Published by First Ireland
There has been a lot of media attention regarding the rising costs of motor insurance. Understandably, this is an issue which has caused a lot of frustration for many drivers, both young and old alike.
According to CSO Figures for September 2016, motor insurance premiums have seen an average increase of 25.2% in the last twelve months. This is on top of the rate increases experienced in the previous year. Many reasons have been attributed to this substantial premium hike.
There are a number of factors combining to cause these increases, including;
- Previously low levels of premium resulting in poor returns for Insurers
- The knock on effect of insurer collapses and impact on the Insurance Compensation Fund
- Capital strengthening requirements faced by Insurers
- Increased Fraud
- Increased legal costs and court awards
- Uninsured vehicles
- Lower investment returns experienced by Insurers
- Increased cost of regulation
- Higher incidents of accidents/claims with increasing traffic
Some of these are explained in more detail below….
Motor insurers in Ireland have been losing money for the last number of years. Underwriters substantially reduced motor insurance prices during the period 2008 – 2013 in order to retain market share following the emergence of low cost insurance providers. This was at the expense of their profitability. Claim settlement costs exceeded premiums collected and resulted in some providers going bust and other insurers having to re-capitalise. This is one of the mitigating factors which has caused the considerable rate increases we see today.
The collapse of Setanta Insurance in 2014 caused major problems for the insurance industry. Paul Mercieca was appointed as liquidator to Setanta at that time, and according to The Irish Times, he estimated that approximately €90m was due to 1,736 claimants. This also led to increases in motor insurance premiums as the remaining Irish Motor Insurers have to meet these claims. This was the decision in the High Court case, The Law Society of Ireland v Motor Insurers’ Bureau of Ireland.
Solvency II has also been a factor for increased premiums. Solvency II is an EU directive which became legislation in January 2016. It was put in place in order to harmonise EU insurance regulation. Part of this legislation is that Insurance companies are required to hold higher financial reserves than before. The aim of this requirement is to reduce the risk of insolvency and to ensure that insurers will be able to meet their claims. In the long run, Solvency II may help to strengthen the industry as well as the trust between insurers and their clients but in the meantime insurers have to adjust their prices to meet the requirements.
Whilst insurers can take much of the responsibility for premium increases, there is also the serious problem of insurance fraud. According to Insurance Confidential, insurance fraudcosts the industry approximately €200m every year, adding an estimated €50 to every motor insurance premium. Also, the Motor Insurers Bureau of Ireland recently published figures showing there has been a 17% increase on the number of claims due to accidents involving uninsured or untraced drivers between January and July this year. Last year, claims involving uninsured drivers added an estimated €35 to the average motor premium, and with an extra 235 of these claims made so far this year, this will likely add more to the cost again.
The government increased the jurisdiction of the Circuit Court to €60,000 in 2014 under the Court and Civil Law (Miscellaneous Provisions Act 2013). Whilst this should not have had a direct impact on the insurance sector, it enabled court judges to issue higher compensation awards, increasing claim costs and resulting in higher premiums.
The Injuries board (formally know as the Personal Injuries Assessment Board (PIAB)) was established in 2004 and published V1 of the ‘Book of Quantum’. This legal guidance book contains very broad descriptions of injuries with wide recommendation bands for appropriate compensation, which has led to inconsistencies in injury awards in the Irish Court system. In contrast the Book of Quantum in the UK and Northern Ireland are much clearer, giving certainty and transparency, and meaning people can deal with their own claims without the need to engage solicitors.
The Injuries Board published a revised Book of Quantum on the 05th October which is largely based on data collected from 51,000 claims settled by insurers during 2013 and 2014 and reflects current prevailing awards. Whilst there is some skepticism within the industry that it doesn’t go far enough, Insurance Ireland and Mary Mitchell O’Connor, Minister for Jobs, Enterprise and Innovation has welcomed the revisions. Commenting on the revised guidelines, Minister Mitchell O’Connor said “this should have a stabilising effect on compensation awards across the market and bring consistency and predictability to the cost of processing personal injury claims”.