Sometimes it seems that high motor insurance costs, like death and taxes, will always be with us, but does this have to be the case? Why are premiums - particularly for younger drivers - so high? Can anything be done to reduce them?
Competition between insurers means operating expenses have been pared to a minimum. The vast bulk of motor insurers' costs - over 86 per cent - are spent on claims. Profits in 1998, even after account is taken of investment income, were less than 2 per cent of premium income. If lower premiums are to be charged, it is clear that claims costs must come down. The main factors determining claims costs are:
the number of claims made - over 200,000 every year, including tens of thousands of injury claims. The number of insurance claims closely follows trends in road accident statistics;
the average cost of claims - motor insurance claims, especially personal injury claims, cost more in Ireland than in other European countries. Our relatively generous system of compensation is funded not from the deep pockets of faceless financial institutions but from the insurance premiums which ordinary motorists pay;
handling costs - 28 per cent of insurers' total outlay on personal injury claims - are too high a proportion, according to insurers. Legal costs are inconsistent. The system it tends to encourages delay in settling cases, which in turn increases costs.
Young drivers are less experienced than older drivers and tend to make more mistakes, leading to more claims. Young drivers' claims also tend to be more costly than the norm. National Roads Authority statistics show that:
younger drivers are more often to blame for accidents;
speed - leading to more serious injuries and damage - is a contributory factor in more young driver accidents; and
a higher proportion of young driver accidents result in multiple injuries.
Insurers' statistics bear out these findings. Although under-25s account for no more than 10 per cent of insured drivers, their claims cost 23 per cent of all claims expenditure.
Seventeen-24 years/over-24:
1: Proportion of drivers at fault - 55 per cent, 39 per cent; speed a contributory factor (fatal accidents) - 52 per cent, 27 per cent; accidents classified as "serious injury" - 20 per cent, 15 per cent; more than three injured in car 19 per cent - 11 per cent; 2: Proportion of claims costs (drivers) 23 per cent, 77 per cent; proportion of policy-holders - 5 per cent, 94 per cent; proportion of insured drivers (est) 10 per cent 90 per cent. (Sources: National Roads Authority, Young Driver Accidents 1997; Irish Insurance Federation.)
It is only reasonable therefore that young drivers pay more. Higher claims costs for young drivers is a world-wide phenomenon, not just an Irish problem. In Ireland, however, with a high proportion of young people in the population and with car-ownership becoming more accessible for younger drivers, the problem is particularly acute. As claims and premium costs are high even for older drivers, the cost of cover for young drivers can be prohibitive. Any solutions to the wider problems of high-claim frequency and high-claim cost will also benefit young motorists, but there are some additional measures specific to young drivers which can be taken.
Of paramount importance is full and timely implementation of the National Road Safety Strategy. Drink-driving, speeding and seat-belt wearing are the main areas for action. The strategy covers education, engineering and research, but high profile, consistent enforcement activity by the Garda and legislation to introduce penalty points and increase sanctions against driving offences will have the greatest impact in the short term.
The main focus needs to be on curbing speed. Early extension of the speed camera pilot scheme, supported by an automated system for issuing "on-the-spot" fines, is vital. Penalties must be enhanced to deter speeding. Driving licence penalty points will have a significant positive effect on driving behaviour - the fear of losing one's licence for repeated driving offences is a far greater deterrent to most people than a fine. The adequacy of "on-the-spot" fines for speeding must be seriously questioned - a fine of £50 is no longer enough.
Contrast the effectiveness of clamping and impounding vehicles for parking offences: it costs a lot more than £50 - and considerable inconvenience - to recover an impounded car which may have caused an obstruction but cannot be as dangerous as driving at excessive speed.
Dr Peter Bacon's 1999 cost/benefit analysis of the Road Safety Strategy demonstrated that every £1 spent on road safety can create savings up to £8 or more. Given the healthy state of the public finances, there is no excuse for not put ting the necessary resources into road safety.
Fewer accidents mean reduced demands on the emergency and health services, fewer work days lost through injury, and lower motor insurance costs. Quite apart from the economic benefits, just think how many lives would be saved and families spared the trauma of the death or injury of a loved one if accidents are reduced.
Additional measures targeted at younger drivers could include:
driver testing: a concerted effort to reduce the numbers of provisional licence-holders by speeding up the waiting list for driving tests must be undertaken urgently;
graduated licensing: there is merit in introducing an intermediate licence with additional restrictions for newly qualified drivers until they gain more driving experience (e.g. lower speed and alcohol limits). However, new licence conditions would require extra policing and should only be considered if the Garda has the necessary resources to enforce them;
education and training: it is vital to inculcate safe road behaviour early - it is far easier to maintain safe driving habits learned at the outset of a driving career than to change bad habits once learned. Driver tuition quality could be improved by statutory registration and standards for driving instructors.
Given recent worrying trends in road accidents, the main focus has to be on road safety, but the other issues which affect motor insurance claims costs should also be addressed. We need to reflect more carefully on the levels of awards and costs in personal injury cases. While we may wish to be generous to victims of accidents, we have to consider the affordability of the current system to the private motorists and businesses who pay for it. A thorough review of litigation procedures and court rules could make the claims process more efficient. We also need to do more to tackle uninsured driving. The cost of claims against uninsured drivers is borne by insured drivers, adding nearly £40 to the average motor insurance premium.
To contain motor insurance costs, we have to curb claims costs. It is vital that the Government re-dedicates itself at the highest level to implementing the National Road Safety Strategy without delay. In addition to saving lives and reducing injuries, which is beyond price, all the economic arguments demonstrate the case for a substantial increase in road safety resources.