Motor Insurance rates are on the increase. The latest CSO figures published on the 11th September show motor insurance has increased by 24% in the past 12 months. The reasons are complicated and I suggest not readily understandable to the general public who really view the purchase of motor insurance as a grudge purchase.
The challenge is to present a rational explanation to a non insurance audience which makes sense which means avoiding as much as possible insurance jargon is reasonably engaging to the radio audience and leaves that audience with a positive impression of the ‘expert. Easy!!!
Motor Insurance – current position
In real terms motor premiums have been falling steadily since about 2003 and premiums are estimated to have fallen by about 40% between ’03 and ’14.
- Insurers have lost money on motor insurance in 6 of the last 7 years.
- In ’13, according to Insurance Ireland, (latest data available) Insurers lost just over €190m on motor insurance on premium income of €1.3b.
- CSO figures of an average of 24% confirm scale and pace of increase in the past 12 months. As this is an average increases for some customers for example younger drivers can be greater and it also affects drivers who may not have had any claim.
What are the reasons for the current position?
Simply put in motor insurance claims costs accounts for most of the premium with a smaller amount added for administration costs. So here are they are
The biggest factor is claims costs and simply the cost and frequency both are of which are increasing as the starting point. The main factors driving this are
- The increasing number of claims being made especially for minor soft tissue injury. We are beginning to see examples where is very minor or no damage incidents that are producing claims for whiplash or other soft tissue injury.
- The cost of these claims are increasing, Aviva estimate claims inflation at 10%. This means even more money has to be put aside for claims already received. But it is accepted we pay ourselves more, for example average whiplash claim in Ireland is €15k, in the UK it is less than €4k.
- Rise in fraudulent claims which can be difficult to quantify as they range from exaggerated claims to the organised staging of accidents. One recent case in Galway involved a group who had been involved in 17 separate accidents all involving claims for injuries.
- Changes and increases to court jurisdictions.
- Composition of the High Court has changed with a large number of new judges appointed in ’14 and ’15 who are awarding larger amounts. As an example, there was a case settled in Clare recently. The claimant wanted €150K and the maximum the Insurance Company was prepared to pay was €50K. It went to court and the judge awarded €508K.
- Legislation introduced in August ’14, Recovery of Benefits and Assistance which recovers certain illness-related social welfare payments.
- Reduction in the Discount Rate which really only effects the largest claims and because of falling interest rates more needs to be awarded to ensure the injured person to support themselves.
- Introduction of Periodic Payments Orders which again will probably only impact the largest claims but again imposes uncertain future costs on Insurers which must be provided for.
- There is increased engagement by Solicitors in motor accidents claims, for example 40% of claims assessed by PIAB are appealed.
- Pressure from Central Bank for Insurers to set aside more money for claims in previous years due to claims inflation.
- Setanta factor where recent High Court decision means that Insurers operating in Ireland and more importantly their customers must pay if any motor Insurer fails. The estimated cost for Setanta is €90m.
- Low interest environment means investment returns are now much lower than in previous years.
- Pressure to maintain market share in past years has meant that some uneconomic premium levels have been maintained longer than they should. However, the reality and nature of motor business is that some trends like Setanta, legislative changes can be difficult to anticipate.
- Road traffic enforcement needs to be stepped up.
- We need to tackle people who make fraudulent claims in a meaningful way.