Car insurance comes at a premium for drivers who have no choice

We had become used, almost inured, over the decades, to steadily escalating car insurance costs in this country. Indeed, by the late 1980s and early 1990s, it was not at all unusual for the cost of a year’s cover to be more than the price of a cheap second-hand vehicle.

Insurers handed out the standard excuses of high accident and claim rates, and it was hard to argue with them – Irish roads were undergoing a time of carnage.

Succour came over the past decade though as serious and fatal accidents declined, cars and roads became safer, and premiums went south. For a while, an average customer with an average car could have bought fully comprehensive cover for less than €300.

In 2015 and into this year, that all changed and the cost of car insurance has risen dramatically, despite there not being a major spike in accidents. The average cost of insurance has, according to the Society of the Irish Motor Industry (SIMI), risen by a third in a year.

So why are we now expected to pay so much more for our, legally required, car insurance?

The sad and immediate answer seems to be massive imprudent trading over the past few years by major Irish insurers. A spokesperson for Aviva insurance told The Irish Times that: "The Irish insurance industry has made losses of €64 million, €220million and €172 million in 2012, 2013 and 2014 respectively in the private motor business. This €456 million cumulative loss over the last three years is expected to be followed by similar losses in 2015 due to unsustainably low industry pricing up to 2014 and to a marked deterioration in the claims environment with both average settlement cost and frequency on the increase. The market is in considerable turmoil."

So the industry is making losses? Perhaps not. Aviva's most recent full-year results were announced last March, when Hugh Hessing, Aviva Ireland chief executive officer, said: "Today's results show that Aviva Ireland continues to improve its performance. Profit across the three businesses was up by 13 per cent to €69 million. We returned €96 million to group, up 20 per cent on last year."

The spokesperson said: “Uniquely in our economy, prudent players in the insurance sector are being asked to pick up the tab for competitors who have become insolvent by virtue of their failure to reserve and price for the risks they wrote.

"The Central Bank's thematic review of bodily injury (November 2015) found thatbetween 2012 and 2014 the average cost per claim had increased by about 8 per cent in private motor, approximately 27 per cent in employers' liability and approximately 8 per cent in public liability, while claims frequency in private motor had seen an average increase of 8.3 per cent in 2014. Awards are at an all-time high (average High Court award up 34 per cent in 2014).

“All of these pressures have built up at a time of historically low interest rates which have had a negative impact on the investment income of insurers. In effect, the industry is caught in a perfect storm where the only option for a prudent business is to increase premiums.”

Premiums spike scarily

And it is we who are paying for the turmoil and the prudence or lack of it. Premiums have spiked scarily, with some customers contacting us to say that existing insurance of about €400 has attracted a renewal quote of more than €1,400.

It is the least well-off who are suffering the most, especially following Aviva’s decision last year to restrict the availability of cover to cars older than 14 years. Given that the highest volume of cars ever sold in the Irish car market was in the years 1999 to 2003, that’s a lot of the available car park which is effectively uninsurable, especially as others have followed Aviva’s lead in this.

“It focuses on the age of the vehicle and ignores the legally required annual NCT which classifies the car as safe and roadworthy,” said Dermott Jewell, of the Consumers’ Association of Ireland. “To have achieved a pass required the owner to have paid out significant sums of money for service and maintenance – this is also ignored. Providers within the insurance industry have decided that all such cars are a risk and not to be insured. While acknowledging that existing cover will be maintained, it nonetheless is clear that they don’t want this business.

“Many will not be in a position to change and so they will either stay with their current insurer or risk moving in an environment now where all other insurers will look with some scepticism at the older car and, potentially, add a loading to the cost or increase the excess or more,” said Jewell.

“The CAI believe it is time for Government to consider what is happening. Insurance is legally required for all motorists. If there is a problem in terms of affordability then it must be reviewed in depth. The Motor Insurance Advisory Board (MIAB) did just that some years ago,” he said.

"One of its recommendations brought about the creation of the Personal Injuries Assessment Board. If, as industry says, it is the cost of claims that are rising beyond affordability and forcing decisions such as these then it is time for the MIAB to be restored to carry out an independent, in-depth and forensic review of the factors and costs affecting the cost of motor insurance provision in Ireland as it did previously."

Yet it is precisely these factors that the insurance industry itself is claiming as justification for the rise in the cost of premiums.

“We believe fundamental reform is needed to halt premium increases,” said the Aviva spokesperson. “For example, cutting legal fees by 50 per cent could result in a €50 saving in an average premium; cutting fraud by 70 per cent could result in a saving of €56; and cutting the cost of whiplash awards by 70 per cent could result in a saving of about €100. Poor regulation of insurance companies regulated outside of Ireland but operating in this market is also driving up the cost of premiums because, as of now, the legal position is that prudent insurers must reserve against the risk of future market failures in Ireland. If we reversed this position, reformed our awards system, tackled the high incidence of fraud, and reduced the legal cost of dealing with claims, we believe we could effect a significant reduction in premiums.”

Frustrated customers

Customers are becoming frustrated though.

Barry Jones

, who works with adults with learning difficulties, struggled to even get a quotation for his beloved 2003 Honda S2000 . “It was restrictive and frustrating. I filled out multiple online forms only to be told I could not be offered insurance. The only one left to try is Zurich but their online system didn’t give me a quote or even ballpark figure.” This is not for an old banger, either, but for a cherished and cared for car.

Many, many more of us are about to come up against this wall. According to Michael Rochford, CEO of Motorcheck.ie, "There are 2.1 million passenger vehicles on Irish roads today, of which 995,000 (47 per cent) are 10 years old or more. The average age is just under nine years old. Over the next three years another 472,000 cars will exceed the 10-year-old mark."

Because insurance is legally required but provided by third-party private companies, the Irish motorist is being placed in an invidious position. In spite of the fact that, historically, Irish roads have never been safer and that there are more people than ever driving, giving a broader base across which to spread the cost of insurance (the whole point of insurance in the first place), motorists are effectively being forced to pay for the mistakes and poor trading standards of the insurance industry.

There is some hope on the horizon, according to the Department of Transport. An inter-departmental working group has been established to look at the cost of car insurance and make recommendations.

Sadly, the group has only just begun to work on the issue and, with the general election looming, don’t expect this to be at the top of anyone’s priority list any time soon.