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.