Motor Insurance Premiums – What’s really going on? Part 2
Motor Insurance Premiums
Following our from our article last week, where we highlight some factors that would seem to be relevant for the rise in motor insurance premiums, we now turn our attention to a recent study completed by the Central Bank on personal injury insurance in the motor sector. Some are their findings as detailed below are fascinating:
- Some companies are holding half the level of reserves compared to other for personal injury claims arising for motor claims. Reserves are minimum funds that insurance companies are required to hold to pay out claims.
- There is significant variation across the market in the average cost of these claims.
- There has been an increase in the number of claims from 2012 to 2014.
The Central Bank’s review of personal injury claims and their data has found that the number of claims building up within the system is increasing for a number of insurers, as claims are taking longer to fully settle across private motor and liability lines.
Sylvia Cronin, Director of Insurance Supervision said that this section of the insurance industry was facing a number of challenges from legislative changes and the economic environment.
“Increasing court awards economic activity and increasing numbers of vehicles on the roads are some of the factors pushing up insurance claims in Ireland. This uncertainty has increased further due to recent developments such as court awards and other legislative changes, including the proposed introduction of Periodic Payment Orders.
“The Review highlights the increases in claims frequency and slowdown in claims settlement patterns in recent years. Overall, it seems that the money set aside for private motor by some companies is approximately half the level per vehicle compared to others for more recent accident years. While there are valid reasons for some of these differences, companies need to carefully consider the extent to which these differences are appropriate,” said Ms. Cronin.
The Central Bank proposes to follow up this area of personal injury awards and the insurance industry’s behaviour as part of its supervisory role of the industry.
The study made the following key finding, which we have commented on below:
- Increases have been observed in private motor injury claims frequency from year-end 2013 to year-end 2014, in the range of 4% to 12%, with an average of 8.3%. This might be explained by reference to our economy coming back to life.
- The number of claims building up within the system is increasing for a number of insurers, as the claims are taking longer to settle fully across private motor and liability lines. The slowdown in settlement rates has been observed in some companies to a varying degree. One would have to question why insurers are not settling cases. Is this a deliberate strategy or have they made redundancies in previous years meaning they are now understaffed to deal with the recovery?
- Optimistic assumptions are being made in relation to the potential impact of Periodic Payment Orders by some companies and there is a wide variation in reserving methods applied. This has the potential for a serious crisis down the line. If insurers are being over optimistic in their reserving policy, this could come back to bite them in years to come were there not enough money in the pot to meet claims!
Furthermore, a number of remarkable revelations appear in this study. To the forefront is that variance in provision across the board by insurers for similar personal injury claims related to motor accidents.
One thing is for certain, the “economic recovery” and increased motor usage may mean additional accidents on our roads and that growth will need to be addressed on a number of fronts, such as road traffic legislation enforcements, recommencement of investment in roads and their upkeep and of course, enforcement of the NCT vehicle road-worthiness tests.
The jump to blame the victims of accidents for all the ill of the insurance industry is both simplistic and unfair; a closer look at the industry, and its regulation might bear more fruit.