Dozens of officers from the EU Competition Directorate and the Republic’s competition watchdog raided the offices of commercial motor insurance providers on Tuesday as members of the Garda – there to observe – looked on. The offices of Insurance Ireland, the industry’s representative group, were also raided.
The EU investigation involves two strands. Officials from Brussels and the Competition and Consumer Protection Commission (CPCC) raided Insurance Ireland to assess concerns over access to two databases used by insurers in the Republic. Separately, sources said that commission officials also raided the offices of at least four insurance brokers as it looks into the pricing of commercial insurance, mainly in the area of haulage. The latest controversy is around suspected cartels and anti-competitive practices, but the industry has been dogged by a series of controversies in recent years, while allegations of shady behaviour and lingering suspicion have never been far away.
An ongoing investigation by the CPCC into suspected breaches of competition law, which began last year, is not believed to be connected to Tuesday’s operation. Of course, the companies involved are entitled to the presumption of innocence and nothing has been proven yet, but there have been question marks around the reasons for sky-rocketing premiums for years now.
In January, figures from the Central Statistics Office showed the cost of motor insurance had risen by 51 per cent since early 2011. One reader wrote to The Irish Times, some months back about how he had returned to the Republic after two years abroad to find his insurance had jumped from €373 to €3,673.
Much of the trouble can be traced back to before the financial crisis. When Seán Quinn, once Ireland’s richest man, entered the insurance market in the mid-1990s, his tactic was to dramatically undercut established players in the industry.
Race to bottom
All of this led to a race to the bottom among competitors, and, when the financial crisis struck, industry players were ill-equipped and under-resourced to deal with the fallout. They are still trying to recover those losses.
Quinn, for his part, ended up overstaffed, making losses, and lacking in solvency by the end of 2009. When the day of reckoning came, it was left to consumers to pick up the tab as the Government introduced a 2 per cent levy on all non-life and health insurance policies to help fund a €720 million shortfall at Quinn Insurance.
By December 2015, Quinn Insurance had cost the State’s Insurance Compensation Fund some €1.23 billion in terms of meeting claims from drivers with the insurer.
Despite allegations of price-fixing and gouging, the industry has always claimed insurance fraud as well as more claims and rising compensation were to blame for higher premiums.
Kevin Thompson, chief executive of umbrella group Insurance Ireland – which was raided on Tuesday – has claimed in the past that fraud adds €50 to the cost of every motor policy in the State.
On the rising compensation issue, Paschal Donohoe, who has since become Minister for Finance, was advised by his officials in October that they were unconvinced by the industry’s claim that increased payouts were to blame for rising premiums.
Premium rates
In a briefing document released under the Freedom of Information Act, they said insurers were “imposing higher premium rates to return themselves to profitability or to boost profitability after a number of years of insurers competing for market share”.
However, it would be unfair to completely dismiss the impact of compensation awards on premiums, and the courts and the legal profession are implicated in this regard.
One case of whiplash can get someone €25,000, while the next one might get €15,000. This encourages some motorists – and their legal representatives – to spin the legal wheel rather than settle cases.
Indeed, new guidelines introduced last year setting out the size of personal injuries awards recommended even higher compensation payouts for the most common claims.
The new recommendations were outlined in what is known as the book of quantum, which works as a general guide as to what ought to be awarded for various types of injuries.
The Injuries Board, which is the State body that assesses personal injuries claims, must refer to the book of quantum in all its evaluations for personal injury claims, but judges are only required to “have regard” to it.
Then there was the Setanta Insurance saga. The Supreme Court ruled in May that the Insurance Compensation Fund should be liable for compensation arising from the collapse of the company in 2014.
Breach of faith
Eoghan Murphy, then minister of state with responsibility for the sector, said in June that cheaper motor insurance policies should be on the way as the “massive uncertainty” created by the debacle had been removed. Murphy said it would be a major breach of faith on the part of the industry if the court decision did not “help to reduce premiums”.
However, motor insurance premiums could actually rise in the next few years as the industry looks to pull together a fund to meet some of the costs of compensation claims that arise from the failure of another insurer.
Another issue affecting the sector is financial irregularities. In February, three former RSA Insurance Ireland staff were fined a combined £182,000 (€206,090) under sanctions tied to an investigation by a UK accounting watchdog.
More recently, both the Garda and Liberty Insurance, which owns the former Quinn Insurance business, have warned about “ghost brokers”, which refers to the growing illegal phenomenon of operators offering fake coverage to motorists.
Liberty Insurance called for a planned database to tackle fraudulent claims to be extended to capture such activity. It warned it had seen a “dramatic increase” in “fake brokers” in the Republic in the last 12 months.
Fake policies
The fraudulent motor insurance is sold in two ways. First, genuine policies are bought from legitimate insurance companies using false customer information. The second method is where customers are given fake policy documents bearing the logo of insurance companies.
So, all in all, there are myriad issues facing the sector. Eoghan Murphy published a new report on the cost of motor insurance and proposals to address it in January. Among the 33 recommendations are commitments to establish a new Personal Injuries Commission to examine the level of payouts for minor injuries in different jurisdictions.
The report also proposed setting up a national claims information database in the Central Bank. This would analyse motor claims from data collected from the insurance companies and an annual report would be published. A separate database, funded by the insurance industry, will be established to identify incident or claim information.
“This will not be solved overnight,” Murphy said.
