Seanad Éireann díospóireacht -
Thursday, 10 Apr 1997

Vol. 150 No. 16

Adjournment Matters. - Motor Insurance Costs.

Mr. Naughten

I thank the Minister for taking this Adjournment matter. Anyone who drives a car knows that insurance is outlandishly expensive here. Compared with the UK or other European countries, our insurance costs are much higher. One report has shown that the average premiums per vehicle for comprehensive cover were 50 per cent more expensive here than in the UK and 123 per cent more expensive for non-comprehensive cover.

In an article in The Examiner some weeks ago, a second 5 per cent hike in car insurance was being predicted before the end of the year. This would come on top of a 5 per cent rise in car insurance a couple of months ago. This would add £25 to the average £500 policy.

The ideal would be to try to reduce the number of road accidents which, in turn, would reduce the frequency of personal injury claims but this is easier said than done. To date, the introduction of non-jury courts for personal injury cases, the road safety and drink driving campaigns have all failed to produce substantial dividends for the motorist. The case for cheaper car insurance can be made not just in the interest of the consumer; it can also serve the wider needs of society. The existing situation, in which an estimated one in six Irish drivers have difficulty securing affordable insurance cover, is extremely disturbing. The cost of insurance for younger drivers in particular remains at prohibitive levels and must help to explain the worrying number of uninsured drivers on our roads.

Motor insurance premiums are, on average, 10 per cent more expensive because of the high level of uninsured drivers. This level could be reduced through greater control of uninsured drivers. A new and radical approach is necessary to tackle the high cost and flagrant abuse of the law caused by uninsured drivers who are estimated to represent 6 per cent of Irish motorists. A high percentage of these uninsured drivers are young drivers who find the cost of insurance extremely off-putting. On average, a young driver will have to pay between £1,500 and £2,000 for car insurance. I am paying £1,300, having driven for seven years and having had a full licence for five. I have not had any claims on my insurance during that time. I would not have bought a car if it were not necessary for this job.

This Government is trying to curb the problem of rural depopulation, yet young people are unable to live at home and travel to work due to the cost of car insurance as they are financially better off moving into urban centres. One of the main reasons for the high cost of insurance for young drivers is the fierce competition in the insurance sector which has led to widespread, below cost selling of car insurance in the premium 35-55 age group. These companies are taking the cream of the market — the low risk group — and are not quoting younger or older drivers.

The Equality Bill which states that a person may not be discriminated against on age grounds has been passed in both Houses, yet successive Governments have allowed the insurance industry to openly discriminate against young people by allowing the principle of community rating in the health sector but not in the motor sector. I am seeking a level playing pitch. We have community rating in the health sector where young people are a low risk group but not in the motor sector where they are a high risk. This is blatant inequality on the grounds of age. We should have community rating on the motor insurance market. I ask the Minister to set up an interdepartmental committee from the areas of Justice, Environment and Enterprise and Employment to tackle the broader issue of car insurance. This committee would look into the driving test system, road safety legislation enforcement and the issue which I have already highlighted relating to below cost selling of insurance within the industry. Such a committee would be an effective way of tackling the problem.

It is not all doom and gloom. This Government has started to tackle the problem through recent road safety legislation. The new 25 hour driving course for provisional drivers, which gives them between a 10 to 20 per cent discount on their first year's policy, and the report on insurance costs published by Minister Rabbitte are to be welcomed. I compliment the Minister and the Government on the work it is doing in this area but a lot more must be done to make motor insurance more acceptable to the general public.

Minister of State at the Department of Enterprise and Employment (Mr. Rabbitte)

I thank Senator Naughten for giving me the opportunity to deal with this important question. With regard to specific recent increases in motor premium rates I will give the following information for purposes of clarification.

In October 1996 the Guardian PMPA Group, which is the largest insurer in terms of premium income, announced average increases of 5 per cent in their motor rates. These increases took effect from the 1 November 1996 following overall reductions of 10 per cent in Guardian PMPA's motor insurance rates which had been implemented by them in 1995. Church and General, which underwrites 6 per cent of motor insurance business, also increased their motor rates by 3 per cent with effect from 1 January 1997 and, on the 15 January 1997, the Hibernian Group, Guardian PMPA's closest competitor, announced an average increase of 4.8 per cent in their basic rates. Hibernian also announced other adjustments into their schedule of motor rates, the most significant being a reassessment of young drivers' insurance risk profile resulting in a new insurance scheme which will take into account a young motorist's claims-free experience as a named driver on his/her parents' motor insurance policy and a no-claims bonus incentive to reward such claims free driving. This latter development was a welcome trend and, while I hope to return to the general issue of insurance costs for young Irish motorists in due course, I stress that the format and structure of Hibernian's increases were such that in certain instances, policy holders' motor premiums were, in fact, reduced.

The Hibernian Group has cited a 12 per cent rise in the number of claims arising from motor accidents as necessitating an increase in premiums and has made reference to the fact that in its experience, the young driver continues to pose a bigger risk than those of a more mature age. Road accident statistics for the ten month period up to October 1996 and the Christmas period of 1996 indicate that, in comparison with the same period in 1995, road fatalities in the first ten months of 1996 increased by 23, or 6.4 per cent; the number of injuries on the roads over this period increased by 542, or 6.6 per cent, a more telling statistic in its effect on claims costs and over the 1996 Christmas period alone, in comparison with the same period in 1995, injuries increased by 50 per cent from 120 to 181. These disappointing statistics have led some insurers to readjust their claims provisioning in anticipation of the inevitable increase in claims which will result. It is the nature of insurance that those drivers who are at fault, and the categories of drivers which accident statistics indicate are a higher risk, will pay more.

On the subject of insurance premium levels for young drivers on a worldwide basis, insurers tend to classify young/inexperienced drivers as a high insurance risk category relative to the more mature/experienced driver. The degree of risk tends to decrease with age and maturity and the level of premiums charged to young drivers reflect the insurers' claims experience of such drivers as a higher risk category. Accordingly, as a general rule, they will pay more for insurance cover although there may be exceptions depending on the circumstances of each individual case.

It seems that high motor insurance costs are a shared burden for all young European motorists. In its analysis on young motorists' risks profile the Deloitte and Touche report confirmed that in a European context young drivers as a group and individuals with poor safety records will have limited choice of insurers and face high premium costs throughout the EU. Indeed, the report found in its survey of motor insurance premium levels that for the 21 year old age group, UK premium rates for comprehensive insurance cover exceeded Irish rates.

Looking at the problem in its strictly Irish dimension, I understand a survey carried out by the Motor Insurance Advisory Board in 1993 found that in the age groups examined, 17 to 24, 25 to 30 and 30 plus, under both comprehensive and non comprehensive cover, the frequency and average cost of claims in the 17 to 24 age group was significantly higher than in the other age categories. The Deloitte and Touche report provides further evidence of the high cost of claims associated with the young driver. The consultants found that the average cost of an insurance claim for the 17 to 24 year old driver is over twice that for a 36 to 40 year old driver and that motorists in the younger age group are responsible for over three and a half times the claims costs of motorist in the 36 to 40 age group.

The Deloitte and Touche report concluded that the inculcation of safer driving standards among young drivers, to which Senator Naughten referred, and education in driving skills is the key to reducing their higher accident rate and to obtaining lower premium quotations. In this regard, I draw the Senator's attention to the specific recommendations by Deloitte and Touche in relation to the possible introduction of a graduated licensing system for learner drivers similar to a model in force in Ontario. My colleague, the Minister for Environment, has agreed to undertake an examination of the Ontario model in the context of current law and practice in Ireland.

Senator Naughten referred to the recently threatened increase of 5 per cent later this year. I met the Irish Insurance Federation last week and we had an exchange of views on why such a threatened increase should be extant at a time of uniquely low inflation. Its argument was that the inflation environment does not matter if the anticipated claims level reflects the pattern of accidents to which I referred. Nonetheless, I made it clear to the industry that I do not believe an increase is warranted this year, given the profit performance in recent years. It has undertaken to consider our exchanges and to come back to me in the near future.