Motor premiums have risen by approximately 24pc over the past year according to CSO figures, driven primarily by claims costs. A routine whiplash settles for €15,000 in Ireland as against €5,000 in the UK. Average High Court and Circuit Court awards in 2014 are up 34pc and 14pc respectively. Legal costs in litigated cases account for 60pc of compensation and fraud continues to be a problem adding approximately €50 to the average motor premium.
Motor premiums had fallen in recent years to unsustainably low levels to the point that they were lower than in the UK even though award levels in Ireland are higher. This was always going to be a problem. Some companies like Setanta went to the wall, having undercut their competitors for years. It’s alright when there are no claims.
The Central Bank requires detailed and frequent returns from insurers, including detailed claims returns, and they publish these statistics annually. An analysis of the Central Bank motor insurance statistics for 2014 reveals the gravity of the situation, the developing claims crisis and the losses that the motor insurance sector is experiencing. In addition, the Central Bank’s recent 2015 Macro-Financial Review identifies that developments in the legal environment present a number of uncertainties for the sector.
Insurers are concerned that many of the changes to the legal environment implemented by successive governments and the courts are retrospective in effect. These affect claims that have already been made but have not yet been concluded. Recent examples include the increase in the monetary limits of the courts in February 2014, when the Circuit Court limit went from approximately €38,000 to €60,000 for personal injuries. This has led to heightened expectations on the part of claimants and to inconsistency in awards. Retrospective changes of this nature, however justifiable they may be, increase the cost of claims and therefore have to be funded through premiums.
The investigation that has been called for is already under way. The Central Bank recently produced a report for the Department of Finance assessing the outlook for the insurance sector generally, and is separately carrying out a review of insurers’ reserving. The solvency of insurers is the best form of consumer protection and the immediate priority is to stabilise the claims situation. Insurers are taking the necessary action to rectify matters internally within their companies through restructuring.
Insurance Ireland proposes the following measures to limit the increase in premium costs:
- Ensure the Gardai and the Road Safety Authority are supported to maintain an adequate level of enforcement.
- Compensate victims at reasonable levels which society can afford.
- Reduce legal costs.
- Ensure flaws in the Injuries Board process are tackled so that claimants are required to turn up for Injuries Board medicals and to provide loss of earnings information.
- Act to ensure fraudsters are deterred. Suspended sentences are not an adequate deterrent.
- Fix the Setanta problem by amending legislation and the Motor Insurers’ Bureau of Ireland(MIBI) Agreement so the roles of the Insurance Compensation Fund(ICF) and MIBI are clear.
These measures are aimed at ensuring that we have a sustainable motor insurance industry protecting people at affordable premiums. To do that as a society we need to stop motor accidents happening in the first place, and when they do happen, have reasonable levels of compensation while keeping legal costs to a minimum. John Lowe the Money Doctor said “Injuries Board awards do not incorporate the legal costs hence in most cases, the injured party is advised by their legal counsel to take proceedings to a higher court. Everybody wins bar the consumer. It’s about time this was addressed.”