Insurance companies blame compensation claims for rise in premium – are they being honest ?

Apr 15, 2016

In yesterday’s Irish Independent, Charlie Weston has questioned the recent claims by the insurance industry on the high levels of compensation as their reasons for increasing premia on policies. It’s a very thoughtful article and one the insurance industry could well take heed of.

Could it be said that they are being dishonest in their actions – behaviour they abhor when it comes to claims, yet suits them with their media spins.

Charlie says :-

“Official figures show the cost of premiums rose by 30pc in the last 12 months.

This means that a policy that had a premium of €500 on it last year now costs €650 to renew.

A family with two cars is paying an extra €300 a year in premiums.

Many of the State’s two million drivers are being hit with far higher hikes, especially if they have a claim on their policy, are a young driver, or have penalty points.

There have even been claims that the average cost of premiums could hit €1,000.

AIG, the world’s biggest insurer, said Ireland should consider banning such claims to avoid the average cost of premiums hitting €1,000.

Whiplash payouts account for up to 80pc of the volume of motor insurance claims in the Republic, compared with just 3pc in some other countries, according to AIG’s boss in Ireland, Declan O’Rourke.

Insurance companies are quick to blame our “compo culture” for the rise in the cost of premiums.

However, there are many reasons for the surge in the cost of car cover.

They include bad decisions made by insurers, new rules demanding that firms set more money aside in their reserves, poor regulation, more claims, and fraudulent personal injuries court cases.

All this means that ordinary drivers are being asked to carry an unacceptable burden.

Recently it emerged that the Central Bank has told insurers to raise premiums because they weren’t charging enough to cover claims costs and expenses.

All drivers are already paying a 2pc levy on their policies for the failures of the Quinn Insurance group, a combination of mismanagement by that company and poor regulatory oversight.

Six years later drivers are again paying up for the bad decisions of others.

The latest mess is the decision of the Court of Appeal that insurers pick up the tab for the collapse of Setanta Insurance, even though it was not regulated here.

Motor insurers are losing money because they made bad decisions about pricing and the level of reserves they have put aside for claims.

The industry engaged in below-cost selling and effectively blew itself up. It now wants honest drivers to bail it out for its calamitous decisions.

The situation is bad, but it is not inevitable that we will witness another year of monster premium rises.

There is some good news.

Aviva Ireland bucked the trend by making money in the general insurance market here last year.

It spotted three years ago that there was a problem with rising claims costs, and took action to raise its rates and aggressively to fight fraudulent and exaggerated claims.

The company made a profit of €40m last year in general insurance, which includes motor cover for private and commercial drivers and property insurance.

Profits were up 38.5pc when compared with the results for 2014.

And a number of personal injuries awards by the High Court have been halved by the Court of Appeal, with some criticism of the approach adopted by judges.

There have been a run of these reductions lately, experts said, in a sign that judges may be changing their approach to injuries awards.

Elevated court awards are a factor in the 30pc rise in motor insurance premiums, according to experts.

Jobs Minister Richard Bruton has pressed judges to tackle the problem of hugely inflated insurance premiums by sticking to new guidelines on compensation claims.

Mr Bruton held a meeting with the President of the High Court, Mr Justice Peter Kelly, in a bid to get judicial support for guidelines due to be published this summer.

All of this means that drivers need to ensure they do not just accept the word of insurers, brokers and regulators that motor cover rates have to keep rising to such an extent.

Drivers must challenge the elevated new premiums they are expected to pay and get a better deal by going to another insurer, or forcing their existing company to match a better offer they got elsewhere.

Enough is enough.”

Irish Independent

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