Pre­mium hikes leave us feel­ing that in­sur­ers are re­ally in the driv­ing seat

Irish Independent - Business Week - - NEWS -

THERE is al­ways a power dy­namic be­tween con­sumers and ser­vice providers in an in­dus­try. Some­times the power rests with the con­sumer – usu­ally when there is plenty of de­mand and plenty of com­pe­ti­tion. On other oc­ca­sions the power shifts towards the provider.

This was true of the mort­gage mar­ket af­ter the prop­erty crash when con­sumers felt like they had to beg for a loan. It was also true back in the days of State mo­nop­o­lies in things like air­lines and tele­phone ser­vices.

Re­mem­ber the cost of fly­ing with Aer Lin­gus to Lon­don or wait­ing weeks to get a phone in?

The power dy­namic has shifted dra­mat­i­cally in re­cent years in the motor in­sur­ance in­dus­try. Twenty years ago, cus­tomers had to just ac­cept mas­sive in­sur­ance pre­mi­ums. Then greater com­pe­ti­tion and le­gal re­forms com­bined to shift the power back to the cus­tomer. You could hunt for a bet­ter deal.

Now it has gone back the other way again. Driv­ers feel pow­er­less when it comes to un­der­stand­ing why their in­sur­ance pre­mi­ums are in­creas­ing so much.

The in­sur­ance com­pa­nies, which lost money un­der­writ­ing motor in­sur­ance for sev­eral years, are hik­ing prices with very lit­tle cred­i­ble ex­pla­na­tion as to how the cus­tomer’s pre­mium is cal­cu­lated.

You can tell when the power has shifted in an in­dus­try from your own deal­ings with the ser­vice providers.

My motor in­sur­ance was up for re­newal and I got a re­newal no­tice which quoted me an in­crease of 13pc.

I was very firmly told, be­fore I even had a chance to ask, that there was no way my in­sur­ance pre­mium could be re­duced at all.

When I pointed out that I was be­ing asked to pay €740 for a motor in­sur­ance pol­icy af­ter driv­ing for 24 years with­out a sin­gle claim, she cut across me say­ing my pol­icy should ac­tu­ally be even higher.

Par­tic­u­lar staff hav­ing a bad day etc ex­cluded, I was left with a strong sense that the in­sur­ance com­pany was in the driv­ing seat. I don’t be­lieve I am alone in feel­ing that way.

This com­pany was ei­ther con­fi­dent enough that I wouldn’t get a bet­ter price else­where or could live with­out my busi­ness. It was ‘ take it or leave it time’.

If the in­sur­ance com­pa­nies are telling the whole truth and they are sim­ply try­ing to get back to writ­ing prof­itable in­sur­ance, how is it they don’t come across as strug­gling op­er­a­tors keen to hang to or win valu­able busi­ness? Surely when times are bad, an in­dus­try will bat­tle for valu­able busi­ness. With a reg­u­la­tor and a govern­ment back­ing them, they are in a strong po­si­tion.

It is ex­tra­or­di­nary to think that Ir­ish politi­cians get so worked up about €160 per year in wa­ter charges but do noth­ing about in­sur­ance price hikes of dou­ble or tre­ble that amount.

There are a num­ber of fac­tors at play here. Firstly, the in­sur­ance com­pa­nies have shown that their un­der­writ­ing was un­prof­itable. They have the bless­ing of the Cen­tral Bank which is ef­fec­tively en­cour­ag­ing pre­mium in­creases to help them re­build their bal­ance sheets. They have the back­ing of the Govern­ment which up to now has done noth­ing to tackle this enor­mous and grow­ing prob­lem.

Michael Noo­nan or­dered a Depart­ment of Fi­nance re­view of the sec­tor a month be­fore the gen­eral elec­tion. Get­ting your depart­ment to look into some­thing is a real sign of a pre-elec­tion fig leaf. Why not have an in­de­pen­dent com­mis­sion with set terms of ref­er­ence and a short term dead­line to find out what is go­ing on?

In­sur­ance com­pa­nies are hid­ing be­hind the ap­par­ent mystery of ac­tu­ar­ial cal­cu­la­tions and pric­ing of risk which leaves us all in the dark.

For ex­am­ple, why will an in­sur­ance com­pany only ap­ply a no-claims dis­count where you are claim free for five years? Why not 25 years? The prin­ci­ple is surely the same.

A max­i­mum no-claims dis­count of 75pc seems very generous. In other words you pre­mium is 75pc lower than it would be if you had a claim. But how did they cal­cu­late the original pre-dis­count pre­mium in the first place?

Why is there re­peated anec­do­tal ev­i­dence that in­sur­ance com­pa­nies are pe­nal­is­ing driv­ers of older cars when ev­ery car has to be passed by an NCT? The in­sur­ance com­pa­nies will say their statis­tics point to higher claims from these ve­hi­cles.

Very young driv­ers who are prone to more ac­ci­dents might drive older cars be­cause they are cheaper. Ap­ply­ing a higher risk to an older car with an older driver, which is fully NCT com­pli­ant, doesn’t seem right.

In­sur­ance com­pa­nies say that higher pre­mi­ums are driven by higher claims costs and there is some ev­i­dence to sup­port this, but it has also been called into ques­tion by others.

Dif­fer­ent com­pa­nies seem to be shift­ing the fo­cus of their busi­ness into dif­fer­ent mar­ket seg­ments. Some don’t want young driv­ers, which re­duces the num­ber of firms com­pet­ing for that seg­ment of the mar­ket. Some have stopped in­sur­ing cars over 14 years of age al­to­gether, which leaves that mar­ket seg­ment weak­ened in terms of com­pe­ti­tion. The role of penalty points in the in­sur­ance sys­tem needs to be clar­i­fied. Govern­ment pol­icy is to in­crease the points and in­crease the num­ber of of­fences that can at­tract them.

With this in mind speed vans have been set up in places where the like­li­hood of an ac­ci­dent seems very low. It is a money col­lec­tion point.

Yet, in­sur­ance com­pa­nies don’t seem to spell out pre­cisely what the im­pact of penalty points is. Most peo­ple be­lieve you don’t get loaded if you have four points or fewer. That was equiv­a­lent to two of­fences. But the sys­tem changed to three points for some of­fences, rais­ing the ques­tion of whether you avoid in­sur­ance load­ing be­low six points.

In­sur­ance is a gen­uinely com­plex in­dus­try. It is about man­ag­ing risk. But surely in­sur­ers should be obliged to pro­vide more in­for­ma­tion as to how they came up with your pre­mium quote. For ex­am­ple, break down the con­tri­bu­tion to the price made by dif­fer­ent fac­tors, such as where you live, the age of your car, your own age, penalty points etc.

In the mean­time, we don’t know when enough is enough. One in­sur­ance bro­ker with years of ex­pe­ri­ence said in Jan­uary that price in­creases in 2014 and 2015 should be enough to re­store prof­itabil­ity to the sec­tor and there should not be any need for ma­jor hikes in 2016. Yet, they keep com­ing.

We won’t know the prof­itabil­ity of the sec­tor in 2016 un­til well into 2017. At that point it could be too late and we may all have been fully fleeced.

Michael Noo­nan’s re­view isn’t due to be pub­lished un­til the end of 2016. He is in no hurry. When com­plete it will have zero statu­tory sta­tus but will sim­ply be the re­sults of a fact-find­ing mis­sion. If it con­cludes that changes are needed, it could take an­other one to two years be­fore any­thing hap­pens.

Mean­while, we are sup­posed to just soak it up and hand over the cash.

Politi­cians get worked up about wa­ter, while motorists face crip­pling in­sur­ance costs

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