Motor insurance industry accused of cartel-like methods

The motor insurance industry and the Central Bank have been accused of throwing consumers to the wolves over the cost of car insurance, and spiralling premiums are unlikely to be reversed in the near future as a result, an Oireachtas committee has warned.

In a hard-hitting report, the Joint Committee on Finance said the motor insurance industry had deliberately been hiding key information from public view and engaging in cartel-like behaviour.

The report said that all witnesses who appeared before the committee – except for the insurance industry itself – had highlighted the absence of data-sharing and a complete absence of transparency across the sector as a serious problem. The absence of this information meant it was impossible to get to the root cause of motor insurance price increases, the committee said.

The report pointed out that only 20 per cent of insurance claims are processed through the Personal Injuries Assessment Board (PIAB) with a further 10 per cent going through the courts.

Transparency

“For both of those routes there is full transparency . . . however the remaining 70 per cent of claims are settled privately by insurers [and] there is no visibility or transparency whatsoever about these claims,” the report said,

The committee said consumers have “effectively been told to accept these exorbitant increases without any explanation. The insurance industry says that it is the result of an increase in legal costs and compensation awards but will not supply supporting evidence for verification.”

The absence of data-sharing and the lack of transparency had had a negative impact on competition as “new entrants are reluctant to enter the Irish market because they don’t have the requisite information to carry out due diligence”.

The report also suggested another cause of the spikes in the cost of motor insurance – which have seen some people’s premiums go up by over 100 per cent in just two years – was because insurance companies have been using their motor insurance books to bolster shortfalls in investment income in other areas.

“From around 2012/2013, investment income dried up,” the report said. “Guaranteed returns of 4 per cent on government bonds disappeared. Insurance companies rushed to plug gaping holes by burning through their capital reserves.

Insurance premiums

"The net impact is that the insurance companies lost a lot of money and, with motor insurance comprising 40 per cent of the total market in Ireland, the obvious and soft means of recapitalising [was] to target motor insurance premiums."

The Competition and Consumer Protection Commission (CCPC) and the Central Bank also came under fire.

The committee said the CCPC had insisted its remit was economy-wide and limited to enforcement of competition law, something which “is of little comfort to suffering motorists who feel exploited and abandoned”.

The committee also said the Central Bank “has abrogated responsibility for protecting consumers by claiming European law prevents it getting involved in pricing and risk. Thus it is the opinion of the committee that the consumer has been thrown to the wolves.”

Committee chairman John McGuinness said he could not say when – or if – the 71 recommendations in the report would lead to a fall in motor premiums and all he could do was express the hope that consumers would see some benefit “sooner rather than later, whatever that means”.

The report’s recommendations include:

* An end to the “closed shop” mentality of the industry and calls for full transparency in relation to claims information;

* The Central Statistics Office should be given a statutory role in collating insurance data;

* Consumers should be given detailed cost information in renewal notices;

* More pro-active regulation of the industry by the Central Bank with a greater focus on consumer protection;

* The insurance companies should be compelled to inform the consumer whether they have taken into account the mandatory medical assessments for over-70s drivers when calculating insurance premiums for this cohort;

* Greater powers for the PIAB, with the objective of increasing the number of claims cases settled by PIAB, thereby reduces claims costs generally;

* The Book of Quantum (guidelines for payouts for injuries) should be reviewed and updated on a regular basis.

Case Studies

1 John Cummis is 35 years old and drive a 2003 1.4L Ford Focus Estate. He has had a full licence for three years and three years' no claims' bonus. Last year, his fully comprehensive insurance was €662.98.

This year the same provider asked him for €1,035.95. “That’s probably more than the car is worth so I decided to shop around,” he says. He got a quote for third party, fire and theft for €671 from another operator and then went back to the original company’s website and tweaked his details including changing his partner’s status from ‘partner’ to ‘wife’ as they had got married this year.

His revised quote was €721. “I then rang them and told them I got a better quote, conveniently neglecting to say it was for TPFT. They then reduced their quote further to €674. You can be sure that they are still making a profit on this. So, it went from €1,035.95 to €674 – all from updating my details and telling a little white lie.”

2. Simon Moynihan is in his mid-40s and drives a 16-year-old Honda Accord. As a cyclist he only drives it rarely and it has less than 30,000 miles on the clock. Earlier this year he got a renewal quote of €917.11. "It had to be a mistake," he thought.

The previous year the same policy with the same company had cost him €484. “Now €484 seems about right for a regular middle-aged bloke. And okay, I was expecting an increase this year because all the insurance companies had been bleating on about losing money. But how on earth could they justify increasing my insurance by €433 – which is nearly 90 per cent. I haven’t had any accidents, I have a driveway where I keep my car, and I only drove a couple of thousand miles last year. What did I do to deserve a price increase of this size?”

When he spoke to the insurer, they said it was because of the car’s age and it offered a “requote” of €836, still 73 per cent more than last year.