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DEBATE ROOM: Is the insurance industry to blame for spiralling insurance prices?

A damning new report concluded that lack of transparency from the insurance industry is a major contributing factor to the rising cost of motor insurance.

Caitriona O'Neill and William Gallagher

THE JOINT COMMITTEE on Finance, Public Expenditure and Reform’s report found average premiums had increased by 37% in the past year. Some motorists have had premium hikes of 300%. The insurance industry argues that it has been losing money on motor cover, and that the high cost of claims is driving up premiums.

But according to the report, it’s the lack of transparency about the cost of claims and the lack of data – 70% of claims are settled privately by insurance companies – that’s the real problem. 

We asked Pearse Doherty TD and Kevin Thompson of Insurance Ireland to give their views.

Pearse Doherty, TD and Finance Spokesperson for Sinn Féin

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DID YOU KNOW you are to blame for a 70% increase in the price of motor insurance over two years? The lawyers, doctors and politicians are to blame too. Fraudsters, the EU and fly by night foreign firms are to blame too.

In fact blame is to be spread like a farmer fertilising a field. The only people who are not to blame for insurance increases are the insurance industry.

Insurance industry are insulting drivers

The above is the line the insurance industry has been admirably peddling for two years now. They have heroically stuck to it in the face of evidence from all sides that their argument does not stack up. They have spun and spun in an attempt to brush off the blindingly obvious. There are indeed many factors why motor insurance premium are increasing but the idea that the industry is blameless is absurd and is insulting to every driver.

Through a Freedom of Information request I have produced evidence that in August 2015 the Governor of the Central Bank was writing to the Minister for Finance pointing out that:

“a number of non-life insurance companies took a very optimistic view of the future economic outlook, built up an unsustainable overhead and followed an imprudent pricing and underwriting approach.”

In other words the industry made mistakes leaving itself exposed to shocks. In an age of zero percent interest rates the old model of relying on returns from investments and bonds has failed them and us.

Fraud and regulation

Of course, fraud, extra regulation and other factors contribute to the price of a premium. The question is how much have these factors changed. The answer seems to be very little so the answer to why premiums have increased cannot be put down to these static factors.

That is the approach taken by the Finance Committee in its report following my suggestion that it look at this issue, call in the stakeholders and report back.

I do not agree with every conclusion or recommendation the report reaches but its general finding that:

“the net impact (of the broken model) is that the insurance companies lost a lot of money and with motor insurance comprising 40% of the total market in Ireland, the obvious and “soft” means of re-capitalising and re-reserving was to target motor insurance premiums.”

Many of the solutions put forward by the industry are pure distractions or completely unworkable. They willingly spin the need for the Book of Quantum to reflect international norms. They know well that the Book of Quantum is merely a factual record of awards given and it can’t be made fit a certain narrative because the industry is uncomfortable with the facts.

Insurers haven’t been transparent

Most brazenly of all the insurers are still not prepared to accept that they have been less than transparent. Backroom deals, unrecorded awards and a lack of information to consumers suits only one side: the insurers.

The Finance Committee’s report identifies 12 actions needed to bring about more transparency and to empower consumers. That concentration is a reflection of the fact that expert after expert honed in on the lack of data and transparency as the key to bringing down prices.

Home, flood and health insurance are all now rising beyond inflation. Doubtlessly that is your and my fault too. Motor insurance is compulsory for all drivers. A private industry that is being investigated for anti-competitive practices cannot dismiss the anger and the social and economic effects of their decisions and mistakes.

The Finance Committee Report is a start in stripping away the excuses and calling out the insurers so they can start playing their role in the economy, a role which has earned them huge profits in recent years.

Kevin Thompson, CEO Insurance Ireland

RRP 511 Kevin Thompson Source: Robbie Reynolds Photography

A CLEAR FOCUS on the causes is the only way to address motor insurance costs.

On reading the Oireachtas Finance Committee’s report on the Rising Costs of Motor Insurance, I was reminded of the words by Daniel Kahneman, who was awarded the 2002 Nobel Memorial Prize in Economic Sciences:

“You build the best possible story from the information available to you, and if it is a good story, you believe it. Paradoxically, it is easier to construct a coherent story when you know little, when there are fewer pieces to fit into the puzzle.”

Or put simply, the apparently obvious story is not always the most robust.

The insurance industry accepts that its answers are complex and require people to accept the points made by the companies applying rising claims costs in premiums. This is understandable, but it does not give a green light to inaccurate statements.

For instance, the Committee stated that insurers failed “to supply supporting evidence” for our points. The Committee did not agree with our evidence, however Insurance Ireland published the sources for each assertion made on claims costs.

Transparency

Insurance Ireland’s opening statement to the Committee made clear our responsibility for past under-pricing and the impact of a falloff in investment returns. These are not the admissions of an industry with a “closed mentality”.

Much has been made of a supposed lack of data, yet data on all industry claims paid for 2013 and 2014 was provided to the Injuries Board to update the recent Book of Quantum, the reference guide for personal injury awards.

Similarly, insurers provide huge amounts of data to the Central Bank of Ireland, the industry’s independent regulator, for its reports. The most recent Central Bank “blue book” shows a key figure of an additional €200 million in claims costs in 2015 compared to 2014.

The motor insurance industry implemented and adheres to the recommendations addressed to it from the old MIAB – a body rightly praised by the Committee for its good work.

The industry recognises that more can be done in terms of data, however, surely it serves everybody to reflect the true cost for drivers and interrogate the information already available so we land on the right solutions instead of the path of least resistance.

The next steps – the right solutions

The Oireachtas Committee’s recommendations and the emerging recommendations published by Minister Eoghan Murphy are welcome, and reflect many solutions we have been calling for.

However, with so many recommendations the danger is we do not prioritise. If we are to move the dial on the cost of insurance then the focus needs to be on where the bulk of premiums are spent, which is the cost of claims.

As a first step, we must internationally benchmark the Book of Quantum. We also need to reinforce the powers of the Injuries Board to handle more claims and bring consistency to awards.

Whiplash must be tackled as it accounts for eight out of every 10 motor injury claims and awards here, and is three times the UK awards (€15,000 versus €5,000). Premiums are a function of the cost of claims, so high awards mean higher premiums.

If our actions are not correctly prioritised, we will not resolve the cost of claims issues affecting customers. Such failure can only result in further consumer hardship which would be an unforgivable missed opportunity.

So what do you think? Do we need more transparency and is it fair to blame the insurance industry? Let us know in the comments below.

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Caitriona O'Neill and William Gallagher

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