Despite reductions in car insurance costs, there is still a widespread belief that there is yet more room for reducing premiums, writes Daniel Attwood.
Motor insurance premiums have continued to fall since the establishment of the Personal Injuries Assessment Board (PIAB) three years ago, as well as the rolling out of other government initiatives aimed at improving road safety, but are they still too high considering the insurance companies' profits? Late last year, the Financial Regulator published the Insurance Statistical Review for 2005 which detailed profits made by the insurance industry in Ireland.
It revealed that insurance companies in Ireland made a net profit of €801.67 million in 2005, which was over €112 million more than they made in 2004. Of this, Irish companies made a profit of €694.94 million, while branches of companies regulated in other jurisdictions made a profit of €106.73 million.
By the end of this year, the Oireachtas Joint Committee on Enterprise and Small Business, which recently published its final report on the insurance industry, estimates that insurers will make close to €1 billion in profits.
Despite this, there is still a widespread belief that the cost of motor insurance, which is mandatory in Ireland, remains too high.
As founder of the Motor Insurance Justice Action Group (MIJAG) Mick Murphy, a Socialist Party councillor in west Dublin, has followed the rise and fall of the cost of motor premiums since the MIJAG was established in 1999.
Success appeared swift for the group initially, with premiums for young drivers - the group's main concern at the time - falling from an average of €4,063 (£3,200) in 1999 to €1,000 today.
However, much of this success was thanks to the Motor Insurance Advisory Board and the later creation of the PIAB, as well as the introduction of penalty points and initiatives such as random breath testing and the establishment of the Garda Traffic Corps.
But as Murphy points out, there is still a long way to go before the cost of motor insurance becomes a true reflection of the cost of settling claims.
"Premiums can still come down by at least one-half and the insurance companies will still be making money," he contends.
"In 2005, the companies offering motor insurance made profits in the region of €551 million and they made even more in 2006."
According to Murphy, insurance companies' profits, as a percentage of claims paid out, have risen sharply. In 2001, the figure stood at just 1 per cent, while in 2005 it jumped to over 62 per cent.
While disagreeing with the amount that premiums should come down, Donie Cassidy, chairman of the Joint Committee, also agrees that motor insurance still costs too much: "Premiums have fallen by 50 per cent since 2002, which is an incredible achievement.
"However, the insurance industry will make €1 billion this year and so we are calling for at least a 15 per cent reduction in premiums."
One of the problems cited as attributing to the high cost of insurance here is lack of competition, although there are now more than 15 companies offering motor insurance in Ireland.
"Competition hasn't made a difference," says Murphy. "There are 17 companies and they are all making a fortune. One of them could break ranks and offer cheaper premiums, but they are all happy with their lot as it is. They are laughing all the way to the bank."
The Insurance Industry Federation (IIF), the representative body of the industry in Ireland, argues that competition has made a difference. "Policyholders also have more choice due to greater competition in the market as existing insurers have increased their capacity and are writing more business, and some new insurers have entered the market," explains Michael Kemp, IIF chief executive.
"Pricing surveys carried out by the Financial Regulator have consistently highlighted the savings consumers can make by shopping around, and insurers are also incorporating a range of additional benefits into the policies they offer, such as roadside assistance in order to attract and retain customers."
BUT THE QUESTION of reducing premiums to match high profits remains, as Murphy asks: "There have now been five years of massive profits, when are they going to drop the cost of premiums?"
The insurance industry has been quick to defend itself, pointing out that it had suffered years of heavy losses in the late 1990s and the early part of the new millennium.
"When insurers are loss-making, premiums increase and when insurers make a profit, premiums fall. Policyholders have benefited substantially from a huge fall in prices in recent years," says Kemp.
"According to independent CSO data, motor premiums have dropped by 40 per cent in real terms (ie when adjusted for CPI) in the past four years alone and motor premium prices in January 2007 were lower in real terms than at any time since 1989."
Monitoring of the situation by the Government is ongoing. Last year Donie Cassidy said: "There have been significant reductions in the level of insurance premiums and improvements in the environment in which insurance companies operate."
However, he also admitted that, even with the establishment of bodies such as the PIAB that have helped reduce the cost of settling claims, there is still more that can be done to reduce motor insurance premiums.