Thursday, 14 January 2016
Motor Insurance Coverage
Cuirim céad fáilte roimh an Aire Stáit agus guím athbhliain faoi shéan is faoi mhaise dó.
Interestingly, I note the headline on an article in today's edition of the Irish Examinerreads, "Standard & Poor’s sees car insurance hikes on road to profits". The article reports that the insurance industry here will be obliged to hike car insurance premiums because the profits of the insurance companies appear to be falling or not reaching the targets they would expect. This relates to the question I tabled today to the Minister for Finance because I seek a statement on the practices of the insurance industry that appear to penalise certain categories of driver, including young drivers in particular, as well as those driving cars that are more than ten years old. I also wish to ascertain what steps the Government is taking to counteract these practices. This issue arises frequently in the area I am from, where I am told young drivers are being asked to pay anything between €2,000 and €9,000 in annual premiums for motor insurance. This, obviously, is not affordable for them and, consequently, they cannot get on the road and take up jobs, attend courses, etc. According to the Irish Brokers Association, some insurers have even stopped providing quotes for drivers in their 20s and insurance costs have been shooting up for months. However, younger drivers are the biggest losers, with average increases of between 20% and 30% in 2015.
Another issue has arisen about cars that have passed the national car test, NCT, but which are between ten and 15 years old. While everyone welcomed the introduction of the NCT to make sure all motor vehicles on the road were safe, one now finds that insurance companies will not provide quotes for people who own older cars. This is hugely inconsiderate for those living in rural areas who have taken care of their cars. It seems crazy that while the Government, through the NCT system, is stating a car that has passed the NCT is fit to be on the road, an insurance company can turn around and decline to insure it, thereby deeming it to be undriveable. Moreover, someone who wishes to sell on such a car will not be able to sell it because he or she will be unable to get a price for it. Consequently, questions also arise as to why a car that passes the NCT is not being insured. This, obviously, has an impact on rural dwellers and students, as well as those on lower incomes because many of the people who have such older or cheaper cars are on lower incomes.
Other issues have been raised with me about how the penalty points regime is having an impact on the price of insurance premiums. This morning I learned of a father whose son had come home for Christmas with three penalty points on his licence, having been 10 km/h above the speed limit in a certain area. The son had paid his penalty and was happy to so do, but when the father attempted to insure him for ten days over Christmas, he was asked for €150 in an increased premium. This appears to be blatant profiteering on the part of an insurance company. I have heard of another case in which one penalty point on a person's licence resulted in an increase of €150 in that person's premium. It is not just me, as many consumers also are concerned about this issue. I note that the Consumers Association of Ireland has also called on the Government to conduct an independent review of the insurance industry amid growing concerns that motor insurers are penalising in particular pensioners and younger drivers who tend to drive older cars.
Some people have suggested this is blatant profiteering by the insurance industry. Some have stated younger drivers, in particular, are being fleeced by the insurance companies. Entities such as Standard & Poor’s stated this morning that it was a profit-driven initiative, but I note the profits of Aviva, one of the companies imposing these increased fees, increased by 13% last year. What is the Government doing to tackle the insurance industry? Is it simply being allowed to do whatever it wishes and charge whatever prices it seeks? Why is the Government not providing for some form of regulation to make sure a fairer system will be in place for young people, those who own older cars and people living in rural areas? What is happening to make sure there is fair play and prevent insurance companies, when they consider they are not making sufficient profits, from targeting certain sectors and segments of society by charging them additional extortionate premiums? In many cases, this renders them unable to work or attend courses or makes them victims of a poor public transport system that cannot serve their needs. In recent weeks Members have seen issues with the insurance industry with regard to flooding, the cost of insurance and whether people can get insurance cover in such scenarios. However, motor insurance is also an area in which huge scrutiny is required. It appears it is a highly unfair playing field and that in this case too, the insurance companies are not playing ball.
I thank the Senator for raising this current and relevant matter. The Minister for Finance is responsible for the development of the legal framework governing financial regulation and is concerned that there should be a stable insurance sector and that risks to policyholders and the wider financial system are limited. He is aware of reports on the increasing cost of motor insurance. However, the ability of the Government to influence insurance pricing is limited, as insurance companies are required under European law to price in accordance with risk and neither the Minister nor the Central Bank of Ireland has the power to direct insurance companies on the pricing or provision of insurance products. The European Union framework for insurance expressly prohibits member states from adopting rules which require the prior approval or systematic notification of certain matters, including general and special policy conditions and scales of premiums. Furthermore, the EU framework provides non-life insurers with the freedom to set premiums. Insurance companies consider a number of risks when determining the premium for a proposed insurance policy, whether it be a general insurance policy such as motor or home insurance or a life assurance policy. A premium is based on the actuarial calculation of risk.
Insurance Ireland has advised the Minister that motor insurers make their own individual decisions on whether to offer cover and what terms to apply. They use a combination of rating factors in doing this such as the age of the driver, the type of car used, claims record, driving experience, the number of drivers, how the car is used, etc. Insurers do not all use the same combination of rating factors; prices vary across the market and consumers are free to choose. Insurance companies price in accordance with own past claims experience. For example, where the age of a car is a factor, different insurance companies use different age thresholds. It is important to note that as a result of the implementation of the EU gender directive in the motor insurance sector, there is a statutory requirement in Ireland for the provision of unisex premiums and benefits in insurance. This means that insurers are prohibited from discriminating on the basis of gender.
As stated, the ability of the Government to influence insurance pricing is limited, but that does not preclude the Government from introducing measures that may, in the longer term, lead to a better claims environment that would facilitate a reduction in claims costs. The Department of Finance has embarked on a review of the insurance sector which is being undertaken in consultation with the Central Bank of Ireland and other Departments and agencies. The objective of the review is to recommend measures to improve the functioning and regulation of the insurance sector. The review is being conducted on a phased basis, with the first phase reviewing issues in the motor insurance sector. As part of this first phase, the first meeting of officials from the Departments of Finance and Transport, Tourism and Sport took place on 7 January. Progress reports will be submitted to the Minister for Finance as the review progresses, with a final report expected within 12 months.
In the event that a person is unable to obtain a quotation for motor insurance or considers that the premium proposed or the terms are so excessive that it amounts to a refusal to give him or her motor insurance, he or she should contact Insurance Ireland quoting the declined cases agreement. Under this agreement, the declined cases committee of Insurance Ireland deals with cases of difficulty in obtaining motor insurance.
The people I mentioned who are being penalised by the insurance companies will not take much solace from the Minister of State's response. Does he agree that the Minister for Finance should haul in the insurance companies and raise these issues with them directly, as has been done, albeit belatedly, in the case of flooding?Instead of waiting for a review that will take up to one year to complete while the companies will be allowed to make exorbitant profits on the backs of people who are hard pressed to pay their other bills, should the Minister for Finance not haul in these companies to advise them that it is not acceptable to penalise people with older cars and those on lower incomes just because their profits need to be bigger than they are? They should either change their practices or the Minister should use whatever measures, limited as they are, the Minister of State says he has to take them to task. If they will not regulate themselves and not play ball, the Government should show them that it will force them to be fair to all citizens who need to drive to work or attend courses or get through their daily lives.
As I said, the ability of the Government to influence insurance pricing is limited, as insurance companies are required under European law to price in accordance with risk. Neither the Minister for Finance nor the Central Bank of Ireland has the power to direct insurance companies on the pricing or provision of insurance products. In that sense, obviously, the Minister is restricted in directing insurance companies on their policy on rates of insurance and so on. I will, however, certainly convey the Senator's concerns to the Minister, who, unfortunately, cannot be here this because he is in the Dáil for Question Time. I, again, thank the Senator for raising the matter which is very topical at this time.