Monday, January 25, 2010

A Golden Opportunity?

The cash for gold market has really taken off recently. All of sudden we are being bombarded with TV ads, flyers in the door, stalls in supermarkets from companies offering to take all that unwanted gold off our hands for bundles of cash. Gold has always been an attractive commodity in times of financial and political turmoil and this time is no different, global prices have soared in the last year. This means there is a great market for scrap gold now. So in the middle of a recession it seems a bit of a no brainer, gather all that unwanted gold jewellery, stick it in an envelope and wait for the cheque in the post by return. The buyers can resell the gold for a tidy profit, so its a good news story all round.

Well it is not that simple, as it seems many people could be selling their gold at a fraction of its worth. When you think about it, in normal circumstances would you allow the buyer to dictate the price they are willing to give you? As with all new crazes problems arise, in the US, there has been a lot of controversy about one particular company highlighted by and alleged wrongdoing. Here Senator John Paul Phelan of Fine Gael has also rightly raised legitimate questions concerning the regulation of this activity and the potential for it to increase burglaries and theft. Senator Phelan is proposing a private members bill to deal with this. Although if there is evidence that some companies are using sharp practice, then that could be tackled under the existing provisions of the Consumer Protection Act 2007 dealing with unfair and misleading commercial practices.

Like the Cash for Gold craze...Glee is the latest TV craze, no TV channel is safe!

However there is no law against illogical consumer behaviour and if people insist on sending their gold in the post without any idea of its value and accepting whatever price is offered, then no surprise if companies buy it as cheaply as possible. According to one company in the US 94% of customers accepted the offer given. However a very recent survey by Which in the UK found that most of the TV cash for gold operators offered poor value compared to pawnbrokers and jewellers. Now obviously no one would expect to get the retail value of the gold, but most of the cash for gold operators were only offered about 6% of the retail value of the items, compared to about 25% from the jewellers/pawnbrokers.

The lesson here is to do a bit of work. Find out the caratage (quality) and weight of your scrap gold. This expert gives great advice on what to do. Some of the companies involved provide online price calculators, so you have an idea of the price being offered. I came across this site which gives information on the value of gold based on weight and quality, they don't claim it is perfect, but it might give you some ballpark idea of values. If all that seems a bit too challenging, at the very least take your scrap gold to a pawnbroker or jeweller to get a valuation. As the seller of a now even more valuable and sought after commodity doing some leg work gives you information, choice and bargaining power and will probably ensure you get more for your gold!

Sunday, January 17, 2010

Premium Discontent!

The recent bad weather with the floods in November and the snow and ice of Christmas and New Year brought misery and hardship to many individuals, households and communities. I cannot imagine what is must be like to have your home flooded either as the result of torrential rain or by bursting pipes.

As people start to get their lives together, many turn to making insurance claims for the damage caused. President McAleese has rightly called on insurance companies to process these claims speedily. That is why people pay considerable sums to them each year to ensure that when a disaster strikes they have some financial compensation. The IIF have already stated that the floods in November will cost €244m. Most of these claims relate to commercial property damage with €77m being claimed by domestic customers. However it is important to remember that this is what is estimated and these are claims, some claims may not qualify.

No doubt the recent bad weather will be used as a further excuse by insurers to hike premiums in 2010. But hold on a minute, that is what insurance is there for. Insurance companies are meant to factor in potential inclement weather into their prices. The possibility of flooding and snow and frost are hardly unexpected. Indeed it could be argued that up to this winter, we have had a spate of very mild winters. Using the recent bad weather as a cover to further hike prices shouldn't be entertained.

This is especially so when we know from the CSO that home or dwelling insurance and motor insurance went up by 16.8% and 10.1% respectively in the 12 months to December. This is against the background of 5% deflation. So what is going on here? The insurance industry will say "prices came down between 2002 and 2007 by 45%, so they had to start going up at some stage". What they don't tell us of course is that prices skyrocketed between 1997 and 2002 going up by over 61%. Most of the fall in premiums can be attributed to the introduction of the Personal Injuries Assessment Board, which led to a significant reduction in the cost of claims for insurers. The extent to which those savings were passed onto consumers is something which I would have concerns about.

Funny Ad...but the bad weather and price hikes are not as humourous!

Likewise you will hear guff about the increasing cost of claims, fraudulent claims and the extra 1% Government levy. Yes the levy has gone up by 1%, that's just 1%...what about the other 15%? The claim about increasing repair and building costs is balderdash, it must cost half what it did 3 years ago to get any repair job done. So I don't buy that one. On the fraudulent and exaggerated claims, well they have to provide proof for that, but again a useful cover for price hikes.

I have no doubt that profits in the insurance industry are down in 2009 and will be down in 2010 from the dizzy heights of the Celtic Tiger, but that is the case for every business and sector. Insurers will have to take some of the pain instead of passing it on to consumers and businesses. Historically profits here far exceeded those in the UK, in 2002 it was found that motor insurers in Ireland had 11 times the profits of their counterparts in the UK. Also the Financial Regulator Annual Reports (Page 134) show that based on competition indicators the market here is not competitive.

What needs to be done. Well we need scrutiny by the Financial Regulator, Government and Oireachtas. The Regulator could start by producing more reader and citizen friendly reports on the Industry. The annual statistics on the Insurance Industry (called the Blue Book) are turgid and difficult reading, the contain some interesting data, but it is hard going. It also doesn't address issues like how much of the saving of PIAB were passed onto consumers, or are premium increases justified based on the data available. So we need more and better data.

The Government has a vague commitment in the most recent revised Programme for Government about ensuring consumers get the benefits of competition in the insurance market. Based on a response by the Minister for Finance a review will be conducted, but when and by whom is not clear. The Oireachtas can also play a role in that the Enterprise and Small Business Committee could hold hearings and invite the insurers to outline and explain how they can justify the current increases. It would be all too easy with the focus on the banks, for the insurers to hike prices and their profits while the glare of the media and public was elsewhere.