs. The higher the returns on investment, the bigger their profits will be.
Both of these levers have been going the wrong way for insurers in recent years. The industry made a loss of €198m from underwriting insurance in 2014. Separately, the income they earn from investing all the premiums has been badly hit too. Low returns on bonds and cash deposits have meant they actually lost money on their investments in two of the last three years.
The Central Bank doesn't like this. It isn't too worried about how much you or I pay to insure our car every year. It only wants to make sure more insurance companies don't go bust, such as Quinn Insurance or Setanta.
So, insurance companies have the blessing of the Central Bank in hiking premiums, rebuilding their profit base and staying financially strong. Unfortunately, we are picking up the tab.
The insurers can point to several factors which have driven up the cost of claims in recent years. They say a number of court rulings are driving up the value of injury awards. An improved economy has put more cars on the road. Cheaper fuel increases the total miles driven per year, which also increases accidents.
But here is the rub. Many people with direct experience of the insurance industry are questioning the industry's claims about higher compensation payouts.
Dorothea Dowling, who helped to set up the Personal Injuries Assessment Board, has said the figures don't stack up. She argues that there is a massive €1bn difference between the premium income and published awards.
Yes, payouts for things like whiplash are much higher in Ireland than other countries, but she argues that in over 22,000 personal injury cases, there is no transparency regarding the cost of settling claims or the awards.
The insurers are blaming the legal profession. The legal profession is refuting the industry's claims.
If Ms Dowling is right and the insurance companies are not telling the full story and don't really need to haul in so much money in higher premiums, then how come they are reporting real losses? They can't cook the books.
Well they can't "cook" the books, but booking profits and losses in insurance is a long-term business. It all depends on the assumptions you make about the level of future claims. It is about pricing risk. Tweaking your financial modelling can throw up different results in the short term.
Insurance is an incredibly complex business. It is a riddle inside a mystery wrapped inside an enigma. You get a sense of this when you talk to an insurance company about your premium and you have no idea how they came up with that figure. The theory goes that hiking premiums will rebuild insurance company balance sheets but it can't go on forever. Bigger profits will bring greater competition, which in turn should eventually bring prices down again.
This is how the Central Bank puts it in its latest macro-financial review of the sector: "A cycle begins when insurers tighten their underwriting standards and raise premiums after a period of severe underwriting losses or negative shocks to capital (eg. investment losses). Stricter standards and higher premium rates lead to an increase in profits and accumulation of capital. The increase in underwriting capacity increases competition, which in turn drives premium rates down and relaxes underwriting standards, thereby causing underwriting losses and setting the stage for the cycle to begin again."
That is the textbook version, dispassionately written without much sympathy for people who are facing 35pc premium hikes.
Reality doesn't always go by the book. Insurance companies are exiting from certain sections of the market by giving totally unrealistic quotes, whether it is on young drivers or older cars.
If insurance is a cycle, what factors drive the price of premiums at the bottom and the top? The Central Bank last week flagged that further insurance premium increases can be expected.
How much strength in their balance sheets is reasonable? Surely the level of profitability depends on the level of compensation awards, insurers' running costs, competition and investment income, as well as the price of premiums.
The Central Bank is encouraging the premium hikes. The Department of Finance has begun a tokenistic review of the sector which won't be complete until the end of the year - God knows why it is taking that long.
The Government should take more action to fully test the claims of all sides in this insurance debate. Bring back the Motor Insurance Advisory Board and find out who is telling the whole truth.