Irish motorists looking for answers on motor premiums will have been presented with a range of commentary and analysis in recent weeks but little in the way of answers.
They could be forgiven for believing this debate has descended into a blame game with everyone from insurers to lawyers defending their own interests. It is therefore understandable when motorists question who to believe and ask why all parties cannot come together to implement the solutions needed.
Last week, the Central Bank of Ireland produced a set of figures in their annual insurance statistics that get to the heart of what is really happening in motor insurance. The figures show that the total losses for Irish motor insurers in 2015 was €221.6 million, up 81.6 per cent on the 2014 figure of €122.8 million.
No industry can sustain such losses and the impact has unfortunately been felt by motorists in addition to the cost restructuring insurance companies have undertaken. Presenting to the Oireachtas Finance Committee this week, the deputy governor of the Central Bank, Cyril Roux, stated: "Low premiums with high pay-outs cannot last."
This is because at their core, insurers price risk and liability – that is the likelihood of something happening and how much it could cost to address when it does. At present, risk and liability are increasing. The Central Bank figures show the total cost of motor claims in 2015 was €1.29 billion. The equivalent figure in 2014 was €1.08 billion – or 19 per cent lower. Put simply, the total cost of motor claims increased by a fifth in one year. The figure reflects a trend borne out in other independent figures on increasing court awards and other costs.
Major first step
Into this environment, the Injuries Board this week published its new guide for personal injury claims, known as the Book of Quantum. Insurance Ireland supplied all its claims data for 2013 and 2014 to inform the book, which, if strictly adhered to by the Injuries Board and the judiciary, would be a major first step in tacking claims inflation.
There are, however, concerns in relation to the awards for the most common injuries. For example, whiplash claims account for eight out of every 10 motor claims here and the average award in Ireland is three times a comparable UK award. The new book recommends a 9 per cent increase in the lower range whiplash award up to €15,700, an increase of €1,300.
It is not possible to say what the impact of this will be but it is clear international benchmarking has to be a feature of future reviews to avoid reinforcing rising claims costs.
There is no hiding place in the Central Bank’s figures. Almost uniquely for an industry in Ireland, detailed breakdowns of each insurers’ position are available with figures for their total income, their total claims costs, their total management expenses, their total commission paid to individuals to sell their products, their total income from investments and the profit or loss from underwriting motor business, among many other details.
Central challenge
The figures in the Central Bank’s report point to an industry that has been in difficulty for a number of years and where the central challenge is containing losses in a volatile environment. What is clear is sustained industry losses, compounded by high claims costs such as legal fees accounting for 60 per cent of costs in litigated cases, are not in the interests of Irish motorists.
What can be done?
The industry has been working to manage its costs and for more than 18 months has been calling for structural reforms. These include bringing consistency to awards; fixing the Setanta problem which exposes insurers to the unlimited liabilities of their competitors and reinforcing the powers of the Injuries Board to resolve more claims and reduce costly legal fees.
These steps can be taken now to achieve consistency and reasonableness in the awards regime but insurers have to play their part too and are committed to doing this.
Ultimately, the only way to address a dysfunctional market is to tackle the causal factors head on. Fortunately, we are beginning to see movement on these issues and Insurance Ireland will do all it can to inform the policies needed to bring much-needed stability to the motor insurance market.
Kevin Thompson is the chief executive of Insurance Ireland