Motor Insurance Advisory Board Report 2004

Chairperson's letter to An Tánaiste and Minister for Enterprise, Trade & Employment

24th September 2004

Dear Tánaiste,

The Board has pleasure in presenting a final report, in anticipation that our role will in future be fulfilled by IFSRA which was formally established in May 2003. It is imperative that, even if there is a change of service provider, the same statistical collection is employed by IFSRA as was used by MIAB. We anticipate that insurers' raw data for 2004 will reflect considerable savings on prior years' provisions with scope for much more significant premium reductions than seen to date. Any attempt to change the data format at this stage will leave it open for insurers to rightly assert that at least 5 years of consistent data are necessary to draw reliable conclusions. In addition to more recent data, this report presents the 5 year run off for 1997 accidents of the differential between premium charges and claims costs. While amounts vary over time, the margins by policyholder profile are consistent with our previous findings particularly for female policyholders. The more recent data for 2002 have already been supplied directly to IFSRA and we await their analyses with interest.

The anticipation of further substantial savings for both motor and liability insurance is subject to the caveat that Judges support the objectives in the Government's Insurance Reform Programme, including measures to tackle exaggerated and unfounded claims in the Civil Liability & Courts Act 2004. Potential new entrants to the Irish insurance market, while impressed with the reforms, have equally expressed their intention to "wait and see" if the desired results are delivered in the forthcoming legal term.

The Joint Oireachtas Committee on Enterprise & Small Business in its July 2004 insurance report has also expressed concerns about the extension of tort law in this country. The increasing frequency and high levels of awards for Post Traumatic Stress claims is another emerging trend and the Committee chaired by Mrs Justice Susan Denham points to measures adopted in other jurisdictions. In this MIAB report we present a very rough international comparison indicating that the cost of tort in Ireland could be 1.95% of 2002 GDP or, at the very least, 1.6% taking just insurers' returns for motor and liability. That would equate to between €1,968 and €1,577 for each of the 1.28ml households recorded in the 2002 census. The UK equivalent is £400 per household. A Datamonitor survey in the preliminary insurance study by the Competition Authority cites the legal environment in Ireland as the least attractive feature among EU markets. This has adverse consequences for voluntary sector activities, as well as for the insurance costs of business and private policyholders.

Media cynicism and public scepticism could best describe the reactions to publication of the April 2002 MIAB report and the subsequent Action Plan published in October 2004 after the Board's 67 Recommendations became part of the Agreed Programme for Government. While there may still be impatience at the pace of reforms, very substantial progress has been made in complex areas within what might be regarded as record time. The commencement this month of the Civil Liability & Courts Act 2004, as well as the operational establishment in May 2004 of the Personal Injuries Assessment Board, are radical measures with significant potential to serve the common good. Indeed, the model of the Cabinet Sub-Committee which you yourself chaired on a monthly basis for nearly two years demonstrates the advantages of assigning responsibility to specific Ministers in a co-ordinated action plan focused on defined objectives.

Most major challenges require co-ordinated action from a number of Government Ministers to ensure "joined-up thinking" that achieves results. This approach needs to be applied further to some of the outstanding MIAB recommendations. For example, the refusal by the Department of Health to abolish discriminatory charges on victims of road traffic accidents seems to focus solely on one budgetary area rather than acknowledging this as a cause of claims frequency where we compare unfavourably with mainland Europe. Threats from the EU, such as the initial draft of the 5th Motor Directive and the proposed Equality Directive, equally require co-ordination between the Department of Justice and whichever Minister is to have overall responsibility for Irish Government policy on the cost and availability of insurance. In other areas there seems to be a refusal to adopt measures which could encourage the single market. In mainland EU it is the vehicle which is insured, rather than the driver's use as in Ireland, and our indemnity provisions give rise to a perceived higher level of defective insurance but we seem wedded to the UK system. While it must be emphasised that the incurred cost of "real" uninsured driving in Ireland has halved from €140ml in 2001 to €70ml in 2003, the procedural rights for genuine victims of such occurrences have not been normalised as sought in the Board's previous recommendations. Similarly, victims of insured accidents have not been extended the facility to tender their minimum terms as a deterrent to unreasonable refusals of compensation payments by defendants, as sought in our December 2002 submission to the Committee on Court Practice & Procedure. Also of relevance to future injured claimants is the possible ending of unlimited indemnity in motor policies - in addition, policyholders could find themselves partly uninsured for very serious accidents.

Aside from national obligations to prevent uninsured driving, the State also has a duty under the 4th EU Motor Directive to establish a database which facilitates the identification of vehicle insurers. The Motor Insurers Bureau of Ireland has been designated as an information centre but with less than adequate results from the National Vehicle and Driver File. The system availed of by MIAB to obtain insurers' raw data could be extended to supply this and other statistical needs. While acknowledging the objectives of e-government, we were surprised that on-line vehicle tax renewal was introduced without the back-up technology to check insurance and NCT compliance. A reliable central database of insurance details could readily be established by extending the current quarterly SAMMI format to include vehicle registration details. Such a system of integrated data collection could also serve other statutory functions of IFSRA, as well as informing public policy generally on safety or cost issues. Consideration might also be given to outsourcing the collation of insurers' Statutory Returns by competitive tender to ensure earlier publication. We can only analyse the 2002 "Blue Book" but findings confirm previous concerns about top-ups of reserves, especially for claims which have yet to be reported on accident years that are outside the normal Statute of Limitations period. Similar reservations arise on commercial motor data which are analysed for the first time in this report. Other issues of particular relevance to commercial policyholders are reflected in public submissions, such as perceived judicial bias; difficulties encountered with brokers/intermediaries; renewal obstacles; risk management; penalty points system and rationalisation of speed limits - to quote but a few. We have largely avoided conclusions about the operation of the insurance market given the pending publication by the Competition Authority of its final report. The fact that the cheapest insurer in a given segment does not hold the largest share of policyholders points to a dysfunctional market.

In fairness to insurers, it must be acknowledged that the Irish Insurance Federation moved quickly to implement the dozen MIAB recommendations addressed to the industry. It must also be stated that the 2002 "Blue Book" reflects decreases in management expenses, including those companies that transact all their business direct. It would be naïve not to recognise that insurance is a global business. Mergers and acquisitions at EU level have affected Irish policyholders. However, there is little evidence that underwriters here have suffered the rate deficits experienced elsewhere and previous losses on motor have effectively been wiped out in the past two years. We should not accept any inevitability about an insurance cycle which delivers only pain to the Irish economy and little of the gain from improvements at national level. The need for close monitoring of the industry will continue to require the attention of a Senior Minister with an overarching remit to co-ordinate future reforms across a number of portfolios. Insurers are a well resourced and organised lobby at both national and EU level, in contrast to disparate consumers whose legitimate interests warrant adequate attention. Car ownership rates in Ireland are relatively low by EU standards but the current 1.5ml vehicles are estimated by SIMI to increase to 2.2ml by 2010 which presents further challenges.

It would be a mistake to believe that issues relating to the litigation system have been resolved with the establishment of the PIAB and introduction of the Civil Liability & Courts Act 2004. Prior to these reforms, the litigation overhead had risen to 46% in 2003 from the average reflected in our previous report of 42%. Nothing has yet been done to address the actual level of costs which will continue to be incurred in cases that require Court adjudication, although an enquiry is being established by the Minister for Justice. Appropriate measures to control proportionate costs need to be introduced lest justification be sought for increasing fees further because of new procedures in recent legislation and further proposals contained in Mrs Justice Susan Denham's report, which is also critical of the lack of transparency in the current costs system. Findings by the Competition Authority on solicitors' non-compliance with requirements to give clients early estimates of costs, coupled with concerns expressed by the Consumers Association of Ireland about unrepresented complainants facing their former solicitors in oral hearings of the Disciplinary Tribunal, on top of complaints of double charging referred to in this report, add weight to other public calls for an independent Legal Services Ombudsman.

In May 2004 MIAB made a proposal to clear the excessive backlog of driving tests. For those unnecessarily paying loadings for provisional licence status, there is an estimated saving of €12ml and many would be prepared to pay more than the current uneconomic fee for a fast tracked appointment. Unjustified discrimination on the basis of age alone has been tackled by the Equality Tribunal in cases outlined in this report and for which the expertise of Cyril Connolly must be acknowledged, as indeed is the indebtedness of the MIAB where he has acted as statistician since 1998.

On the issue of seat belts, we have reproduced in full an article by Dr Muiris Houston on the dangers which unrestrained passengers present both for their own safety and that of other occupants of a vehicle. Extraordinarily, among the 10,000 penalty points notices issued for non-wearing of seat belts, 850 related to unrestrained children in the front and rear of the vehicle. Compliance by adults with this safety feature might be encouraged if minimum deductions of 25% were made from their injury compensation rather than the onus of causative proof resting on a defendant.

A new issue identified is the level of drug use detected in blood samples analysed for alcohol levels. Professor Denis Cusack, Head of Forensic Medicine at UCD, described as "dramatic" the trend over two years of increased detection of cocaine.This presents an additional challenge for safety both on the road and in the workplace.

One simple outstanding measure on which unacceptably slow progress has been made is the unbundling of charges by standardisation of renewal notices, including showing the intermediaries' commission, as sought by recommendation number 15 originally addressed to IIF but which now falls to IFSRA. The regulation requiring fifteen days advance notice and "NCD" certificate, which you introduced in November 2002, has greatly assisted private policyholders in securing cheaper quotations. Improved transparency would secure them even better deals, as could similar arrangements for commercial policyholders. Another IFSRA measure which we fail to understand is the requirement in 2003 that insurers who operate a direct sales arm must establish a "multi-agency intermediary" if selling another insurance product in addition to the single source motor quotation. This runs directly contrary to the objective of ending the "confusion of illusion of choice" reflected in recommendation number 16. Indeed, the entire categorisation of the well known term of "broker" into terminology like "multi-agency intermediary" is unintelligible to many policyholders, even commercial clients. As reflected in our submission of April 2004 to the Competition Authority, importation of principles from investments products to annual insurance policies may also impose excessive burdens on brokers without any discernable benefits to consumers.

Personally, I would like to take this opportunity to record considerable gratitude to my fellow Board Members and to express our appreciation for your support of the MIAB.

Yours Sincerely,

Dorothea Dowling

Chairperson