Monday 20 August 2018

Dorothea Dowling: Are you being robbed of your no-claims bonus?

Why we - and the UK - are out of step with the EU on how we break down our insurance costs

Photo posed
Photo posed
Dorothea Dowling

Dorothea Dowling

An item in the Irish Independent on April 21 last, under the heading 'I feel like a criminal', reported how one lady's premium jumped from €691 to €1,506 after her car was stolen.

This newspaper published the letter from her insurance company, which said her no-claims bonus was reduced to zero years.

I want to focus today on the area of the loss of bonus/discount in its entirety.

As readers will have gathered from recent media coverage on the cost of injury claims, the proportion of the average motor premium that has to do with 'own damage' is relatively small - certainly less than 25pc of annual claims costs.

So why should you lose all your bonus when you have not been accused of causing any injury to a third party?

Let's put matters in context.

Prior to the 2002 report of the Motor Insurance Advisory Board (MIAB), it was common practice for motorists to get their renewal documents at the last minute.

If consumers tried to shop around they encountered delays in getting written confirmation of their insurance history from their previous provider. That represented a potential barrier to competition.

The first of the MIAB recommendations to be implemented obliged motor insurers from October 2002 to provide a minimum of 15 working days' notice of renewal terms in writing to policyholders, including details of their new claims discount.

Just as Ireland led the way with the smoking ban, it was gratifying to see the EU Commission follow our example some three years later by requiring insurers throughout Europe to provide 15 days' advance warning of the renewal premium.

The issue of the bonus/discount is a bit more fudgy. On that score the EU directive says that, at the request of the policyholder, an insurer must provide a written statement "concerning the third party liability claims involving the vehicle(s) covered by the insurance contract during the preceding five years".

It is lamentable that when the Central Bank transposed this measure into Irish law they did not make it mandatory for the statement on third party liability claims, or the lack of them, to be automatically issued with every renewal notice rather than putting the onus on the hard-pressed motorist to request a statement.

However, the implications go further. Somebody who has only had an 'own-damage' claim is still entitled to a statement of their claim-free record in respect of third party liability.

To comply with that EU law it would be necessary for insurers to set out clearly how much of your premium arises from the third party aspect of your cover and how much is for 'own damage', with the bonus/discount on each shown separately.

In turn, it would mean only that element under which a claim had been made should be grossed up to the 100pc undiscounted premium.

The only motor insurance which is compulsory is cover for third party liability claims. Therefore, under a strict interpretation of both EU and national law, all other coverages are options even if they are bundled together in one policy.

I would argue that compulsory cover for third party liability is a basic financial product since you have no option but to buy it if you want to be a law-abiding motorist.

That would have further implications. The Central Bank consumer protection code prohibits an insurer from making the purchase of one product contingent upon another.

Additionally, insurers must not charge for an optional extra unless consumers have confirmed they wish to purchase it. The cost of that must be shown separately.

Viewed in that manner, this would provide overdue transparency to policyholders.

The variances between member states in motor premium charges,claims costs and insurer profitability are readily accessible from the European lobby group of insurers at www.insuranceeurpose.eu.

In that data you can view separately the trends in 'own damage' and in third party liability - both premium and claims cost - for each country.

However, Ireland does not submit data - nor does the UK - which indicates we are out of step with the remainder of the EU. One wonders why.

Surely it is time for us to get in line, to inform public policy as well as to better serve the interests of policyholders?

Irish Independent

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