We can’t afford to lose chance for reform in costs of motor insurance
ALL businesses operate on the basis that the product or service sold must reflect the costs involved. In insurance, that means the premiums of the many must reflect the claims of the few.
This has been true since insurance began and the principles remain the same today in motor insurance, where your policy affords protection in the event of an accident or injury and the market reflects the cost of paying those claims. Unfortunately, in Ireland we have a situation where our claims costs are dramatically out of kilter with other countries’ and this has understandably caused considerable public frustration.
Much has been made about how we got to this point, including an opinion piece in this newspaper yesterday, which tried to argue that the insurance industry’s analysis is incorrect.
The point appears to be that increases in the cost of claims and the increase in the value of an average Circuit Court award do not explain how we arrived at the current situation.
Not only is this not accurate, nor a full representation of our analysis, but the fundamental inaccuracies in the argument could undermine the opportunity that exists in 2018 to tackle the costs of claims that motorists ultimately pay for.
The author focuses mainly on claims paid figures, including one of a 2.8pc increase in the claims paid from 2014 to 2015, and a 19pc increase in claims incurred in the same time, to say these movements do not support our analysis.
The Cost of Insurance Working Group (CIWG) report, which the author takes some of their figures from, stated that ‘analysing settled or paid claims only does not provide a correct picture of the evolution of claims costs’.
Claims incurred is a more accurate reflection of total costs and includes claims notified to insurers but not yet settled.
Insurers are required by regulation to set aside money for the potential cost of unsettled claims, to ensure the money is there to pay compensation due.
Generally, only a fifth of all claims by value are settled in the first year and the balance can take many years to settle. When the potential liability for a claim increases due to changes in the claims environment, you then must provision for it.
From 2012-2015 there was a 44pc increase in the gross cost of claims incurred, so motor claims must be provisioned for and paid at potentially a far higher cost. Added to that is the significant decline in insurers’ investment returns as a result of low interest rates, resulting in lower income to mitigate the effects of rising costs.
The author also states that insurers should not cite a 48pc increase in the average Circuit Court award from 2013-2016 due to changes in the limits on award levels in the Circuit and District Courts. The argument goes that if the Circuit Court can give out higher awards, then it will take more claims which would previously have been settled in the High Court, and similarly more Circuit Court cases would be settled in the District Court.
Unfortunately, the changes in limits haven’t significantly altered the number of cases being settled in the Circuit Court.
As most motor claims that go to court end up there, the increase in the average award matters as it sets expectations and acts as a reference
point for unsettled claims. The defining issue in motor insurance is the cost of claims, as it has been for many years.
THANKFULLY, the CIWG gives us the framework to tackle costs, especially through the critically important work of the Personal Injuries Commission, which will benchmark with other countries.
Soft tissue injuries, including whiplash, account for 80pc of awards and we know an average whiplash award is more than three times a similar one in the UK. This is simply comparing apples with apples, except the average apple here is over three times the price.
Insurance Ireland recognises the public desire for action and supports the work of the CIWG.
Insurers want reform and have opened their books by providing data on five occasions in 24 months to allow comparisons of our cost of claims. We appreciate that those not close to this work may not be aware of these developments or what they mean for policy reform.
Therefore, there is no question of transparency, there is only a question of when we will reform our claims costs. There is a real opportunity in 2018 to bring about reform of costs and advancing solutions to this issue should be the focus of all stakeholders.
Soft tissue injuries account for 80pc of awards and an average whiplash award here is three times more than it is in the UK