Ironically becoming part of EMU on January Ist will put pressure on motor insurance premiums to increase. As interest rates fall, so will investment income generated by insurance companies. That can only be addressed by reducing the cost of claims, and/or increasing investment gains, and/or increasing premiums. However, the cost of claims is increasing and the turmoil in stock markets will make it more difficult to notch up investment gains. That places the focus firmly on premiums.

FBD, in its interim results, last week captured the mood of the insurance industry. "The stock market turmoil of recent days, coupled with anticipated lower interest rate income, highlights the need for economic premium levels to counter adverse underwriting experience," chief executive, Mr Paul O'Callaghan, explained. Funds invested by insurance companies were generating a return of some 8 per cent in 1995. This has almost halved since then. Some of this impact has yet to come through because some bonds have not yet matured. Also rates have further to fall before January 1st, 1999.

And with the turmoil in world markets there is unlikely to be much joy from investment gains. One direct impact will be a sharp cut in the value of investments in the companies' balance sheets. Also, the volatility will inhibit dealings, so the profit from the sale of investment is likely to be lower.

That puts pressure on insurance companies; to reduce their exposure to high risk business, and to increase premiums. Some motor insurance companies have already refocused their business so that motorists in the more risky categories pay more (than a year ago) and those in less risky areas pay less. That trend is likely to continue with the most risky - young male - paying more, though some motor companies are reducing the perceived impact by offering a finance agreement that includes insurance.

Statistics supplied by an industry source indicates all too clearly the frequency and cost of claims from this sector.

The average claim by motorists (male and female) in the 17 to 19 age category is £5,000; 3.8 per cent with a full licence make a claim, this rises to 4.7 per cent for those with a provisional licence.

In the 20 to 22 age bracket, the average claim rises to £22,000; 4.8 per cent with a full licence make a claim, this rises to 7 per cent for those with provisional licences.

In the age category 23 to 24, the average claim falls to £9,700; 3.5 per cent make the claim with a full licence, rising to 9.5 per cent for those with provisional licences.

The size and incidence of claims starts to fall away after that but starts to rise again in the over 60 age bracket.

These statistics, of course, can change in any year, but it is clear that those with provisional licences - accounting for 24 per cent of the driving public - are by far the riskiest. Based on these figures, a driver in the 20 to 22 age bracket with a provisional licence, is potentially 10 times more expensive that a driver in the 41 to 50 age bracket. Against that background the almost annual hullabaloo, often led by politicians, against the hefty premiums on younger drivers, is unsustainable. It is also bizarre that we have regulations which allow a driver with a second provisional licence, who has failed the driving test, to drive unaccompanied by a qualified driver. By definition, a person who fails the test is not a competent driver. In contrast, other countries, such as the Netherlands, insist on a series of tutorials (30 in the Netherlands) before they are allowed to take the test.

Some insurers tried to reduce the cost of young drivers by offering a 10 per cent discount in the premiums provided they took a course with an instructor. However, the take-up has been minimal. The Minister of State for the Environment, Mr Bobby Molloy, recognising that road accidents were the biggest killer of people in the 15 to 24 age group, has promised the introduction of a theoretical test to augment the knowledge of holders of provisional licences. It remains to be seen how that will work in practice.

The `Government Strategy for Road Safety 1998 - 2002', launched last week, made it clear that we have one of the worst safety records in the EU. The road fatalities per million private cars is 441 compared with the EU average of 277. Is it any wonder that the Garda Commissioner, Mr Pat Byrne, has urged the introduction of random breath testing of motorists and a penalty points system for road traffic offences.

All this, is, of course, outside the ambit of those who run the motor insurance industry. They will have little option but to increase premiums, unless the rate of claims fall - and there is little signs of that. This increase will vary from company to company, but it could average 4 to 6 per cent next year, or well above the rate of inflation.