I will be duly circumspect in my comments given that I am not covered by parliamentary privilege. Had I known that I am not so covered, I could probably have shortened the presentation by 18 or 19 minutes. I have a brief paper on what the AA believes has been happening in the insurance market in the past couple of years and the variables that are affecting it. I will also say a few words on the issue of road safety, which is a passion of the AA and which has a fundamental impact on insurance matters.
The AA is a representative body for motorists. It has some 400,000 customers and there are approximately 250,000 members of its rescue service. The representation of motorists has been one of the AA's principal activities since its foundation almost 100 years ago. We continue to do this. In that context, the AA regularly commissions independent market research to assess average motor insurance premia in the Irish market. The results of those surveys are then placed in the public domain and used to encourage motorists to shop around. We also carry out that exercise in other spheres. For example, we have an ongoing index of petrol prices that allows the consumer to shop around and bring pressure to bear on the petrol retailing sector so the consumer will get better value. We correlate and publish the premium comparisons for motor insurance.
It is evident that motor insurance premia are falling. The results of our comparisons show that the average premium for the mainstream market was €785 in April 2003. The cost has fallen steadily since that time and by October of 2004, the last time the survey was carried out, it was €584. This is a drop of 26%. That trend is continuing into 2005 and our expectation is that premia will fall by a further 7% to 10% this year. This is very encouraging. The high cost of insurance has been and continues to be a major consumer concern.
There are a number of different reasons why premium costs are falling. The most important of these is improving road safety. Notwithstanding that the number of road deaths increased in 2004, the overall trend in road accidents over the past five years has been moving steadily downward. Penalty points, road improvements, vehicle improvements and a growing acceptance of the seriousness of the road safety issue have all contributed to this trend.
The consumer should be sceptical about insurance companies offering "discounts" to people with no penalty points. It is often the case that these discounts are not truly genuine but merely reflect the fact that premia are falling across the board. What is described as a discount is merely a market-typical price. Even given the downward trend, the Irish consumer still pays too much for motor insurance. Irish people have more accidents, litigate more frequently, compensate more generously and pay higher legal costs than almost all of our colleague countries in the EU. These are the underlying drivers of high insurance costs.
The period 1998 to 2000 was the worst for high insurance claims and court awards. Road deaths reached a latter-day peak of 478 in 1997. More telling is the fact that, from an actuarial perspective, injuries totalled 13,587 that year, and stayed above 12,000 injuries per year for six years from 1995 to 2000, inclusive. The lead time associated with settling insurance claims at that time was such that the full effects of those insurance costs were not reflected in premium rises until 2000, 2001 and 2002. The costs incurred in 1998, 1999 and 2000 were reflected in premia in 2000, 2001 and 2002. Only since then did claims and, consequently, costs begin to fall.
The difficulties and costs associated with motor insurance are similar to those which face liability insurance generally. The rise in commercial insurance costs has presented a serious threat to Irish competitiveness and this gave added impetus to efforts to address the issue. At the time, a number of high-profile compensation issues, including Army deafness, blood contamination and clerical child abuse, heightened public awareness of litigation and its costs. The AA has no view on the merits of any of these issues but it brought into focus the issue of reducing ancillary claims costs as opposed to compensation.
Dorothea Dowling's seminal MIAB report was published in April 2002 and is a weighty and superb volume of work, as members will know. However, it is still recommended reading for those who are interested in getting to grips with the insurance situation. The document made 67 separate recommendations to address the issue of motor insurance, many of which have now been implemented. For example, insurance companies are now required to send customers their renewal notice a full 15 working days before the policy renewal falls due. Companies are also now required to issue a letter of no claims to customers automatically on renewal. These reforms reduce switching costs and remove obstacles for the consumer, which has enhanced competition.
Among the more striking findings of Ms Dowling's work was the conclusion that an enormous 39.5% of the cost of settling motor insurance claims related to legal expenses. This is utterly wasteful and has to be properly addressed. The MIAB's principal recommendation for addressing this was the establishment of the Personal Injuries Assessment Board, designed to remove the legal costs component from the settlement of claims where liability was not disputed. This was achieved with the PIAB Act of 2003. However, Tuesday's High Court ruling held that the PIAB could not refuse to deal with claimants via their solicitors, which has implications for its work. It would be a serious disappointment for the consumer if we cannot successfully address the legal costs issue. There are a number of areas, such as the fair setting of solicitor’s fees, in which I would encourage the committee to take an interest. Many other fees which the consumer encounters are quite rightly regulated but solicitors are an exception to the rule.
One area in which there has been progress is on what is loosely termed "compo culture". As a result of reforms laid out in the MIAB report, plaintiffs are finding it less easy to approach courts with spurious or exaggerated claims. This is very welcome as the cost of those claims has always been borne by the law-abiding motorist. The insurance industry operates a hotline to encourage whistleblowers to bring information about fraudulent claims to light and again this is proving useful in dampening the enthusiasm of those who might otherwise feel tempted to make false claims.
We also continue to have a problem with uninsured driving. The Garda has estimated the level of uninsured driving at about 5% and some industry estimates are even higher. The damage done by uninsured drivers is disproportionate to their number and is estimated at 8% or 9% of total claims costs. This is a criminal offence for which the financial cost is borne by ordinary motorists. An IIF calculation three years ago put the cost of uninsured driving at £57 per insurance policy, which is approximately €80. In other words, every motorist's premium would be some €80 cheaper than it is if we did not have the cost of claims by uninsured drivers.
From my perspective almost all of these issues are peripheral. They pale completely beside the enormous ongoing disaster which is our road safety situation. This is the key driver of high insurance costs but it is also a social disaster on a far broader scale. Last year some 379 people were killed on our roads. This appalling total was 43 worse than the same figure for 2003. The reasons we went backwards have been the subject of much public debate but I believe there is now general acceptance that one of the major areas in which we are failing is enforcement.
The introduction of penalty points in November 2002 was a genuine step forward. There are now 175,000 drivers with penalty points and, as time goes by, the system will serve to make drivers generally and offenders particularly more cautious. However, for the system to be truly effective motorists must believe in the likelihood of being caught. Sadly, the current low level of traffic policing means that is not the case.
In 2004 we did not police our roads adequately. This is not meant as a criticism of the Garda. Within our police force there is no lack of willingness to address road safety. However, we lost most of the traffic function in the first six months of last year to the requirements associated with the EU Presidency. There has also been an ongoing problem, flagged many times by the AA, of Garda resources notionally directed towards traffic being continually lost to other functions. For example, if a burglar alarm goes off in Walkinstown in the middle of the night, the traffic function will disappear off the M50 to attend to it.
