Driving most of us to distraction

There are few subjects more likely to induce temperature rises in the collar regions than motor insurance. Everyone has a friend abroad paying rates a fraction of those obtaining in Ireland. But this ignores the reality of the market.

Motor insurance is unprofitable in this country. This is accepted by the insurance industry and the Government. For many years the cost of claims has tended to either equal or outstrip premium income on motor insurance, with companies making profits from investment of premium income received in advance of any payouts made. And it is the cost of claims in Ireland which causes the insurance premiums to be so high.

A recent Government commissioned report by Brian Greenford of the University of Limerick showed the cost of personal injury claims to be up to nine times higher here than in the UK in certain instances. A study of these costs was carried out some 10 years ago by Coopers & Lybrand and it showed the average cost of a simple vehicle damage claim was £1,369 in Ireland, compared to £758 in Britain. In the same year the average personal injury claim cost £19,717 in Ireland as compared to just £4,947 in Britain.

Numerous studies have been carried out by the Government and the industry into the cost of motor insurance in this country - particularly relating to young drivers - and the results have been the same.

Speaking at the Irish Brokers Association dinner last year, the Minister of State at the Department of Education and Science and at the Department of Enterprise, Trade and Employment (with special responsibility for science and technology), Mr Treacy, said: "There is no disagreement that the price of insurance is linked to the cost of claims. This among other things convinces me that there is no quick-fix solution. It is clear that, when one reflects on the matter, the only remedies for high insurance prices are long-term slow burners. The first remedy is competition. We wish to encourage as many players as possible onto our market so as to maximise competition. Admittedly, the high cost of claims here may be a deterrent. There are two things that we can do in relation to the cost of claims. One is to reduce the number of claims by reducing the number of accidents."

The other step mentioned by the minister was to introduce new systems for the reduction in the cost of processing and paying personal injuries claims. The nub of the issue is the number of accidents on Irish roads - the accidents which give rise to both vehicle damage and personal injuries claims.

"We have to ask if we have lower accident rates than before and the answer given by the pictures of mangled cars in the media is that we do not," says Damien O'Neill of Allianz. "We have not done enough to bring about a sustained reduction in motor accidents. This is where the real cost of motor insurance lies. Initiatives such as the introduction of the points system are welcome, as is the investment in new and improved roads."

Axa chief executive John O'Neill has called on the Government to provide greater resources to enforce road safety measures. Axa spokesperson Andrew Kelly points out that there aren't enough garda∅ to enforce the rule requiring provisionally licensed drivers to have a qualified driver in the car with them.

Mr Kelly also says that apart from the number of claims, the costs of individual claims have also risen. "The cost of hospital treatment, the cost of car repairs, the cost of compensation for loss of earnings - all these elements and many more have increased rapidly in recent years, pushing up the overall cost of insurance," he says.

It appears that the only way to bring down motor insurance costs here is to reduce the number of road accidents.