In Ireland we like our economic roller-coasters – just look at economic growth and house prices. To this, add motor insurance, which has swung wildly in recent years. There are now two key questions. Are overall prices still too high? And are significant groups of people still being quoted ridiculous prices? We look below at the evidence and the key groups being disadvantaged.
The concern among many dealing in the sector is that the recent moderation in premiums will lead to a lack of follow-through on a programme of reform, drawn up when prices were soaring. This would leave premiums “ stuck” at relatively high levels for many. And another twist upwards looks likely from a new 2 per cent levy on premiums to fund insurance company collapses, being introduced in the wake of the collapse of Maltese registered Setanata Insurance.
Like many industries, general insurance – mainly motor and home insurance – moves in cycles. Academic research suggests that these cycles last for between six and nine years, ending when losses – or sharply lower profits – appear and premiums start to rise. In Ireland, however, the last cycle in motor insurance was extraordinary, showing a big fall in premiums, which dropped 40 per cent between 2004 and 2008 before shooting upwards again, rising 70 per cent between 2014 and 2016.
Prices then eased back again in the last year and a half – by around 20 per cent . One of the real difficulties in assessing current levels is the near impossibility of comparing prices in different markets, given their different structures.
To understand the market we need to separate the two key issues. Why did prices swing so wildly?And what are the factors which keep prices here high?
The crazy fluctuation in prices were due to an industry cycle – on steroids. Just like banking, the insurance industry went a bit crazy. Prices were slashed and fell to what were unsustainable levels as companies grappled for market share. The cycle turned viciously as claims costs caught up with premium income and heavy underwriting losses were recorded as claims stormed ahead of what companies were taking in. Then falling interest rates cut the return which companies could get on their investment income.
The figures are astonishing. Motor insurance premiums fell by 40 per cent between 2003 and 2008, according to CSO data. By 2016 they had pretty much doubled on average, with a 70 per cent increase in 2014-2016 alone. Since then there has been a 20 per cent decline.
It remains to be seen whether the market stabilises around current levels. And anecdotal evidence suggests that consumer experience varies significantly, with some still looking at increased quotes when they go to renew.
The 20 per cent
A key issue is that some groups of people are still facing quotes which are very high. Conor Faughnan of the AA calls them " the 20 per cent" – a significant minority who fall into a number of key groups. One are returned emigrants, who are finding that overseas claims free driving is not recognised. This is a particular problem for people returning from non EU markets such as the US, Australia and Canada. Irish insurers are slow to accept records from insurers in these markets and obviously want to avoid the cost and expense of checking, or the risk of taking on someone not telling the full story. With many people looking to return to work here, this is a significant problem. The loss of a "no claims bonus" can lead to a big increase when they return to Ireland. There is an attempt under way to come up with industry protocols to address this particular issue, but reports suggest it is still very much a live issue.
The second group finding it difficult to get cover are those with “live claims” –claims not yet settled. As Faughnan points out, one of the points of insurance is meant to be that the insurer deals with the claim and takes on the cost. But in these cases the insured are finding themselves stuck.
And a third group finding themselves looking at high and often rising premiums are those in atypical professions – such as the music or night club industry or any job involving travelling at anti-social hours. As Faughnan says, once you fall outside the mainstream driver favoured by the insurance company, you can run into difficulty. A history of penalty points can also prove problematic.
Insurance broker David Pike identifies first-time insurance for drivers over the age of 30 as another area of difficulty, and also those with older cars. Sources sugges that cars of around 7 years old and above can often be problematic. There are also reports, including some referenced in the Dáil, of younger drivers being quoted €5,0000 to €6,000 for an annual premium.
There are enough groups having difficulty getting cover to suggest that the industry is still not pricing all risks adequately, leading to people being turned down or quoted very high prices, even if the total number of cases declined is edging down.
And then there is the issue of the general cost of cover for the majority of drivers, still seen to be high for many. “Premiums of €600 to €800 are still not uncommon for mature drivers and standard type cars,” according to Pike. Sometimes shopping around gets a better result.
“People are changing insurance companies a lot more than in the past and are happy to go with relatively new insurers in the market,” according to Pike.” Loyalty has, in my opinion, gone out the window.”
So what do experts see as the key issues to be tackled?
1. The cost of claims: There is dispute about the role of claims cost in the rapid rise in premiums between 2013 and 2016, but no argument that claims costs here are high and are a key reason for the high level of premiums. For example, the industry points to figures in a recent report showing third-party injury costs per claim are £11,000-£13,000 in the UK compared to €40,000-€60,000 in Ireland. A Personal Injuries Commission, established as part of the drive to reform motor insurance, is examining the issue and its first report found that "less severe injuries in Ireland tend to attract higher levels of damages but that is less pronounced as the severity of injury increases."
It recommended changes in the way the medical profession assess injuries and much more consistency. Changes to the “book of quantum”, which gives the courts guidance on how much to pay for various injuries, are also in train or under discussion. However the “ compo” culture in Ireland remains deeply embedded. A forthcoming report from the commission will benchmark awards here with other countries.
2. Cutting legal costs: For 2015, industry figures show that around €100 million of the total costs of compensation of just under €300 million were accounted for by legal costs to the claimant and the insurance company. A key way to address this is to encourage more cases to go through the Personal Injuries Assessment Board, which aims to resolve cases without going to court. A significant minority of cases – probably around 30 per cent to 40 per cent still end up in court where legal costs, which are high in Ireland, become a big issue.
3. Cutting fraud: Fraud remains a big issue behind motor claims. An insurance fraud database, which would allow insurers to share information to combat fraud, has been proposed, but is still at the consultation stage and a final decision to go ahead has not been taken. A separate database of uninsured drivers is moving ahead, though there are still issues to be sorted here. The insurance industry, meanwhile, has offered to fund a Garda unit to investigate insurance fraud, but it remains unclear whether the Government will accept this.
4. Better information: A key recommendation of the original motor insurance report was a National Claims Database, which would involve the insurance companies providing full information on the cost of claims, wherever they were settled. The industry says it is committed to this, but there are rows about what information should be included and some campaigners accuse them of dragging their feet. There is also debate about the overall costs which insurers book in Ireland and their impact on premiums.
5. Improving competition: An EU commission of investigation is examining the insurance sector here following a series of raids in 2017. The charge against the industry – which it denies – is that it is not allowing free access for new entrants to vital information sharing. With six underwriters controlling 90 per cent of the market, competition in some areas may well be weak and moves to allow consumers to shop around in different EU markets remain stuck in a legislative and regulatory mire.
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So the bottom line? Many of the smaller reforms recommended to reform motor insurance are being done, but some of the big ticket items are still in play and behind schedule. The risk is that they head into the mire of consultative groups and never get properly done. The charge of the Opposition is that because premiums have fallen back, the political heat is out of the situation and the Government and the industry will let it all drag on.
Motorists have got a bit of a break on insurance costs in recent years, but premiums are still high – and for a significant minority the Irish market just doesn’t work. A bit done. But a lot more to do.
