AA Warns Government Momentum Lost In Tackling Insurance Costs

Motor Insurance costs are far higher than they should be for consumers because Government attention has wavered and identified reforms have stalled, according to the AA. This was being treated as a crisis by government two years ago but necessary changes are not now being pushed through.

In an update to its initial ‘5 Point Plan to Tackle Rising Premiums,’ published in November 2015, the insurance intermediary today highlighted that an absence of proper reform and new legislation has resulted in little change for the average motorist. AA Ireland warned that the emergence of many other political issues, from Brexit to Housing, has led the Government to take its eye off the ball in resolving the insurance crisis. Motorists are in a worse position now than they were when the insurance crisis first emerged.

“Sky-high premiums are the new normal.” Says AA Chief Executive Brendan Nevin. “People were shocked by this two or three years ago. The shock has worn off but the price increases have not.”

“In recent months premiums have dropped slightly according to the Central Statistics Office which has had the negative side-effect of allowing Government to treat this as yesterday’s problem.  The spike in premiums gave government an opportunity to introduce necessary reforms and legislation to create a healthier insurance market, which would have greatly benefitted the consumer, but they have failed to follow up their initial report with serious action. It is a crisis wasted.”

Despite recent CSO findings indicating that insurance costs had dropped slightly, the AA estimates that the average motorist is still paying an extra 25.3% for insurance than they were in November 2015.

“Two years ago the AA launched its report and began a sustained campaign of lobbying to get these issues tackled. There followed the Oireachtas Transport Committee Report and Minister Eoghan Murphy’s Working Group Report.” Says Nevin. “We were delighted with them. They reflected our concerns and promised solutions. Now in 2018, very little has been delivered.

The AA believes that since the working group published its first report the political will to solve the crisis has largely dissipated – with political attention switching elsewhere. “We want to see this work completed with the same energy as when it was started.” Says Nevin. “The measures we proposed two years ago would not take significant effort or financial capital to implement, but would lead to a healthier insurance industry and greatly improve the existing situation for the consumer.”

The AA is calling on the government to reassess the initial report from the Cost of Insurance Working Group and determine what further actions are needed to improve the existing situation, particularly in 5 key areas outlined in its original 5 Point Plan.

The five areas identified by the AA are as follows:

  • Fraud – Work together to block fraud at every turn
  • Legal – Standardise awards and remove the uncertainty
  • Regulatory – Resource up and protect the industry
  • Enforcement – Invest and modernise
  • Industry Transparency – Share the data and learn

“A number of actions contained in the initial Cost of Insurance Working Group report involved monitoring or analysing certain events such as claims awards abroad, but fell short of recommending a direct action that would follow this analysis,” says Nevin. “Given that the crisis is still unresolved we now need to see leadership from the working group and the top level of government to finally implement necessary changes which would greatly benefit the average motorist. Without this proper leadership and action we will still be discussing many of these issues in two years’ time.”

The AA makes the following specific recommendations:

  1. Fraud

Insurance fraud is estimated to add €50 to the cost of every motor insurance policy in Ireland. Fraud comes in various forms. Some involve pure criminality like deliberately staged accidents, some are less sinister like motorists chancing their arm by driving after their insurance has expired. All of them cost honest motorists money and none should be tolerated.

The AA proposes the following:

  1. a) Appoint an independent body to complete the development and roll-out of the Integrated Information Data Service (IIDS) data hub. This is a system that has been delayed in development for the last six years. When complete it would allow insurers to share information on motor insurance applicants and to detect fraudulent patterns of behaviour. It could be a key measure to prevent known fraudsters switching between insurers. It would also make life simpler for honest motorists by removing the need for them to obtain written proof of No Claims Discount, currently a barrier to shopping around.
  2. b) Insurers have a lot of information and profiling data on certain individuals that enable them to detect fraud or potential fraud before an insurance policy is provided. This data should be shared between insurers and should be shared with the Garda. Currently data protection concerns mean that this information is not shared as it is in the UK through services like Experian. This allows potential fraudsters to play the field and commit successive frauds.

UK law is similar to Irish law and obeys the same European data protection principles. If it can be done there it can be done here. Properly implementing the IIDS data hub while addressing the data protection concerns is key to this. The AA also believes that access to the hub must be industry-wide and available to all insurance providers from the beginning.

These changes require action by:

The Departments of Transport & Justice, the Insurance industry via Insurance Ireland, and the Garda.

2. Legal changes

  1.  The Insurance industry is facing rising costs from Court Awards that are unpredictable, varying from one court to the next for apparently similar cases, and are forcing insurers to increase reserves, in turn pushing up the cost to the consumer. Ireland also has very generous levels of compensation by international standards and an extremely high number of whiplash cases.
  2. The Injuries Board only assesses 20 per cent of claims. Ten per cent are resolved in court, which is a much more expensive process. Sixty per cent of the value of compensation paid via court settlements goes to pay legal costs which is extremely wasteful and adds no value (other than to the legal industry).
  3. Seventy per cent of cases are settled directly by the Insurer. For those cases there is limited visibility of data on issues like the level of legal costs and the amounts paid. This is because Insurers generally do not share any data other than what they are obliged to share with the Central Bank.
  4.  The Insurance industry faces more uncertainty because of changes to the ‘Discount Rate’, which is the assumed rate of investment return that makes a big difference to the cost of large insurance pay-outs. The Discount Rate has been taken as three per cent since a legal precedent was set in 2003 but in 2014 a judgement in the ‘Gill Russell’ case set the rate at one per cent, which effectively meant much larger costs to insurers. The industry must now charge customers more as a result because they are unsure which rate will apply in the future.

The AA proposes the following:

The Government via the Department of Justice, in co-operation with the Injuries Board and the Courts Service, must act to:

  1. a) Strengthen the Injuries Board and reduce the incentive for claimants to take personal injury cases to court – where payouts still remain a lottery. In addition, following the update of the Book of Quantum it is important that the judiciary adhere to this when setting court awards to minimise any difference between PIAB and court awards, further reducing the incentive to go to court.
  2. b) The Civil Liability & Courts Act of 2004 gives the Minister for Justice the right to decide what the discount rate should be but no Minister has done so. Minister Flanagan should do so without delay. This is currently scheduled for review in May/June 2018.

These changes require action by:

The Minister for Justice, The Department of Justice, the Law Society and the Courts Service

3. Regulatory 

Let’s have no more ‘Setantas’. This insurer was regulated in Malta but did all of its business here. It failed last year leaving 70,000 customers with no cover and leaving 1,750 unpaid claims, worth €94 million, for the Irish consumer to pay. These costs are to be covered by the Insurance Compensation Fund and State funds – meaning the consumer will cover 100% of the costs.

While EU rules mean that insurers regulated in other states must be allowed to trade here, there is no EU law that says we have to tolerate it and pay the consequences if the over governments fail to do their job properly.

The AA proposes the following:

  1. a)  Introduce necessary legislation to prevent any future repeats of Setanta.
  2. b) Provide greater resources must be given to the Central Bank to enable it to regulate the sector properly – in turn making the risks of future Setantas significantly lower.

These changes require action by:

The Central Bank of Ireland, the Department of Finance and the Insurance Industry via its representative body Insurance Ireland.

4. Enforcement

All motor insurance claims begin with a crash. Ireland has performed very strongly in terms of reducing death and injury on our roads but since 2009 the level of resources provided to the Garda has been allowed to fall. The strength of Garda Traffic Corps went from 1,200 in 2009 to 623 in 2017.

Current plans for 70 new Gardaí to be added to the Traffic Corps by end of Feb 2018; 80 more on a phased basis through 2018

At the same time the force needs to have modern tools. The AA has called for the abolition of windscreen discs, as has been done in the UK, and their replacement with camera-based technology. When carried out in the UK in 2014 there was a 42 per cent increase in fraud detections in the UK. This trend has continued in subsequent years. For example, in 2016 the Association of British Insurers recorded an approximate 30% decrease in incidents of organised insurance fraud compared to 2015. (2017 data not yet available)

The AA proposes the following:

  1. a) The Government must commit to restoring the Garda Traffic Corps resources and increasing its numbers.
  2. b) Set a deadline for the elimination of the paper windscreen disc, which are a fraudster’s charter, and replace them with Automatic Number Plate (ANPR) technology. This is a system of cameras, either car-mounted, fixed, mobile or hand held, that can read car registration numbers and check them against a database in real time.

These changes require action by:

The Department of Transport and the Garda.

5. Transparency and public sharing of data by the Insurance Industry

The Insurance Industry through its representative body Insurance Ireland has pointed to a number of factors in their cost base that are pushing up insurance prices. The AA has some sympathy for this but the burden of proof rests with the industry and their reluctance to share clear, precise and comprehensive data inevitably leads to scepticism.

When insurance claims are settled, 20 per cent are handled by the Injuries Board and the data is clearly visible. Ten per cent is handled by the Courts and while data is imperfect it is available. Seventy per cent is handled by the Insurers directly and there is no proper information on the different elements contained in that. While some data is reported to the Central Bank it is not comprehensive. Issues like legal & investigative costs, the nature of settlements and other key data is not shared by Insurers.

The AA proposes the following:

  1. Introduce necessary legislation which would force insurers to openly publish comprehensive data on the cost of claims. This includes reporting on the nature and detail of the claims that they are settling directly and what the component costs are, including & specifying what portions are material damage, injury compensation etc. Insurers must report clearly on legal costs, how they are made up and to whom they are paid.

“When the insurance crisis first emerged, the Insurance Industry reported a severe escalation in the cost of settling claims as one of the contributors to rising premiums,” says Nevin. “This claim was backed up by the 30% of cases for which we have data and we had a degree of sympathy for them. However, two years after we first recommended they make the data for the other 70% of cases publically available the industry has still refused to do so. If they want to prove their case and ensure the support of motorists then this data needs to be made available.”

These changes require action by:

Individual insurers and the Insurance industry via Insurance Ireland, Central Bank of Ireland.

The AA believes that these reforms are not inherently complicated or difficult. With sufficient good will on all sides they can be brought about quickly. The AA is calling on the Taoiseach to lead the Government, the Insurance industry, the Garda and the Legal professions to work together immediately to bring them about.

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