Who needs reform when we can just get the punter to pay?

Conor Faughnan’s view on the ongoing mess that is the cost of motor insurance. This article first appeared in the Sunday Independent on 22^nd July 2018

No one is in any hurry to sort out the mess that is the cost of motor insurance. You can find all sorts of commentary about it and there are reports galore but those that have the power to actually do something about it are simply not trying. At least they are not trying hard enough.

They don’t need to. There is a far easier way to keep the gravy train flowing which is just to give you the bill.

The CSO has reported that the average cost of motor insurance fell by 11.5 per cent in the last 12 months. That is a deceptive figure.

Prices rocketed up in the two previous years very nearly doubling overall. We are paying about 70 per cent more than we did three years ago which puts the recent reduction in context.

Averages can also deceive. My old economics professor used to say that if your head is in the oven and your ass is in the freezer then on the average you are comfortable.

Outside of the mainstream risks there are about one in five motorists who do not fit neatly into the boxes of the insurance company’s pricing machinery. Groups like returning emigrants, people with a claim or points on their record, older cars or the self-employed find themselves as abused captives. There is very little choice for them and their prices are horrendous.

To be fair this is not one single mess. The AA set out the sequence of problems and solutions in November of 2015. There are changes needed under legal, regulatory, enforcement, competition and transparency headings. Our view was generally accepted and the subsequent report of then-Minister Eoghan Murphy’s Working Group said much the same.

I attended some of Working Group and Oireachtas Committee sessions myself. I was struck by how many different stakeholders were present and how little attention beyond lip-service was given to the consumer in the discussions.

I still find it incredible that a conversation like that can include representatives of the legal industry as stakeholders. They are only stakeholders in the dysfunction of the current system. If it worked they would not be involved.

In a simple injury case the only issue to be decided is how much should be paid in compensation. We have an updated Book of Quantum for that and an Injuries Board to make recommendations.

But Ireland being Ireland, we also have lawyers. Their role is to undermine the Injuries Board, haggle with an often lazy or complacent insurer, and get their client more money than their injury genuinely merits. The solicitor may feel they have ‘added value’ by getting their client more money but I do not.

Add it up across the 80 per cent of claims that are now settled outside of the Injuries Board either in court or in negotiation and it is a massive wedge of cost that has to be picked up somewhere.

More positively, we are hearing more cases where the claimant is thrown out of court with no award and a big costs bill. They rarely pay the bill though so it is still a case of ‘heads you win, tails you don’t lose’. The threat of it still helps those lawyers when they pressure an insurance company to settle.

We also have a serious fraud problem. It is absurdly easy to cheat the system. We are still using a paper disc as the only way for a Garda to tell if a car is insured or not. This is a ridiculous anachronism in the Silicon Valley of Europe and it actually facilitates fraud rather that prevents it. A camera-and-database system (like the M50) has been done in many other countries and we need it badly here.

We complain about Insurance companies but we need an industry that is predictable and profitable. It is a mistake to see an insurer make a profit in a single year and declare that they must be cleaning up at our expense. It is a business where it will take you 7 years of maturing claims to know whether you have actually made money or not.

But Insurers do not help themselves. They are dragging their feet so badly on the creation of a shared database for driver claims records that no-one believes them when they say it is a priority. They have been at it for 8 years now and are no closer to bringing us that vital tool for preventing fraud and promoting competition. It should be taken out of their hands.

Government will tell you that these things are happening; actions from their report are being done. That is not much more than a spoof. The ‘actions’ all use words like ‘assess’, ‘consider’ or ‘analyse’ – nothing that the consumer will really feel.

In truth insurance prices just aren’t sexy enough for this government any more. They have moved on. Brexit, Housing and Trump are all much more exciting. They will allow the natural cycle of insurance prices to start to come down and claim credit, while obvious and well-understood reforms are simply not carried through until the next crisis.

The one unambiguous change is an extra 2 per cent in the form of the latest levy. When the failure of regulation allows an insurance company to go broke with a load of unpaid claims the money has to come from somewhere. This will be added to the total gross written premium for motor insurance and the industry will be required to pay it.

Of course that is another deliberate misdirection. The solution will be to charge motorists and build up a ‘failure fund’. Saying that the Industry is making a contribution is a bit like saying that the lawyers are adding value. They are not.

The only ones paying real money into this broken system are the 2 million motoring consumers at the bottom of the food chain.