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The
Board wishes to re-emphasis its support of the Government’s Strategy
for Road Safety which must be accorded priority in the common good.
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The
most significant indication to date is that young policyholders, who
pay the highest rates, produce larger surpluses of premium over claims
cost than most of those age 25 and over. This is based on the average
of five years data received for the five years 1993 to 1997. The classification
of all "drivers under 25" as a non-profitable risk for insurers is
now open to question. For example, the margin of premium over claims
cost was £211 for ages 22-24 compared to £60 for ages 46-55, or a
258% higher margin.
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On
average for the five years 1993 to 1997, every age of policyholder
contributed more in premium than claims cost except for the small
number of policyholders aged 17 and 18. One of the highest profit
margins was 30% for policyholders aged 66 to 70.
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Sadly
many serious accidents involve young drivers which result in a toll
of human tragedy. This trend is also seen in many other countries
both in Europe and elsewhere. Death or disablement of such drivers
does not impact on claims costs if that driver was responsible for
the occurrence as there is no compensation payable for injury caused
through one's own fault. In addition to the involvement of another
vehicle, these accidents are a risk to the young drivers’ passengers
who are often from the same age group. In cold financial terms, fatal
injuries to young people are not in the highest cost bracket in contrast
to liability for the death of a high earning breadwinner of a dependant
family where actuarial future losses are payable. However, severe
injuries may result in life long institutional care or long term medical
attention with very significant financial consequences. For the years
1993 to 1997, the most expensive average claims cost is recorded against
policyholders aged 17 and 18 of which there are relatively few at
0.3% of exposure.
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Women
also appear to be contributing more than their fair share in certain
instances. To date we have only received gender data for 1997. This
indicates that from age 51 favourable margins on female policyholders
are consistently higher. The variance is greatest over age 70 where
profits on females is £166 per policy compared to £29 for males, a
variance of £137 or 472%. Also, female policyholders aged 19 to 20
delivered a profit of £730 each compared to £186 for males, a variance
of £544 or 293% but the low level of exposure for this age at 1.6%
of policyholders may result in high variability from one year to another.
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Of
the total policyholders, 11% are aged over 60 and 8% are under the
age of 25. It is notable that there is a more limited choice of quotations
available for young drivers and for those over retirement age compared
to the range of alternatives for ages over 25 and under 70. The question
arises whether such market conditions are more reflective of imperfect
competition than claims cost. At the request of the IIF, a copy of
their submission on Young Drivers is enclosed with a response from
the Board’s statistician.
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The
figures quoted above are a selective sample from work undertaken by
the Board with information supplied to date by the IIF. Enclosed is
a brief summary on various ages of driver for the years 1993 to 1997.
The current exercise ignores insurers’ management expenses etc. which
are assumed at a constant percentage and will be examined separately.
For an extensive statistical analysis it is necessary that the Board
have access to the raw data on premium and claims costs which has
already been centrally collected by the IIF. We understood that this
data was to be made available. The IIF has received copies of all
reports for the purposes of checking our calculations but their responses
do not identify any mathematical errors. On 21st June 2000,
the Board was informed that the IIF are now reconsidering their position
on providing the raw data required by the MIAB.
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The
Board notes what the majority considers to be unduly simplistic suggestions
that issues relating to the cost of insurance will be resolved by
reduced accident frequency. At the extreme, if there were no accidents,
there would be no claims and no insurance industry. While not underestimating
the importance of safety but given the reality of accidents, the brief
to the Board includes establishing whether the resultant costs are
efficiently and equitably distributed over various categories of drivers.
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The
Board has asked five companies to explain the manner of their compliance
with the Declined Cases Agreement. Copies of correspondence are attached.
Two companies have not to date replied so no conclusions can yet be
reached on this issue.
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The
Board recommends that a Web-site be established jointly by motor insurers
and the insurance regulator to provide the public with on-line quotations
across the market. This would facilitate one-stop price comparisons
and could also promote competition. The technology is already in existence
as the five major insurers have established a company called INSECOM
to run such a system for quotations to brokers. The Board has met
with a representative from INSECOM and it is apparent that there are
no real obstacles to the Web-site as recommended. However, a joint
venture on broker quotations by five companies representing over 50%
of the Irish motor insurance market may warrant examination by the
appropriate authorities to ensure compliance with anti-trust laws.
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The
problems encountered by commercial motor clients are distinct from
those of the private motorist. Businesses are more acutely aware of
what they consider unfounded settlements or negotiations undertaken
without due consultation with the insured client. The Board recommends
that the Insurance Ombudsman Scheme, which is currently limited to
private policyholders, should be extended to businesses with an annual
turnover of up to £5ml. Such businesses do not have extensive legal
resources to pursue complaints against insurers through the Courts.
Additionally, to curtail the potential for such complaints, it is
recommended that the IIF should agree procedural guidelines with IBEC
on the consultations to which all commercial clients would be entitled
in the management of their motor insurance liabilities and defences.
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The
Board awaits with interest the report from the McAuley Group on alternate
methods to the current costly litigation system for personal injury
claims.
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The
Board notes that motor insurance inflation at 10% is running well
ahead of the general trend in the Consumer Price Index. This is the
highest rate of increase on record and may warrant consideration in
the context of the Government’s current deliberations on price control
measures.
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The
Board held a very informative meeting with the Data Protection Commissioner
on the notion that the rating of motorists for premium charges might
be based on their financial profile in addition to the more traditional
factors. The Minister specifically asked the Board to investigate
this "burdened borrowers" issue. With dissent by IIF, the majority
view of the Board is that such an approach would be contrary to public
policy but future practice will largely be dictated by EU legislation.
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Having
received further documentation from insurers, the Board is of the
majority view that not all instalment plans comply with the provisions
of the Consumer Credit Act 1995. IIF have undertaken to circulate
insurers with a reminder of the statutory requirements. As reported
previously, the majority view is that the interest rates levied are
excessively expensive. Enforcement is now a matter for the Director
of Consumer Affairs.
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The
majority of the Board wishes to re-emphasis the need for a strong
Consumer Protection role within the new Single Regulatory Authority.
The public is likely to be sceptical as to whether there is any true
commitment to their interests unless this priority is supported with
appropriate powers and penalties to ensure transparency and fair trading.
No doubt the pending Insurance Bill will present opportunities to
facilitate such measures. There is also a pressing need for consumer
education to assist the making of informed choices in so far as options
are available in compulsory motor insurance.
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The
work of the Board continues in a sub-committee structure as below:
