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A number of developments will impact on insurance premiums Back  
Mike Kemp explains that market issues of interest to Irish Insurance Federation member companies, the insurance buying public, policymakers and the media in 2001 included: motor and liability insurance costs; pensions; Special Savings Investment Accounts; uninsured driving.
Motor and liability insurance costs
The cost of motor and liability insurance in Ireland continues to be very high. Motor insurers lost IEP227m. on underwriting in 2000 (equivalent to nearly 19 percent of total premium income), and have made aggregate losses of over IEP650m in the 5-year period 1996-2000. In 2000, private motor underwriting losses alone were IEP166m, or over 21 percent of premiums written. The entire non-life market lost IEP343m on underwriting in 2000 alone. Even after allowing for investment income, which was over IEP230m for the year the market produced a massive operating loss of over IEP100m. despite increasing premiums substantially.

The vast proportion of insurers’ expenditure (over 87 percent in motor insurance and nearly 86 percent in liability insurance) goes on claims costs. Claims are driven by factors almost entirely outside the control of the insurer, in particular claims frequency, the cost of compensation for personal injury and property damage, and legal and other ancillary costs of settling claims. Although there have been some improvements in road safety record as a result of the National Road Safety Strategy, Ireland still has a higher ratio of road deaths to vehicle population than most countries in Europe, and very high numbers of personal injury accidents.

Compensation levels and legal and witness costs are determined by the courts. We continue to have significant claims inflation well above the general inflation rate - driven by increases in health care costs, higher earnings, and ever-higher damages for ‘pain and suffering’.

In addition to increasing claims costs, insurers - who depend on investment returns to achieve any operating profits - have seen significant reductions in investment income as a result of lower interest rates in recent years.

During 2001, we have seen a number of developments which will impact on premiums:
• insurers’ provision for the cost of uninsured driving claims has increased significantly as the number and cost of claims handled by the Motor Insurers’ Bureau of Ireland have increased;
• there have been two significant court decisions (relating to the cost of hospital treatment of victims of road accidents and the calculation of compensation for future loss in all personal injuries cases) which - unless reversed - will require insurers in the Irish market to increase outstanding claims reserves substantially, and will increase the cost of new claims arising in the future;
• the impact of the September 11th terrorist outrages in the US on world and local insurance markets has yet to be quantified, but is likely to have negative results for the Irish market, given the huge costs global reinsurers will have to bear as a result of the US losses.

On a more positive note, the Government’s decision to establish the Personal Injuries Assessment Board (PIAB) is enthusiastically supported by the insurance industry. Insurers see the PIAB as having significant potential to reduce the costs associated with injury claims. We would like to see the PIAB extended to all personal injury cases (the initial intention is to run a pilot scheme covering claims arising only from accidents at work), and would urge the Government to move ahead quickly with its establishment. We hope that the legal profession will also treat the establishment of the PIAB as a positive development.

We also look forward to the speedy enactment of the Road Traffic Bill which will introduce a system of penalty points for driving offences, leading to suspension of licences when a sufficient number of points is accumulated by a driver. This should significantly increase the deterrent against bad driving and motoring offences. Greater urgency is required in introducing the legislation and establishing the necessary infrastructure and inter-agency co-operation to make penalty points a reality on the ground.

The Pensions Bill published by the Minister for Social Community and Family Affairs in July makes a number of changes to existing pensions law. Most importantly, the Bill provides for the introduction of Personal Retirement Savings Accounts (PRSAs), as recommended by the Pensions Board in the National Pensions Policy Initiative Report.

The insurance industry is an enthusiastic supporter of the PRSA system whose overall objective is to combine a flexible and low-cost pension product with a high level of consumer protection. Unfortunately, the Pensions Bill proposes rather bureaucratic supervision and administration systems. The PRSA proposals could undoubtedly be simplified without compromising consumer protection, whilst at the same time reducing administrative costs and encouraging a significant number of providers into the market - a win-win situation for both customers and PRSA providers.

As it stands, the Pensions Bill proposes that PRSAs must be provided through a separate company. This seems unnecessary in the case of a life assurer which is already subject to strict authorisation, solvency and supervision requirements, and is already writing pensions business. The requirement to have a separate, specialist company would add an extra layer of complexity and add costs. It is important to ensure that there is a level playing-field in the PRSA market between domestic and foreign players, and insurers are concerned that, whilst Irish life assurers may have to set up a new company to provide PRSAs, foreign competitors may be directly authorised.

One of the main problems in preparing for the new PRSA market is that considerable detail will have to be filled in by numerous and detailed regulations. Obviously potential PRSA providers need to see all the provisions they are required to comply with before finalising the design and costs of their products. Important issues such as the amount of capital required by PRSA providers, fees payable to the supervisor and which types of investment will be acceptable for PRSA funds all have to be clarified to enable life assurers and other potential providers to decide whether they wish to participate in the PRSA market, and to allow them to finalise the format of their products. The sooner Government policy on these and other issues can be confirmed the better.

Special Savings Investment Accounts
In his December 2000 Budget Speech, the Minister for Finance announced the introduction of Special Savings Incentive Accounts to encourage savings. SSIAs became available on 1st May 2001 and can be taken out at any time before the end of April 2002.

Some concerns have been expressed about the interaction of the SSIA scheme with the Pensions Bill’s PRSA proposals and whether SSIAs will divert monies which should be better invested in pension products. However SSIAs will only be available for a limited period and have a maximum contribution period of 5 years. It is not clear yet when PRSAs will become available but at this stage it is likely that it will be some time after the closing date for SSIAs. PRSAs will be a long-term investment with proceeds not being available until retirement. Any overlap between the two products will therefore be short-term.

Uninsured driving
The cost of claims against uninsured and untraced drivers is met by the Motor Insurers’ Bureau of Ireland (MIBI), which is funded by the motor insurers in proportion to the size of their business. The costs levied by MIBI on member companies to meet claims against uninsured drivers are part of the claims costs of those companies and are factored into their costs in setting their premiums. It is therefore of considerable concern to all insurers and to their policyholders if there is an increase in the level or cost of uninsured driving claims.

In 1990 MIBI incurred claims worth IEP16.4m*. By 2000, the figure had risen to IEP82.9m*, an average annual increase of 17.6 percent per annum over the decade. IIF estimates that the cost of uninsured claims adds approximately IEP57 to the average motor insurance premium paid by law-abiding insured motorists.

In order to minimise the costs of uninsured driving to society, we need a better system for identifying uninsured drivers. The windscreen disc is useful, but discs can be forged and cancelled discs are not always returned. Implementation of the Fourth EU Directive on Motor Insurance, which requires the compilation of a national vehicle insurance database provides an opportunity to address this problem. There also needs to be more effective deterrents to uninsured driving. Courts should have reference to the level of premium avoided by those convicted of driving without insurance, as well as to the seriousness of the offence itself, in terms of the death, injury and damage which can be caused in a road accident, when deciding the penalty to impose on an uninsured driver.
• excluding ‘insurer concerned’ claims, where a policy is in force but does not cover the particular driver or use. In 2000, these uninsured claims added an estimated further IEP10.8m to the uninsured claims bill.

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