The Real Cost Of Motor Insurance

Geraldine Herbert In the past year petrol prices have declined by 8.4%, diesel prices by 12.4% and buying a new car will cost you 3% less than it did in 2015. But instead of benefitting from the drop in prices, the rising cost of motor insurance is rapidly becoming one of the biggest consumer issues facing motorists at the moment. It is estimated that insurance premiums have risen by 38% in the last 12 months and 60% over the past three years. The insurance industry argues that they have been losing money on motor cover in Ireland for past number of years so the current increases are an attempt to get premiums back to a profitable rate. However, this is at best only a partial explanation, the under-pricing in the past was due to a senseless price war to win market share and now drivers are being forced to foot the bill. Other contributory factors include new rules requiring higher reserves to be put aside, elevated personal injury awards and lower investment returns. The lack of regulatory compliance in the past has also left a legacy for the insurance industry. Since 2010, motorists have been paying a levy on motor, home and commercial insurance to pay for the collapse of Quinn Insurance. The failure of Quinn, which lost over €900m in 2009 and a further €160m in 2010, much of it due to losses in the UK market, was followed four years later by that of Malta based Setanta Insurance, which collapsed in April 2014 with an estimated €90m shortfall. More recently, 14,000 policy holders were left without insurance when the Gibraltar-based Enterprises Insurance collapsed. Unlike the Quinn case where the levy on the Irish policy holder is covering the losses both in Ireland and the UK, there are no similar provisions in Malta and Gibraltar and with both having the population of a large provincial town would be unworkable, begging the question why financial services operations from such states and principalities are permitted to operate in the wider European market without the appropriate market wide protections that will cover liability in the event of failure. It also is estimated that fraud adds €50 to the cost of every motor policy, this ranges from the criminal staging of “accidents” to fraudulent production of bogus “no-claims certificates” by drivers changing insurers. Several high profile insurance claims cases were thrown out after evidence emerged from Facebook. Late last year a couple who staged a car crash while pretending to be strangers was discovered when the insurance company saw that they appeared in each other’s Facebook profile pictures. These types of cases raise a number of issues for insurers including the importance of thoroughly investigating claims and highlight the need for greater sanctions to be applied to those that make fraudulent claims. Insurance fraud is not a victimless crime and the motorist too needs to understand the impact it has on them personally and on society as a whole. An expensive compensation system is also a key factor driving up the cost of insurance premiums. A considerable proportion of compensation payouts in Ireland are made for whiplash and on average the claimant will typically receive €15,000, in the UK; the corresponding figure is €5,000. The Injuries Board was established 12 years ago to speed up claim process for personal injuries and was designed as a lawyer-free zone, with legal fees not paid when an award is made. However currently 90% of claimants to the Injuries Board are now represented by lawyers and more cases are unresolved in the Injuries Board. In fact less than 10,000 injuries cases are decided in the Injuries Board and the courts while another 22,530 claims are settled by insurers privately. Such a high proportion of claimants circumventing the process raises questions about whether insurance companies are too eager to settle rather than challenge claims and underlines the need to increase the powers of the Injuries Board to counter this trend. The Irish motor industry may be having its strongest trading year since before the recession but if the high costs of insurance forces motorists to reconsider the benefits of car ownership this is likely to be short lived. Motorists cannot sustain continued rising car insurance prices. Motor insurance unlike health, travel or home insurance is a legal obligation and any person found driving without insurance is guilty of a criminal offence. As the rise in costs shows no signs of easing the Irish Motorist is likely to continue paying for the absence of proper regulation, fraudulent activity, exaggerated claims and shoddy trading standards of the insurance.