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Auto insurance premiums increased by more than a third between 2009 and 2019, even though the cost of claims per policy fell by 9% during the same period.
That’s according to the latest report on the auto insurance industry released by the Central Bank.
The report, the second in the study of premiums and cost claims in Ireland, is based on information contained in the National Claims Information Database.
It concluded that the frequency of claims decreased by 45% during the 11-year period covered in the report.
However, the cost per claim increased by two-thirds during the same time period from € 2,726 in 2009 to € 4,487 in 2019.
The report also specifically looked at the years 2018 and 2019, during which it found that the average policy price dropped by 4%, while the cost of claims per policy dropped by 1%.
The average cost of a claim increased by 4% but the frequency of claims decreased by 5%.
Insurers’ operating profit as a percentage of total revenue was 10% in 2019 compared to 9% the previous year.
Insurance Ireland, the representative body for insurers, said the figures pointed to an industry that was cyclical and showed signs of volatility.
“The insurance industry, more than other industries, experiences cycles of contraction and expansion. We would like to see less volatility over time,” said Moyagh Murdock, Chief Executive Officer of Insurance Ireland.
“A stable, healthy and profitable insurance sector is fundamentally important in a functioning economy,” he added.
Ms Murdock said the key to reducing volatility was implementing the reforms necessary to reduce the high and inconsistent cost of claims.
“That is why we fully support the Government’s reform agenda through the personal injury guidelines, the strengthening of the Personal Injury Assessment Board, and the review of duty of care laws, among other areas. This, in in my opinion, it will provide better value to consumers in the long term. “
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However, the Alliance for Insurance Reform, a representative group of businesses and civic organizations, said the report is gloomy reading.
“Auto insurance premiums have not dropped dramatically in the past two years, contrary to sample data released by the CSO and widely used by the government to illustrate progress,” said Peter Boland, director of the Alliance.
“The report also uncovers the scale of greed that has fueled the current insurance crisis, enriching insurance companies, brokers and lawyers at the expense of Irish motorists struggling to make ends meet,” he added.
The Alliance called for an urgent reduction in the level of minor injury damages, as well as a Garda ‘properly funded’ response to insurance fraud.
“We want firm commitments from insurers on the reductions that we will see in liability premiums from all reforms currently underway. We have waited four years for substantial reforms and we cannot wait any longer,” Boland said.
Stuart Gilhooley, trial attorney and former president of the Law Society, said that the cost of legal fees is a “red herring that the insurance industry likes to throw at us all the time” and what matters is the price of premiums for insurance.
He said the cost of policy claims has decreased by 9% over the past ten years (including legal costs), while premiums have increased by 35%.
Speaking on RTÉ’s Today with Claire Byrne, Gilhooley said the insurance industry is using a “don’t look here, look there” “Trump trick” and steers people toward the “unpopular topic of lawyers.”
Injury claims increase by more than half
Damage claims far exceeded damage claims and the average cost of damage claims increased by 53% from € 29,780 in 2009 to € 45,576 in 2019.
The average cost of a damage claim increased 6% from € 1,194 to € 1,262 during the same period.
The average cost of damage claims decreased by about a fifth from 2009 to 2013, but then increased by 30% through 2019.
The industry loss ratio, defined as claims as a percentage of premiums, averaged 72% between 2009 and 2019.
This metric reached a maximum of 92% in 2014 and a minimum of 57% in 2017 and 2018. The loss ratio averaged 59% in 2019.
“This is essentially what insurance companies are paying in claims as a percentage of what they are receiving in premiums. It is a good indicator of profitability, but not perfect,” explained Mark Cassidy, director of statistics at the Central Bank.
He said the overall trend was consistent with the long-term insurance underwriting cycle with peaks and valleys in premiums, reserves and profitability.
However, he said that the level of volatility here was quite remarkable, particularly compared to other countries.
“Ireland’s average of 72% over the decade is a significant indicator of our long-term performance. That means a low loss ratio and therefore a healthy and favorable profitability ratio compared to historical standards.” concluded.
Premium costs fluctuate
A breakdown of the premium costs over the period points to two distinct pricing periods.
2013 was the lowest point when premiums averaged € 435, a reduction of 13% from € 499 in 2009.
Premiums started to rise again in 2013, increasing 63% to an average of € 707 in 2018.
Premiums decreased 4% from 2018, to an average of € 676 in 2019.
“At the end of 2019, they were 9% below their peak in mid-2018. Quarterly data shows that premiums were trending down over the past year and anecdotal evidence suggests that they continued to decline in 2020. However , overall auto premiums last year were still 35% higher on average than at the beginning of the study period in 2009, “explained Mark Cassidy.
Average claim costs per policy
This metric also showed some fluctuation during the period under review.
The average cost of a claim per policy decreased by 14% from € 438 in 2009 to € 375 in 2013. Then it increased by 7% to € 402 in 2018. There was little change in the average cost of claims per policy in 2019, when it stood at 400 euros, the report concludes.
The report also looked at injury claim settlements between 2015 and 2019 and found that half were resolved directly, 17% were resolved through the Personal Injury Assessment Board (PIAB), and the remaining third were resolved through litigation.
However, when viewed in terms of injury costs, litigation accounted for two-thirds of the costs with 22% represented by direct settlement and the remaining 12% resolved through PIAB.
Average compensation for a litigated settlement was € 46,214, while a direct settlement averaged € 13,427.
The compensation for a liquidation of PIAB amounted to an average of € 23,137.
The average legal cost for a PIAB settlement is € 716 compared to an average cost of € 23,409 for representation in a litigated settlement.
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