Seanad Éireann debate -
Wednesday, 22 May 1991

Vol. 129 No. 1

Adjournment Matter. - Motor Insurance Costs.

Professor Raftery

It is no exaggeration to say that Irish motorists are becoming punch drunk from the rising costs of insurance year after year. We not only have the second most expensive cars in Europe but we have by far the most expensive insurance in the Community and it goes on rising.

Young drivers are finding it impossible to get insurance at anything but prohibitive prices. I have known several cases where young drivers who bought a secondhand car for £1,000 or £1,500 were quoted figures for their first year insurance premium which were higher than the price paid for the car. Some of them had to return the car because they could not afford the premium. Some will not need a car but many find the car a necessity nowadays to do their business, to get to their work and so on. It is an appalling situation and we seem to be unable to do anything about it, or perhaps we are not committed to doing anything about it.

Three years ago an application was made by our Government for a derogation in the non-life insurance sector to provide protection not for consumers but for insurance companies. That derogation was granted which means that while I could get car insurance in Northern Ireland for roughly one-third of what I pay in Cork I cannot use that insurance certificate to get road tax to drive my car in the South. That is naked protectionism and it is not in the best interest of the country because the present cost of insurance is making industry and services uncompetitive against foreigners who have much cheaper insurance costs. This morning by chance I happened to get figures, unofficially, from an insurance company. The man who showed them to me did not know that I was going to speak on this subject. The company in question insures about 50,000 cars in Ireland each year. The legal costs incurred for every car insured with that company arising from claims made in respect of accidents amounts to £70 for every person insured with them. I am sure other insurance companies would have the same experience. Uninsured drivers are costing each insured driver with that company £20 per head. Other costs which arise due to mistakes made which are of no concern to the insured person are £10 per head for the ICI/PMPA debacle.

Extraordinarily generous awards are made in Ireland. The Minister for Industry and Commerce said years ago — and I agreed with him thoroughly — that these awards were out of line with other countries and that when we got rid of the jury system we would solve this. We got rid of the jury system and awards have gone up, not down. Judges seem to be more generous than the juries and there is a lack of consistency in the making of awards. Other countries have a reasonably consistent pattern of awards for injuries such as losing an eye, an arm or a leg or for a back injury, or whatever. Awards seem to be made at the whim of every judge in this country and there is little consistency between them on penalising or awarding following an accident or crime. I suggest judges need regular in-service training courses. They would want to get together to make up their minds on issues like these so as not to lose credibility with the public because of the inconsistency of the law. If the law is not an ass it certainly appears to be an ass at times. The generous awards system needs to be examined to see how it can be revised. It has been revised in other countries and there is no reason why it should not be done here, if the commitment to do so exists.

We should also look at what part alcohol is playing in our accident rate. The evidence of the Garda campaign last Christmas against drunken driving shows clearly how effective that was in reducing significantly the serious accident and death rate. The condition of our roads is leading to extra costs as far as insurance and maintenance are concerned. The generous awards systems is giving rise to a growing industry of arranged crashes where people arrange to have their car bashed and claim for it. The award system is so generous that it is profitable to get your car hammered by some truck by arrangement and then take it to the insurance company and get far more than the cost of the damage incurred.

Part of the reason for this practice is that insurance companies are no longer prepared to contest claims because of the high legal costs involved so the company pays up or reaches a very generous settlement with the person making the claim. Our politicians are not sufficiently aware of the gravity of this matter, if they are I cannot understand why they are not doing something about it. It is serious for the economy and for young people trying to get car insurance. The more the insurance cost goes up the greater the incentive for people to drive without insurance. It is a vicious circle. As costs increase young people cannot afford insurance so they drive without it. The more people drive without insurance the more the cost of insurance goes up. The problem must be tackled.

Other countries tackle this problem and I have here before me an information leaflet on the Ontario protection plan for motorists. This plan was devised by the Government of Ontario because of the rising costs of insurance. I understand New Zealand also tackled it head-on but I am not aware of the details. I will read for you what is in this information leaflet.

The Ontario protection plan is a new insurance system that balances the goal of affordable insurance with the need to provide swift, humane and adequate compensation in the event of an accident... The new plan is designed to keep automobile insurance rates as low as possible and to ensure that more of the premium dollar goes to those who need it most, those injured in accidents. If you are injured in an accident you will be protected by the guaranteed benefits available under the new plan and in cases of serious injury you will continue to be able to sue for additional compensation. Serious injuries are those which meet what is known as "the threshold". The threshold is defined as "death, permanent, serious disfigurement or permanent serious impairment of an important bodily function caused by continuing injury which is physical in nature.

The Ontario motorist's protection plan also introduces a new approach to vehicle damage. It states:

Under the new plan you will recover to the extent that you are not at fault for damage to your automobile and its contents from your own insurance company. For example, if you are 75 per cent at fault for the accident you would receive 25 per cent of your loss. If you have purchased optional collision coverage it will make up the other 75 per cent for which you were at fault.

I will read a conclusion from this long document.

The new system is the Government's response to public concern that car insurance in Ontario was becoming too expensive. The new plan should help to stabilise costs and premia.

I wish the same concern was shown in Ireland. It is unacceptable that we should be paying two and three times as much for our insurance as drivers 150 miles from here. It is even more unacceptable to me that if we buy our insurance 100 miles from here we are not allowed to use it to drive our cars in this part of the country. That shows much more concern for the companies than for the consumers. I hope the Government will do something in the near future to solve this difficult problem. It is difficult for all of us, but particularly for those young people who are already having enough difficulty finding work but having got a job are unable to pay the insurance on a car to get them to the job.

Mr. Cassidy

I support Senator Raftery's motion. I live only 40 miles from Northern Ireland where insurance is only one-third what it is here. That is inexplicable to constituents. I had a case last week of a young man of 22 years whose father had 23 years insurance cover with an insurance company with only one claim for £4,000. The young man had a five year old diesel Toyota car valued at £6,000, and after a long hassle the principal insurance company here agreed to give him insurance cover for third party, covering only himself, for £2,580. That is a shame and a scandal. I do not want to name the people involved but I can give the Minister the details. I agree with Senator Raftery that there should be a standard rate paid to people who lose an eye or a limb; it should not be left to the discretion of the courts. That would tackle some of the problems insurance companies are facing.

Minister of State at the Department of Industry and Commerce (Mr. Leyden)

I would like to take this opportunity to inform both Senators Raftery and Cassidy, and the House, of what the Minister for Industry and Commerce has said in the Dáil on numerous occasions over recent months, in that, as the insurance supervisory authority he has a responsibility to ensure that insurance companies meet their statutory solvency and reserve requirements. He does not have responsibility for the day-to-day operations of insurance companies. Therefore, he must respect the right of insurance companies to make their own underwriting decisions in the light of their particular circumstances and assessment of the market. In the case of motor insurance there is, of course, a legal obligation on all motorists under the Road Traffic Acts to have minimum third party insurance. However, no legal obligation can be placed on any individual insurer to quote in respect of any risk, to quote at any particular premium, or to quote in any particular manner, although I intend to return to this matter later.

The price of insurance, including employers, public liability and motor insurance, in this country, as indeed in any other market, is directly and substantially dependent on the frequency of claims and the cost of settling those claims.

In 1988, insurers sustained underwriting losses of £48 million on their motor portfolios and £18 million on their liability accounts. The corresponding figures for 1989 were £116 million and £30 million, respectively, and losses are expected to be even higher for 1990. Confronted with losses of this magnitude and in order to maintain their viability, insurers have considered it necessary to increase their premiums in line with their claims experience and-or to exercise more selectivity in the type of risk undertaken.

The fundamental cause of high insurance prices for all consumers in Ireland is the high claims rate, which, regrettably, is on the increase, allied to the high cost of individual claims which is also rising. These factors bear on the level of insurance premia quoted to those who seek employers, public liability insurance and also to young drivers as well as those quoted to more mature motorists.

The Minister for Industry and Commerce is aware that when an insurance company quote in respect of motor risks, in particular, for young people, the premiums may be regarded by those concerned as excessive. The cost of motor insurance for young drivers, however, tends to reflect the claims experience of motor insurers. While he sympathises with the situation in which young drivers find themselves, statistical evidence has shown that they are more likely to be involved in accidents and, therefore, to give rise to claims being made. The cost of these claims can be met by insurers only if a realistic premium is forthcoming to cover the risk involved and one cannot expect the cost of insurance to come down or even stabilise when the number of claims and the cost of settling those claims are going in the opposite direction.

The Minister for Industry and Commerce has, for some time past, been most concerned at the high cost of motor insurance and active in seeking ways of achieving reductions. In essence, Irish society as a whole has two options with regard to insurance. We can accept the relatively high levels of risks that exist at present which can only result in relatively high prices for insurance. On the other hand — and this is the course which I hope we will take — the level of risk can be reduced which, in turn, should see significant improvements with regard to the price and the availability of insurance. To this end an interministerial group, comprising of the Ministers for Industry and Commerce, Justice, Environment, the Attorney General, are at present examining ways and means of improving the environment for motor insurance in particular. This group are focusing on strict and sustained enforcement of existing road traffic legislation, amendments to the Road Traffic Acts designed to reduce the motor accident rate, suggestions to improve the cost and availability of motor insurance and improvements/alternatives to the courts system for the resolution of personal injury claims.

It is hoped that this may result in a number of positive proposals which can be implemented in the very early future. I would add, however, that Government action of itself will not reduce or stabilise motor insurance costs. Consumers must play their part by increased awareness of the need for safety.

In relation to the quotation of premia, as Senators are aware there is in existence a declined cases agreement. An agreement exists with the insurance industry for dealing with cases of inability to obtain motor insurance through a body called the Declined Cases Committee. This committee, established under the declined cases agreement, are comprised of representatives of the authorised motor insurance companies. They examine cases which have been declined by five or more motor insurance companies and nominate one of the companies to quote for the risk involved. Before a case can be submitted to this committee for consideration it is necessary to approach and obtain written refusals from five motor insurance companies. Those should then be forwarded to the Declined Cases Committee, Irish Insurance Federation, Russell House, Russell Court, Stephen's Green, indicating the order in which they were approached, together with details of previous insurance, if any, held in the last three years. It should then be possible to have the necessary cover arranged and thus ensure that all motorists can comply with their legal obligation to have motor insurance.

Senator Raftery mentioned derogation in relation to insurance which under EC regulations was obtained and is in operation. That matter is being reviewed by the Government and by the Department of Industry and Commerce with a view to having it changed, if necessary, to bring about more competition. At the end of the day, Ireland is not the most attractive location for insurance companies because of the high claim risk experienced here, the awards which have been granted to individuals and the claims which have been submitted by individuals through the courts to insurance companies. That is causing us great concern and is why the Government decided to set up the ministerial committee which are now reviewing and bringing forward new legislation or amendment, if necessary, to existing legislation to enforce it. They will also bring in new regulations to try to bring down the cost of insurance and allow young people to obtain insurance.

It is a complicated issue and I would like to thank Senator Raftery for putting down the motion to give us an opportunity to focus our attention on this issue and to report to the House the concern of the Government and our Department in this regard. My colleague, Minister O'Malley, has spoken on many occasions on this issue and I am hopeful the ministerial sub-committee of the Cabinet which was established will bring about changes which will be of assistance.

The Seanad adjourned at 5.40 p.m. until 10.30 a.m. on Thursday, 23 May 1991.