Cheaper car insurance? Well, don't count on it

As chief executive of the Irish Insurance Federation (IIF), the industry's representative body, Michael Kemp is the public face of an industry we all love to hate. And, after two hours dissecting the industry and chasing up cul-de-sacs for solutions to the intractable problem of exorbitant premiums, even the most optimistic commentator begins to feel disillusioned about suggested cuts of up to 30 per cent.

Like a surgeon, he dissects the suggested changes, using figures as his scalpel. Little words such as "if" and "when" would seem to be the pillars of the initial estimate of cuts and Kemp is quick to cut these down to size.

He patiently works his way through questions about lack of competition in the industry, claims of overcharging and the recent Motor Insurance Advisory Board (MIAB) report proposing a major overhaul of motor insurance. The report contained 67 recommendations involving insurers, Government, the legal and medical professions and policyholders.

Kemp is keen to point out that, from their side, recommendations referring specifically to the insurance industry have now been agreed or implementation dates set.

The MIAB report estimated that, if its recommendations were implemented, premium reductions of 30 per cent could be achieved, a figure that stoked fires of optimism. Kemp is quick to douse the flames: "If everything works, at the top end of the scale we came out with 31 per cent. The creation of the Personal Injuries Assessment Board (PIAB) to assess and award damages in uncontested cases could bring in 6-8 per cent savings on costs and special expert witness expenses."

But the other savings are much harder to estimate.

In a three-pronged attack he targets the legal and medical profession before finishing with the Government and our choice of social policy.

First in his sights is the legal profession. While he's confident the PIAB will significantly reduce legal costs - estimated to account for up to 40 per cent of costs - he highlights the continued discrepancy in contested cases where even those guilty of exaggerating their injuries to increase compensation are awarded limited damages and costs.

"When we launched our anti-fraud campaign we had evidence of people blatantly trying to perpetrate fraud. In some cases, it was fought all the way to court and they were still awarded damages.

"In fairness they get less than they claim, but they still get damages and, once damages are awarded, they get costs. In one of the cases the damages were €6,000 but the costs €21,000. Faced with that kind of bill you do have to take into account the total economic package."

Next in the line of fire is the medical profession. Kemp highlights the refusal of the Department of Health to end differential pricing for motor accident victims, one of the MIAB recommendations. He also calls into question the consitutionality of the pricing of hospital costs in Ireland for those injured in motor accidens.

"You can have exactly the same injuries and exactly the same call on hospital services if you have an accident in your hallway as a motor accident, but you will be charged only if it's a motor accident. The Department of Health is apparently not prepared to change the legislation.

"There are issues as to whether that is unconstitutional and the question has been raised as to whether there is an equal status issue in relation to patients as customers of the hospital being discriminated against for non-objective reasons. But it's another one or two per cent out off our potential savings."

Finally, the Government and our choice of social policy. Its refusal to remove the two per cent stamp duty on premiums automatically reduces the suggested 30 per cent premium savings post-MIAB.

In relation to compensation for special damages such as lost income, Kemp says our decision to opt for low taxes and low social welfare cover leads to higher premiums. "In other countries your medical costs are paid for by the state after an accident, regardless of who is to blame. Lost earnings will be made up to greater degree by social welfare payments, whereas here, because state provision through the health and social welfare system tends to be lower, the plaintiff is forced to include it in a compensation claim.

"That's a choice for society at large. You can fund this through insurance premium or through higher taxes and/or PRSI."

Yet, despite the rush to blame others, does the industry not bear a substantial responsibility for the high premiums? To what extent does the economic downturn impact on premium costs?

Kemp is keen to dismiss claims that the industry is profiteering from motorists. "You have to go back to 1998 before motor insurance was profitable," he says. "Even then it was a result of investment income exceeding underwriting losses. Now the investment returns have slackened off and that has put pressure on solvency, which means that companies need to get more capital to continue to write the business."

Ithe end, motorists take the final responsibility, according to Kemp. "The MIAB report and the creation of the PIAB are important, but they're not the most important. Overall claims costs are determined by the number of accidents so the road safety strategy is key." Back again to those behind the wheel.

He accepts that penalty points are reducing accidents and thereby costs, but suggests enforcement needs to be addressed. Insurance firms are negotiating with the Government to provide access to information on motorists who have acquired points. While some claim it's an invasion of privacy, Kemp says the new penalty points system is no different from previous systems.

"Insurers have always been interested in finding out about drivers who break the law - and you are required to divulge it. The reason we want access to the information is not specifically to do with penalty points but, now that the points are there, it's an opportunity to pursue the case, because not everybody does tell us.

However, as with every factor that may reduce premiums, Kemp has his doubts: "You will be loading a minority of a minority, so the resulting extra premium that can be spread among the majority will not result in a very large reduction."

So, it would seem motorists will be paying out for the forseeable future.