Insurance companies are trying to defend the indefensible

There’s an old adage that if you’re explaining, you’re losing, and it’s one that is apt for the insurance industry right now.

On Monday, the Central Bank of Ireland published a report on private motor insurance that appeared to debunk a lot of the claims made by the industry about why premiums have been rising so steeply in recent years.

Between 2013 and 2018, the cost of claims per policy increased by 14 per cent to €426 while the increase in premiums was 62 per cent to €706 (although industry group Insurance Ireland argues that this does not take account of provisions for future claims).

Claims as a percentage of premiums fell from a high of 94 per cent in 2014 to a low of 59 per cent in 2017.The frequency of claims reduced by 40 per cent.

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The operating profit last year of the 20 insurance groups who provided data to the Central Bank was 9 per cent of their income. The UK equivalent was 5 per cent, so Irish insurers stand accused of milking consumers here.

Insurance Ireland had a 570-word reaction statement prepped for publication to coincide with the release of the Central Bank’s report.

Among the five key points in Insurance Ireland’s release was the line explaining that the “Irish motor market was loss-making for several years”, conveniently ignoring the healthy operating profits recorded in 2018.

Nor will you find any acknowledgement that a large slice of those losses was down to them stupidly chasing market share by offering below-cost motor cover to consumers, notably between 2010 and 2013, and by not pricing risk correctly.

Administration

In the past decade, Quinn Insurance was placed into a costly administration process by the Central Bank, while RSA required a €500 million-plus injection of capital from its UK parent post-2013 when a large hole was found in its Irish balance sheet. As a consequence, RSA was fined €3.5 million by the Central Bank for various regulatory breaches.

Malta-registered Setanta Insurance went into liquidation in 2014, leaving 75,000 motorists in Ireland high and dry without cover. Setanta had offered rates that were simply too good to be true.

The European Commission started a formal investigation into whether Insurance Ireland has been operating a cartel

In 2016, Gibraltar-registered Enterprise Insurance went into liquidation, leaving just shy of 50,000 policyholders here without cover.

There was also no mention in Insurance Ireland’s release about the Competition and Consumer Protection Commission’s investigation launched three years ago into whether motor insurers and brokers had engaged in anti-competitive practices by openly signalling premium price moves.

As you'll see elsewhere on irishtimes.com, the CCPC told my colleague Joe Brennan that it was at at an "advanced stage" of its investigation.

Last May, the European Commission started a formal investigation into whether Insurance Ireland has been operating a cartel by restricting access to a claims database. There was no mention of that in the release, either. For the record, Insurance Ireland denies restricting access to the database.

There are many moving parts to the debate on motor insurance costs. The Central Bank report shows that just 16 per cent of claims were settled through the Personal Injuries Assessment Board (PIAB), half the level settled via litigation.

And yet all personal injury claims must go through PIAB, an independent State body. Clearly, something isn’t working here.

Between 2015 and 2018, the average compensation paid to claimants taking their case through PIAB was €22,631, almost exactly half the level of award for those who pursued litigation through the courts.

Marginally higher

However, when you strip out the litigation cases where the the injuries are more severe and the awards are €100,000 or more, the average compensation paid is €23,199, only marginally higher than PIAB.

The many high-profile failures in the Irish market raise questions about the oversight being applied

The legal costs, however, are vastly different – an average of €753 in the case of PIAB (where cases take 2.5 years to complete) versus €14,684 when pursued through the courts (average timeframe 4.2 years).

For roughly the same financial outcome, claimants have to wait longer for their settlement and the legal fees soar. The data suggests this is a lucrative line of work for lawyers.

Regulators also have a case to answer. The many high-profile failures in the Irish market raise questions about the oversight being applied both here and in Malta and Gibraltar. Every motor insurance policy in the State will include a levy for many years to come to pay back the near €1 billion hole found at Quinn Insurance.

The Central Bank’s report this week is welcome in that it provides a greater level of transparency around motor claims. But there are still large gaps in the data, where a light needs to be shone before we get the full picture. If indeed we ever do.

Meanwhile, if your insurer hits you with a premium increase in the coming weeks, in spite of you avoiding any claims or penalty points over the previous 12 months, don’t just take their usual spin on a rising claims environment. Challenge them on the facts.