Car insurance sector coy about profitability

Shame on me. Like many others, I doubted the Irish motor insurance industry was anything other than a force for good in the land. I read and believed the interim report of the Motor Insurance Advisory Board which was released under the Freedom of Information Act earlier this year. The board found that insurance companies were making profits on almost every class of motor insurance, including young drivers.

Worse than that, in some cases - such as young women drivers - the insurance companies were making super-normal profits, said the board. The report turned on its head the picture painted by the Irish insurance industry over many years of motor insurance as a fundamentally unprofitable business.

It was with some relief then that I read the recent study on profitability in the motor insurance market produced by the Irish Insurance Federation. The reassuring news is that international actuarial consultants Tillinghast-Towers Perrin found that profitability was in fact cyclical. The cynic could argue that anyone in business will tell you that profits always cycle in business and this is not the same thing as fundamentaly unprofitable, but we will not go down that road.

Let's focus instead on the other finding that "the Irish motor sector has not provided an adequate return on capital to investors in the long-term". If this is true, then it must be the case that some of the world's biggest and best-run insurance companies have operated here for decades out of some sense of philanthropy.

But before you run out and hug a motor insurance executive, let's have a reality check. What is actually going on is that the Irish Insurance Federation is engaged in classic spoiling tactics. It has published a glossy report in anticipation of the final report of the Government-sponsored MIAB, which is due by the end of the year.

The report, which one suspects will not be that different to the interim report, is long overdue for reasons that are not unconnected to the IIF. The industry is represented on the board by the IIF, but the federation withdrew its full co-operation last year after the interim report was drawn up and it became clear that things were not going the IIF's way.

The MIAB had decided to conduct its own analysis of raw data on individual insurance policies, rather than rely on the statistics supplied by the industry over the years which supported its claims about the unprofitable nature of the motor sector. The board's findings were quite astonishing. All classes of driver, bar those aged 17 and 18, were profitable - and even the unprofitable drivers account for only 0.3 per cent of risks. The interim report also highlighted profits of up to £730 (€927) per policy being made on female drivers aged 19 to 20, and profits of £186 on male drivers of the same age.

The federation's response to the board's interim report was to commission its own report, which it has now published. This is fair enough, but the IIF has left itself open to an allegation of bad faith by failing to provide the MIAB with the data it needs to complete its report. The federation can, with justification, argue that providing the board with the raw data it requires is time consuming and thus expensive. But so is commissioning a report from Tillinghast-Towers Perrin. The issue is now academic, as the MIAB has decided to go ahead with a final report based on the information it has to hand.

Meanwhile, the IIF has gone on the offensive, cherry picking from its own report to find facts and figures supporting its position, while at the same time skimming over some rather less useful findings.

One such figure is to be found on Page 32 of the Tillinghast report, which shows that since 1983 motor insurers operating in the Irish market have made after-tax profits totalling £342 million. This is more than 11 times the after-tax profits made by the UK motor insurance industry in the same period.

Similarly, the Irish industry as a whole lost money in only three years between 1983 and 1999, while its counterpart in the UK has lost money on eight occasions.

The report also confirms some of the most worrying trends in the board's interim report. These include the finding that some sections of the market are paying well over the odds for insurance, amongst them men and women aged between 17 and 25.

Needless to say, these issues are not addressed in the federation's summary that accompanies the report. Instead, it trumpets comments from Michael Kemp, the chief executive of the IIF, to the effect that "there has been no systematic overcharging of motor policy holders" and that "Irish average claims costs are twice UK claims".

Nobody disputes that claims costs in Ireland are high and that this is obviously the major factor in the high cost of insurance. The extensive use of lawyers by all involved is part and parcel of these costs.

But what is annoying is the consistent attempts by the insurance industry to deny that they are still making significant profits out of this fundamentally flawed system. We now have two conflicting reports on the issue.

One is from a State-sponsored body with no obvious agenda, which has found that insurance companies make profits on 99.7 per cent of risks and abnormal profits on some segments of the market.

Against that we have a report, by a very reputable firm of consultants, that was commissioned by the IIF and has contradicted some aspects of the MIAB report, but in no way can be said to have rebutted it. Yet the federation is now asking us to take its report as the last word on the matter, while being less than co-operative towards the Government body set up to look at this very issue.

As long as the IIF continues to adopt this approach, it is hard to escape the conclusion that the industry still has something to hide about its profitability.

jmcmanus@irish-times.ie