Many of us will have stared, aghast, at the cost of our insurance renewals in the past couple of years. For some, premiums have gone up by as much as four times the previous cost, while others, especially those with older cars, are now struggling to get cover at all.
A perfect storm
The higher premiums are the result of what seems to be a perfect storm in the Irish insurance market of spiraling payouts, increased claims, and the loss of several major players, some of whom simply went bust during the recession. Insurers are racking up losses, and so the only way they can claw back the income they need is to put up the cost of cover.
That’s pretty harsh, given that insurance for your car is a legislated requirement, not a consumer choice, and insurers have been coming under fire from the Central Bank, both for their trading practices and for customer service issues.
Impact of the PIAB
However, the point of increased payouts remains a contentious one. Originally, the Personal Injuries Assessment Board (PIAB) was established to try and bring down the large payments being awarded by courts for personal knocks and scratches. At first, the Board’s work seemed to do its thing, and indeed it is widely credited with the general reduction in Irish insurance premiums before the recession hit.
Now though, it seems that people are swerving around the PIAB, and going straight to court, aware that a potentially larger payout is in the offing. The PIAB reported that its average payment to a claimant remained largely static in 2016. By contrast, according to Ciaran Phelan, CEO of the Irish Brokers Association, “Inconsistent and excessive claims award levels in Ireland create an increased incentive for people to potentially act in a fraudulent manner. Nowhere is this more evident than in cases of whiplash related claims, which make up 80 per cent of motor injury claims in Ireland. This compares to France where whiplash makes up just 3 per cent of claims. Whiplash award levels in Ireland, €15k on average, are vastly in excess of our EU counterparts. In the UK it’s €5k, in Spain and France it’s €3k. Our survey demonstrates public sentiment on the issue. People want the value of awards to come down because they believe that this would have a positive impact on reducing the cost of motor insurance – an issue that almost every motorist in the country is currently battling.”
The Whiplash phenomenon
Whiplash is often pointed out as the poster child for artificially inflated insurance claims, and it’s a difficult diagnosis to prove or disprove, hence its popularity amongst the less scrupulous sort of claimant. The worrying thing is that in a recent survey by Ignite, more than one fifth of all of us know someone who has artificially padded an insurance claim in order to try and get more money. It’s actions such as these that are most certainly driving up premiums.
That’s not the whole story, though. Insurers are certainly right to point out the worrying growth in fraudulent or excessive claims, and right too to point out that court awards for injuries such as whiplash are vastly out of line with European best practice.
Not a legal issue
However, it’s far from the only issue at stake here, and according to Ken Murphy, Director General of the Law Society of Ireland, “legal costs play practically no role in motor insurance premiums. The real reason for the staggering motor insurance premium increases, involving year-on-year hikes of 20 per cent, 30 per cent or more, is that the insurers engaged in reckless pricing practices over many years. The insurers slashed premiums, undercharged and under-reserved as a result, drove competitors from the market and now, with far less competition, are massively increasing premiums on the backs of the long-suffering motorists.”
Certainly, the mid-2000s race to provide customers with cheaper quotes meant that many insurers were storing up financial issues which eventually, inevitably came back to bite them, and by extension we, the motorists. A more prudent approach in the boom years would have led to far less pain now, but then how many other industries could we reasonably say that about?
A brighter future?
There seems to be no real end, for now, to the horrendous increase in premiums. The insurance industry claims that the increases are softening, even falling back a bit now, but few enough of us have seen that reality come through in the renewal quote. What’s needed is a concerted effort by government and the Central Bank to take the issue of motor insurance to task — it cannot, surely, be allowed to continue that something required by legislation can be left to purely neo-liberal free market economics to set the price. At some point, some level of cost cap will have to be brought in, or a system such as New Zealand’s ‘no fault’ car insurance introduced. Until then, as has so often been the case in the past, the Irish consumer and motorist will continue to carry the financial can for the mis-doings of others.