June 2016
Action Plan to
tackle rising
motor insurance
premiums
Michael McGrath TD Spokesperson on Finance
Niall Collins TD Spokesperson on Jobs, Enterprise and Innovation
Robert Troy TD Spokesperson on Transport, Tourism and Sport
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Michael McGrath TD
Spokesperson on Finance
Niall Collins TD
Spokesperson on Jobs,
Enterprise and Innovation
Robert Troy TD
Spokesperson on Transport,
Tourism and Sport
Executive summary
Motor insurance premiums began rising at the start of 2014 and have been allowed to relentlessly increase
since then. Consumers have been faced with an increase of 60% in the cost of their motor insurance since
January 2014. Commercial users have experienced similar rises. These massive price increases reflect a combination of poor regulation, mismanagement by the insurance sector and a legislative failure by the previous
Fine Gael / Labour government.
Car insurance is compulsory, unlike other products such as home insurance or health insurance. All of the 2.1
million vehicles in the State are required to have a minimum of third party insurance cover, so the cost of motor
insurance is a major issue for family finances. There is an obligation on the State to act when motor insurance
premiums become unaffordable and put families under severe pressure.
In this document Fianna Fáil is setting out clear proposals to tackle rising premiums including re-establishing
the Motor Insurance Advisory Board on a time limited basis, greater disclosure around policy renewal notifications, action on the settlement of cases and dealing with false and exaggerated claims.
There are 12 key elements in our action plan to tackle motor insurance costs:
• Re-establish the Motor Insurance Advisory Board on a time limited basis.
• Improve transparency of insurance industry profits and establish a motor insurance database.
• Enhance disclosure around policy renewal notifications.
• Implement a realistic Book of Quantum for settlement of claims.
• Ensure greater consistency in court awards in personal injury cases.
• Reform the role of the Personal Injury Assessment Board and the legislation underpinning it.
• Reduce legal costs associated with personal injury claims.
• Take robust action on false and exaggerated claims.
• Legislate to clearly define the roles of Motor Insurance Bureau of Ireland and the Insurance Compensation
Fund.
• Strengthen road safety enforcement.
• Improve regulatory oversight domestically and at European level.
• Protect low income and vulnerable customers from unfair practices.
Michael McGrath TD
Niall Collins TD
Robert Troy TD
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Background
Following a period of sustained reductions in motor insurance premiums, prices have been rising steadily in
recent times. In the past twelve months, premiums as measured by the CSO, have increased by 34% and are
up by 60% since January 2014. According to the Freight Transport Association commercial motor insurance
has increased by between 50% and 70% over 2014 and 2015.
Further increases appear likely in 2016. The increase in premiums has occurred despite a significant
improvement in the quality of the road network in recent years, particularly inter-city routes. 2015 saw a very
welcome 14% reduction in road fatalities nationally and this should have helped to reduce insurance costs.
The motor insurance market has been characterised by intense competition over much of the last decade. A
briefing paper prepared for the Department of Transport in 2015 stated that “It appears motor insurers are now
imposing higher premium rates to return themselves to profitability or to boost profitability after a number of
years of insurers competing for market share with prices driven down accordingly and possible underwriting
losses in some cases.”
The sector has seen the collapse of both Quinn Insurance and Setanta in recent years and severe financial
difficulties reported in other firms. The consequences of these events are still being felt with the levy to cover
the cost of Quinn Insurance likely to be in place for up to 20 years and uncertainty still surrounding the payment
of claims due from Setanta. The failure to clearly distinguish the roles of the Motor Insurance Bureau of Ireland
and the Insurance Compensation Fund has led to insurance firms having to create greater capital buffers with
consequent increased premiums.
Customers often renew their insurance policy with their existing insurer, but insurers can take advantage of
this by not offering existing customers the best possible premium when the level of cover they require. In the
UK the Financial Conduct Authority has identified a “loyalty premium” of up to £110 per policy from
consumers failing to shop around. Greater disclosure requirements have been imposed on insurance firms to
tackle this.
The Consumers Association of Ireland (CAI) has highlighted the potential for savings from concerted action
to tackle premiums. The CAI claim that cutting legal fees by 50% could result in a €50 saving in an average
premium; cutting fraud by 70% could result in a saving of €56; and cutting the cost of whiplash awards by 70%
would reduce premiums by around €100. Concerns have also been expressed that a lack of resources for the
Garda Traffic Corps is leading to a reduction in road safety standards with an associated increase in claims.
Fianna Fáil believes a concerted effort to tackle the range of factors driving up insurance premiums has
been successful in the past and is now needed once more.
Fianna Fáil Action Plan to tackle
rising motor insurance premiums
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Fianna Fáil Action Plan to tackle
rising motor insurance premiums
1 Re-establish the Motor Insurance
Advisory Board on a time limited basis
The last sustained period of rising motor insurance costs was in the late 1990s. Prices rose by 50%
over 7 years. In response the government established the Motor Insurance Advisory Board (MIAB). MIAB
recommendations helped reduce insurance costs by 40% in real terms between 2002 and 2013.
Fianna Fáil believes there is a need for a re-established Motor Insurance Advisory Board including
representatives from the insurance firms, the Departments of Finance and Jobs, Enterprise and
Innovation, motorist representative bodies and the Road Safety Authority to examine all relevant issues
that affect insurance premiums. The board should be given a time limit to bring forward recommendations
and its final report would be presented to an Oireachtas Committee.
The current profitability of insurance has been the subject of intense discussion. When the issue was
previously examined by MIAB in the 1990s it was found that the Irish insurance sector had profitability
levels that were multiples of the UK. A similar examination of profitability is needed now.
2 Improve transparency of insurance industry
profits and establish motor insurance database
Lack of publicly available, reliable data has been a constant issue in relation to the insurance sector. In
the absence of comprehensive industry data customers are asked to take the word of the industry that
price hikes are justifiable. The question could reasonably be asked as to why insurance firms remain in the
market if it is genuinely unprofitable.
It is clear there is a very significant information gap in the industry at present and designing solutions to
rising costs is inhibited by a lack of data. Over 70 per cent of personal injuries claims do not go through
the courts or the Persona Injuries Assessment Board (PIAB). There is no transparency regarding the cost
of settling claims or awards in these cases. However rising awards and legal costs are regularly cited as
justification for premium hikes.
There are other ways in which transparency can also be improved. Consumers are often left frustrated that
a claim against them is settled without any consultation or disclosure as to the sum involved. By contrast
a private health insurer sends a policyholder the details of payments made on their behalf to a doctor,
hospital or other medical provider. This principle of full disclosure should be extended to motor claims
detailing payments to third parties, expert witnesses and litigation costs.
The current lack of statistical information presents difficulties from a broader policy perspective. The
establishment of a motor insurance database aggregating data across insurers would considerably
increase transparency in the motor insurance industry and improve policy formulation without breaching
commercial confidentiality.
3 Enhance disclosure around renewal notifications
Research in the UK indicates that the point at which consumers are most engaged is when they first
purchase a product. At this time they will tend to shop around and seek the best value they can find.
However in subsequent years they are more likely to lapse in to accepting price increases rather than
negotiating or switching provider.
In the UK the Financial Conduct Authority (FCA) has calculated that the average “loyalty premium” paid by
motorists is now £110. In other words customers could save this amount while retaining the same level
of cover simply by negotiating a better deal with their existing insurer or moving to a cheaper provider in
the market.
The FCA found that requiring insurers to clearly disclose the previous year’s premium in renewal
notifications was the most effective way to prompt consumers to shop around, cancel, or re-negotiate
their insurance policy. In this regard we propose a new requirement for insurance firms to prominently
state the previous year’s premium on renewal notices, along with a clear indication of any increase
included in the quote for the current year.
In some cases the annual increase may be small but the combination of a succession of increases over
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a number of years may have the cumulative result of a policy being considerably more expensive that the
cheapest equivalent in the market.
We are, therefore, proposing an additional level of protection for customers who have renewed a
policy at least four times. Their insurer would be required to clearly and prominently state in the renewal
notification that: “You have been with us for over five years. You may be able to save money if you shop
around”.
This would act as a further prompt for consumers to shop around and may be particularly beneficial for
older customers who are most likely to end up paying a loyalty premium.
Under regulations introduced in 2003 a motor insurance company must issue a customer with their
insurance renewal notice not less than 15 working days before the date of expiry of the insurance policy.
This was of significant assistance in helping consumers shop around. This provision could be further
enhanced further by increasing the minimum notice period to 20 days.
4 Implement a realistic Book of Quantum
PIAB are currently reviewing the Book of Quantum and have engaged outside consultants to assist in
this work. As noted by the Minister for Jobs, Enterprise and Innovation, the Book of Quantum is not
a recommendation for compensation levels but rather a reflection of the prevailing level of awards,
including awards by the courts and settlements agreed by the insurance industry, State Claims Agency;
and through the PIAB process.
The potential problem with this approach of basing the Book of Quantum on prevailing awards is that it
may simply lead to an ongoing upward spiral in the cost of settlements. A more suitable approach would
be a revised Book of Quantum whereby modest injuries attract modest damages, while more severe
injuries receive damages of a level appropriate to the injury and loss of earnings suffered. This should be
done in line with international norms taking account of costs of medical treatment in Ireland.
The UK has recently moved to adopt a system of “care not cash” for minor bodily injuries. By giving
successful personal injury claimants treatment such as physiotherapy, those who have genuinely suffered
injury will get the treatment they need, while reducing the overall cost of settling claims. The UK
government have estimated that this initiative could result in a typical saving of £40-£50 per policy. The
introduction of a similar system in Ireland could help reduce cost of for whiplash injuries which are already
3 times that of the UK and 5 times the level that applies in Spain and Italy.
The review of the Book of Quantum should also take account of the unintended consequences from large
personal injury settlements Failure to set realistic guidelines in the Book of Quantum will led to further
unrealistic awards which have the effect of forcing up insurance costs generally.
5 Ensure greater consistency in court awards in personal injury cases
In addition to setting a realistic benchmark by means of a revised Book of Quantum, reform is also needed
to ensure that this is applied in a consistent manner. Some recent awards suggest that proportionality is
not being observed by the courts in assessment of damages.
The monetary limits of the courts was increased in February 2014, when the Circuit Court limit went from
approximately €38,000 to €60,000 for personal injuries. This has led to a wide variation in awards. If
necessary, legislation should require courts to explain why the Book of Quantum is being departed from in
cases where awards exceed the range suggested in the revised Book of Quantum.
6 Reform the role of PIAB and legislation underpinning it
PIAB handles around 12,000 claims a year out of approximately 30,000 personal injuries claims. It aims
to deliver compensation to injured parties in a maximum of nine months through a non-adversarial,
documents-only procedure. According to PIAB costs associated with assessing claims add 6% to the
cost of the award in cases it handles, but when the case goes to court this jumps to 50%.
While PIAB has undoubtedly been a success in reducing the overall cost of claims, more than a decade
after its establishment, there is an opportunity now to make some necessary reforms to it.
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In particular the National Competitiveness Council has suggested that legislative changes are needed
to tackle non-attendance at medical tests in cases handled by PIAB. It also has put forward a case that
claimants should be put at risk of having to pay all or a portion of the defendant’s costs if the damages
awarded in court proceedings are less than the amount originally assessed by PIAB.
While this is allowed for in current legislation it is not generally applied in practice. Essentially this means
claimants can reject PIAB awards safe in the knowledge that there is almost no financial risk in doing so.
Limiting this discretion from the courts would assist in reducing the rejection rate of PIAB assessments
thereby further reducing the number of claims in which legal proceedings are issued.
An amendment to the PIAB Acts is required to provide that a claimant who is found to have made
deliberately unsustainable claims in the course of his / her PIAB claim shall not be entitled to any order for
legal costs in a subsequent litigation.
7 Reduce legal costs associated with personal injury claims
The Consumers Association of Ireland (CAI) has highlighted the potential for savings from concerted
action to tackle premiums. The CAI claim that cutting legal fees by 50% could result in a €50 saving in an
average premium.
The recent European Commission report on the Irish economy noted “The reform of the legal
profession has progressed very slowly in Parliament and its ambition has been tamed. Further reforms
may be needed to make judicial procedures more efficient and expedient.”
In this context it is clear that further action to reduce legal costs generally is required across the economy
and would benefit motor insurance customers in particular.
8 Take action on false and exaggerated claims
The Civil Liability and Courts Act 2004 contains important provisions in connection with making personal
injury claims. Section 14 requires a plaintiff to swear an affidavit verifying the truth of the claim and other
information supplied. If any material aspect is false or misleading the person is guilty of an offence for
which the penalties are up to ten years in jail and a fine of up to €100,000. Section 26 states that where
false or misleading evidence is given in a claim “the court shall dismiss the plaintiff’s action”.
However in practice few cases of insurance fraud are actually referred by the courts to the Director of
Public Prosecutions (DPP) and there are very few insurance fraud prosecutions by the DPP generally.
Where people have been successfully prosecuted custodial sentences have not generally been imposed.
It is essential that a culture is developed where people know that those who make false or misleading
claims will be prosecuted and face a very real risk of a custodial sentence. This may require amendment
to the 2004 Act to underline the seriousness with which the State regards false and exaggerated personal
injury claims.
9 Legislate to clearly define the roles of Motor Insurance
Bureau of Ireland and the Insurance Compensation Fund.
The Motor Insurance Bureau of Ireland (MIBI) was established to deal with the claims by victims of
uninsured or unidentified drivers. The Insurance Compensation Fund (ICF) is primarily designed to facilitate
payments to policyholders in relation to risks in the State where an insurer goes into liquidation.
In the case of Setanta Insurance, the failure to have clearly established rules as to which entity is liable has
led to ongoing delays in meeting claims.
The role of the MIBI should be restricted to that for which it was intended with a clear legislative
provision that the ICF will deal with any liquidation of an insurance firm. The current ICF limit of a maximum
payment of 65% of the value of the claim or €825,000, whichever is lower, should be reviewed allowing for
payments of up to 100% of the claim to ensure fair treatment of customers. This should happen in parallel
with improved regulatory oversight of the sector.
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10Strengthen road safety enforcement
Enormous progress was made in the area of road safety in the early years of this century. The introduction
of penalty points, random breath testing, rigorous enforcement activity by An Garda Síochána and
effective Road Safety Authority awareness campaigns had led to fewer accidents on our roads.
The National Car Test (NCT) has helped keep unsafe vehicles off the roads and massive investment in
infrastructure has resulted in the construction of safer roads and motorways.
The cumulative effect of these measures has been to saves lives and keeps claims costs down. However
the current strength of 738 in the Garda Traffic Corps is a substantial reduction on peak levels despite the
recruitment of more Gardaí over the last 12 months.
It is imperative that An Garda Síochána and the Road Safety Authority are resourced adequately to carry
out their important enforcement and awareness raising work.
11Improve regulatory oversight
domestically and at European level
According to Central Bank documents released under Freedom of Information “A number of insurance
companies took a very optimistic view of future economic outlook, built up unsustainable overheads and
followed an imprudent pricing and underwriting approach which resulted in companies’ business plans
becoming less resilient to downside risks such as an increase in frequency and severity of claims.”
It is extremely concerning that such insurance firms were allowed to behave in this manner. More recently
concerns were raised in correspondence in 2015 between the Department of Finance and the Central
Bank regarding a high vacancy rate in the Central Bank’s insurance enforcement section. The effect of
the understaffing was that the Central Bank felt it lacked the powers and staff necessary to do its job
properly. A recent parliamentary reply indicates that “at the end of April 2016, the Enforcement Division
had 53.8 active staff, out of a complement of 71.5.” This indicates a continuing potentially significant gap
in the Central Bank’s necessary strength for adequate enforcement. This must be addressed as a matter
of urgency.
Poor regulation of insurance firms whose primary residence is outside of Ireland but operate in this market
is also driving up the cost of premiums because, as evidenced in the collapse of Setanta.
The European Union needs to reform how it regulates insurance firms to strengthen the overall system of
regulatory oversight and ensure firms cannot take advantage of poor regulation in one member state to
allow it to sell its services in to another member state. The Single Supervisory Mechanism for the banking
sector may provide a template for future insurance regulation across the EU.
Action is also needed to enforce existing regulation of insurance brokers and to ensure that brokers are
obliged to take account of all factors when advising their customers.
12Protect low income and vulnerable
customers from unfair practices
Low income and older customers are particularly vulnerable to rising insurance premiums as increases eat
up a greater proportion of their disposable income.
Since June 2011, cars over 10 years old are tested each year. The NCT is amongst the most rigorous in
the EU. To have achieved a pass the owner is likely to have paid out significant sums of money for service
and maintenance.
The average age of passenger vehicles in Ireland is just under nine years old. In recent times some
insurance firms have started restricting the availability of cover to cars older than 14 years. At present this
affects approximately 250,000 vehicles on the roads, or about 12% of the entire national fleet.
As the law stands individual insurers have the right to refuse cover, though they must provide a reason for
the refusal should a request be made. It is perfectly reasonable for an insurer to request a valid copy of the
current NCT certificate. However a blanket refusal to quote for business for vehicles older than 14 years
restricts competition in the market and leads to higher prices for some motorists.
We would limit the ability of insurance firms to refuse cover in such circumstances without a valid reason,
other than simply the age of the car. ■
Fianna Fáil Action Plan to tackle
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Michael McGrath TD
Spokesperson on Finance
Dáil Éireann, Leinster House, Kildare Street, Dublin 2.
Main Street, Carrigaline, Co. Cork.
W 021-4376699 Ð [email protected]
M /michael.mcgrath.1614 N @DeputyMcGrathTD
Niall Collins TD
Spokesperson on Jobs, Enterprise and Innovation
Dáil Éireann, Leinster House, Kildare Street, Dublin 2. W 01 6183577
Red House Hill, Patrickswell, Co. Limerick. W 061 300149
L 086 835 5219 Ð [email protected]
t www.niallcollinstd.ie N @NiallCollinsTD M NiallCollinsTD
Robert Troy TD
Spokesperson on Transport, Tourism and Sport
Dáil Éireann, Leinster House, Kildare Street, Dublin 2. W 01 618 4059
The Manse, Castle Street, Mullingar, Co. Westmeath. W 044 933 4857
L 087 797 9890 Ð [email protected]
t www.roberttroy.ie M /robert.troy.98 N @RobertTroyTD
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