Report challenges insurers' loading on young motorists

The Motor Insurance Advisory Board has challenged the insurance industry's claim that premiums running into thousands of pounds for young drivers were justified. The board - set up in 1998 - looked at the raw premium and claims data of the larger insurance companies for the period 1993 to 1997. What they found was surprising. The insurance companies made bigger profits on younger drivers than almost any other category. They also made more money on women drivers than men. Significantly, they lost money on almost no drivers.

The board also found signs that competitive practices in the industry may not be all they could be. It also emerged that the board got something less than full co-operation from some insurance companies.

Chaired by Ms Dorothea Dowling, the group liability manager of CIE, the Motor Insurance Advisory Board was established in September 1998 in the wake of growing concern about the rising cost of car insurance. The board confined itself to looking at premiums and claims.

It did not take into account the insurance companies' administration costs on the basis that they were constant for every type of driver. They also ignored the profits earned by insurance companies from investing premiums. The board had 16 members drawn from Government departments, the insurance industry, business and the Garda. The board's most significant finding - by its own admission - was that insurance companies did not lose money on insuring young drivers, apart from those in the under-18 category. Not only do they not lose money on young drivers, they actually make bigger profits on them than other types.

"Young policyholders, who pay the highest rates, produce larger surpluses of premium over claims costs than most of those aged 25 and over," according to an executive summary of progress reports prepared for the board and released under the Freedom of Information Act.

"The classification of all `drivers under 25' as a non-profitable risk for insurers is now open to question. For example, the margin of premium over claims cost was £211 for ages 22-24 compared to £60 for ages 46-55, or a 258 per cent higher margin," it continues. The report also revealed that old-age pensioners were among the most profitable sector, with profit margins of 30 per cent being made on policies sold to people aged 66 to 70. A large portion of the report was devoted to women drivers, who appeared to be "contributing more than their fair share in certain instances". The board singled out women aged 51 and over who they said paid consistently higher margin.

Young female drivers also appear to be penalised. "Female policyholders aged 19 to 20 delivered a profit of £730 each compared to £186 for males," said the report.

A number of questions was also raised about competitiveness in the market. "There is a more limited choice of quotations available for young drivers and for those over retirement age compared to the range of alternatives for ages over 25 and under 70. The question arises whether such market conditions are reflective of imperfect competition than claims costs," asked the report.

The preliminary results clearly caused some discomfort to the insurance industry as the report - presented last summer - said that the Irish Insurance Federation (IIF) was reconsidering its position on providing the raw data required by the board. "If the IFF does not provide raw data, the majority of the board believes it may become necessary to recommend an alternative and more rigorous forum for investigation in this area of a public concern," concluded the board. The IIF subsequently agreed to continue to co-operate with the board, according to the Department of Enterprise, Trade and Employment. A final report - based on the full data set - is due later this year.

The board also expressed some concern about a company called INSECOM, established by the five main insurance companies to run a system that provided automatic quotations to brokers. "A joint venture on broker quotations by five companies representing over 50 per cent of the Irish motor insurance market may warrant examination by the appropriate authorities to ensure compliance with antitrust laws," according to the report.