Are we the worst drivers in Europe? To judge by our insurance premiums we must be. In fact, we have one of the highest rates of insurance as a percentage of earnings in the world. In the first of a four-part series, Michael McAleer examines why premiums have escalated and what measures are being taken to reduce the cost of claims
It is difficult to make direct comparisons between European insurance rates, as the amount of cover given by the national health system in each state varies and therefore the cost to insurance firms vary. However, on a general European index, Irish premiums are twice those of other European states. In Sweden, for example, motor insurance costs represent 0.9 per cent of average earnings, while in Ireland premiums represent 3.7 per cent.
So what makes us so high risk? Those involved in the industry assign blame to our bad roads, poor driving skills, speeding, and young men. But anyone who has braved the hills of Sicily or driven in rural parts of southern Europe realises that we are not alone in having these high-risk traits.
In fact, according to figures from the National Roads Authority our accident rate stands at the European average and has done so for several years. Ireland has less than half the road deaths of Portugal, and a rate significantly better than Greece, Austria, Belgium, France, Spain and Luxembourg. In recent years, there has been a gradual downward trend in the number of road deaths, and this despite a massive increase in the number of vehicles on Irish roads (a 60 per cent increase since 1990). Yet we pay much higher premiums.
The reason seems to be less to do with our driving habits and more to do with the cost of processing claims. An estimated 64 per cent of the cost of motor insurance payouts in Ireland is legal and administration in the majority in smaller claims, and 47 per cent in larger claims, according to a report by Deloitte & Touche. It seems that while the first call after an accident is to the Garda, the second is to our solicitors.
Take our nearest neighbour as an example. The British system is virtually identical to the Irish system, yet legal counsel get involved in almost half (48 per cent) of all Insurance claims in Ireland and only 3 per cent of cases in Britain. Claims in Ireland take 3.6 times longer to settle and are far more likely to wind up in court than claims in Britain. And while 60 per cent of Irish cases are settled in court, 60 per cent of British cases are settled over the phone or through correspondence, without even a meeting. On average, claims in Britain cost one quarter the amount of a claim in Ireland.
But it is not just the lawyers who are to blame. According to Conor Faughnan of the AA, the high premium costs can also be attributed to a malaise in the Irish insurance industry as a whole. "The insurance industry itself has presided over a complacent rise in costs which have simply been passed on to motorists in premiums. Therefore there was no incentive to control costs." Not surprisingly, this is strongly refuted by the Insurance Industry Federation (IIF), which refers to a report it commissioned last November into profitability in the Irish insurance industry. The report claims that Irish insurers' expenses and distribution costs are below a European benchmark (UK, France and Germany).
According to IIF chief executive Michael Kemp, the report demonstrates "that insurers are not profiteering in the Irish motor insurance market, and that there is no systematic overcharging of policyholders.
"The cost of compensation for injury, the legal costs associated with handling litigation, and the cost of repairing damaged vehicles have all been increasing at a significant rate." So what can we do to reduce the premiums? An obvious first step is to reduce the number of claims by improving our road safety record. The Road Traffic bill is a step in the right direction, with the introduction of penalty points and other enforcement systems that seem to operate well in other European states. However, so long as driving is open to human error, there are going to be accidents - so there are going to be claims. Therefore we must look at reducing the cost of claims.
The creation of a Personal Injury Advisory Board is also seen as a positive move to reduce costs. Similar to the system in Sweden and Britain, the board would decide on compensation levels in cases where liability is not disputed. In these cases there is no need for lawyers to be involved. The concept is not a new one - Sweden has had such a board in operation since 1936 - but better late than never. The Government has promised to create such a board by "early 2002". So far it has failed to materialise.
The Government has also created the Motor Insurance Assessment Board, to investigate the rising costs of premiums in the Irish insurance market. It is due to report in the coming weeks and is likely to call into question the figures used by insurance firms to support their argument for premium rises.
Finally, while we can point fingers at the insurance firms, the bad roads, the cost of litigation and even the procrastination of Government, some blame must fall on the motorists. While we bemoan the cost of processing claims, we ourselves are very fond of the courtroom. A culture of litigation that has grown up over the years has played a large part in the hefty premium costs. If drivers were a little less interested in seeking the maximum compensation possible for every minor scrape, everyone behind the wheel would benefit.