Who does Michael Kemp think he is kidding? Twice in the last two weeks the chief executive of the Irish Insurance Federation (IIF) has wheeled out a recent actuarial study he commissioned as evidence that motor insurers are not charging excessive commissions. The first occasion was at the unveiling of the report two Fridays ago at the Michael Smurfit Business School, and the second was last Tuesday before the Oireachtas Committee on Enterprise and Small Business.
On both occasions he said the report by Tillinghast-Towers Perrin - which compared the risks associated with different classes of driver - was evidence that the industry was not overcharging its customers. He based this claim on the report's unsurprising conclusion that young male drivers are more likely to be involved in car crashes than any other class.
This may justify large premiums for young drivers but it cannot by any stretch of the imagination be considered conclusive proof that young drivers - or any other driver - are not being over charged. The context for Mr Kemp's rather ambitious claim is the interim report of the Motor Insurance Advisory Board (MIAB) which was released to this paper under the Freedom of Information Act in March. The Government-sponsored body had done a very simple thing which had produced some interesting and - for the motor insurance industry - very embarrassing results.
The board had asked the insurance companies to provide details of all the motor insurance policies sold between 1993 and 1997. They also sought details of all the claims during the same period. All the information was then given to the department of statistics at Dublin City University (DCU).
DCU ran through the numbers and found that not only were insurers making money on almost every class of driver, they were making huge profits on some classes. The most amazing revelation was that bigger profits were made on young drivers than almost any other class. The insurers were making around £211 (€267) per policy on drivers aged 22-24 compared with £60 per policy on drivers aged 46-55. The MIAB also found that female drivers were bearing more than their fair share of insurance costs. The average profit per policy for female drivers aged 19-20 was £730.
Just in case there was any doubt as to the accuracy of the figures, the interim report had the industry's own figures for the same data appended, which painted much the same picture. The MIAB also allowed the IIF to check its arithmetic, which the IIF did and discovered no errors. The findings of the MIAB are the source of the "many accusations levelled at the motor insurance industry over the past few weeks", that Mr Kemp claims to have rebuffed.
They include the allegation that the insurers are not charging fair motor premiums to each category based on the risk they pose and that they are, in fact, making supernormal profits on young drivers, according to Mr Kemp.
If the IIF chief executive is to substantiate his assertion, he will have to explain how an actuarial study that merely compared risks across different classes did what he claims. The Tillinghast report was silent on the subject of the profits made by insurers on different classes of drivers and, as such, it is impossible to see how Mr Kemp can draw any conclusions from it about the fairness of the profits made on the policies.
By the same token, the Tillinghast report does not in any real way support the findings of the MIAB interim report. Basically it is not really very relevant.
The spin being put on the Tillinghast report by the IIF is to say the least disingenuous. It is also not surprising given the rift that has developed between the IIF and the MIAB on foot of the current investigation. The IIF threatened to withdraw from the board over the interim findings but relented when the MIAB said that under such circumstances it would have to recommend "a more rigorous forum for investigation in this area of public concern".
The IIF decision to commission its own parallel study by Tillinghast was taken without informing the MIAB. It came to the attention of the MIAB chairwoman, Ms Dorothea Dowling, only when the IIF revealed its existence as part of its response to the publication of the interim report. It has also been noted by MIAB members that Tillinghast has been able to complete its work while they are still awaiting all the information they require from insurance companies to complete their task.
The MIAB final report is due later this year. If its findings confirm those of the interim report then Mr Kemp and the IIF can be expected to come out and try to refute them. They will need to do better than produce an actuarial report that looks at a related, but quite different, topic and expect everyone to accept their assertion that it comprehensively rubbishes the MIAB's work.
