Motorists are to be hit with premium hikes of around 25 per cent next year, the chief executive of the group which represents the vast majority of car insurance companies has warned.
The increases will come on the back of similar price hikes this year and will see most motorists paying around €300 per year more for a comprehensive policy in 2016 than they did in 2014.
Kevin Thompson, the chief executive of Insurance Ireland, which represents 95 per cent of the domestic and international based insurance sector in Ireland, denied that mismanagement across the motor insurance sector was to blame for the price spikes.
He accepted that competition had driven premiums below sustainable levels in recent years but insisted factors outside the control of the sector were to blame for premiums increasing.
He said the high cost of awards in court was a key factor driving up the cost of insurance premiums. Other factors include legal costs, fraud and most recently, the High Court’s judgment in relation to Setanta Insurance.
Speaking to The Irish Times, Mr Thompson said the premium increases were inevitable because the motor insurance sector has been losing money for more than five years. He said the net underwriting loss between 2010 and 2014 was €585 million with in motor insurance sector reporting losses of €242 million last year alone.
“From any business model perspective it is just not sustainable,” he said. “We are into a cycle where there is only going to be serious upward pressure on prices. It is not good news for consumers.
Insurance Ireland believes a range of measures are needed to stabilise pricing for consumers, particularly in the area of motor premiums.
"Motor claims costs are rising. The level of awards being made in the courts is at an all-time high. The average High Court award in 2014 was up 34 per cent on 2013 and the average Circuit Court award was up 14 per cent on 2013," Mr Thompson said. " In litigated cases, legal costs in Ireland account for more than 60 per cent of the compensation awarded."
All told 80 per cent of motor injury claims in the Republic are for whiplash, Mr Thompson said and he described the payouts associated with such claims as being out of step with EU norms. "The figures on whiplash alone are very stark," he said. "In Ireland the average award for whiplash is €15,000, in the UK, the corresponding figure is €5,000." In Spain and Italy the average payout for such a claim is around €2,000.
“ The reality is that premiums are dictated by claims costs, and although the Irish market is very competitive, increases in the cost of claims will inevitably lead to increases in premiums,” he said.
Mr Thompson stopped short of criticising the Injuries Board which handles around 20 per cent of the motor insurance claims. It was set up a decade ago to reduce the legal costs associated with claims and speed up the process.
However Mr Thompson pointed out that “the average motor injury award made by the Injuries Board is very high at around €21,000. Also, more than 90 per cent of claimants to the Injuries Board are represented by solicitors even though the Injuries Board was meant to be a lawyer free zone.”
He said around 40 per cent of Injuries Board awards were rejected by claimants “partly because some solicitors adopt a policy of non-cooperation, for example claimants not turning up for medicals or not supplying loss of earnings information so that the Injuries Board cannot make informed awards. The consequence of this is that following the inevitable rejection of the award, the case is subsequently litigated, generating additional legal costs.”
Mr Thompson said insurance fraud added a further €100m per annum to overall motor insurance costs which equates to €50 per annum on the average motor premium.
He also highlighted the recent ruling on Setanta Ireland which found that the industry funded Motor Insurance Bureau of Ireland was liable to cover the costs most claims motorists insured by the now insolvent company. “While everyone agrees that those injured by Setanta drivers should be compensated, Insurance Ireland believes the [STATE-FUNDED]Insurance Compensation Fund is the right mechanism to do this,” he said.
He said that by the middle of this year the cost of Setanta claims had reached €90m and was likely to rise. “Imposing the responsibility for this on the rest of the sector through the MIBI will result in higher premiums and potentially a risk of insurers exiting the Irish market.”
