To reduce prohibitively high premiums the motor insurance industry must first help to tackle Ireland's notoriously bad road safety record, says IIF chief executive Michael Kemp
Motor insurance is expensive. This fact does not suit motorists and it does not suit insurers. However, there is a widespread perception in Irish society that motor insurance is profitable for insurers; and a suspicion that insurers may be overcharging some of their customers.
The insurance industry realised that it was necessary to conclusively establish whether this was true. Only an authoritative, independent study of the market would achieve this aim.
The Irish Insurance Federation (IIF), on behalf of its motor insurance members, commissioned actuarial consultants Tillinghast-Towers Perrin to research pricing and profitability in the Irish insurance market over the period 1983-1999. This research was published in November 2001 and was the most comprehensive study of its kind ever undertaken for the Irish motor insurance market. The findings noted that:
For motor insurance companies operating in Ireland it has been apparent for some time now that three determining factors lie behind rising claims costs: the number of claims made - nearly 240,000 in 2000, including tens of thousands of injury claims; the average cost of claims - motor insurance claims, especially personal injury claims, cost more in Ireland than in other European countries. Ireland's relatively generous system of compensation is funded not from the deep pockets
of financial institutions, but from the insurance premiums motorists pay; and handling costs - insurance companies pay over 42% of the cost of personal injury compensation in legal fees and fees for expert witnesses, medical reports, etc. In smaller cases legal fees can even exceed the compensation paid.
Furthermore there are inconsistencies in legal costs between different courts and parts of the country. Perhaps most importantly, the system we have for handling claims is inefficient; it is bureaucratic and it tends to encourage delay in settling cases, which in turn increases costs.
These three factors combine to make motor insurance more expensive in Ireland than in other countries.
Motorists, or their insurance companies, cannot dictate to the courts what they should award in damages or allow in legal costs, but we have to be aware that damages are much higher in Ireland than in most other countries. High damages and costs lead inevitably to high insurance premiums. However, we can try to reduce the number of accidents and support changes in the system for handling claims so as to make it more efficient and cheaper to run.
The IIF's motor insurance members fund the National Safety Council to the tune of E1.65m (£1m) a year, and individual companies give extra support to particular advertising and education initiatives. While our financial support is important, improved co-ordination of the drive for safer roads is needed at government level if we are to reverse our horrific road safety record.
What is required is a single funding mechanism for road safety in which the human, social and economic benefits of reducing accidents are taken into account in deciding how much the state should spend on road safety measures. At a political level a road safety cabinet sub-committee should be established and chaired by the Taoiseach.
Investment in road safety actually saves money for the state, the private sector and individual motorists. Dr Peter Bacon's 1999 cost-benefit analysis of the National Road Safety Strategy demonstrated that every E1 (61p) spent on road safety can create savings of up to E8 (£4.88) or more. Your money could be saved if more was invested in targeted road safety measures. Human life is priceless and there is no excuse for not putting the necessary resources into road safety.
As well as addressing road safety funding, insurers believe that the following actions should be taken immediately:
The most frustrating aspect of Ireland's poor road safety record is that it is within our power to improve the situation: to save lives; to prevent injuries; and to reduce insurance costs.
What we need at the highest level of government and among road users is a change in attitude and behaviour making safer roads a top priority for everyone's sake.