The era of falling motor insurance premiums is coming to an end, with prices likely to rise from next year, according to senior industry sources.
One industry executive said a rise in motor premiums at least in line with inflation was likely in 2008 "to off-set the risk of a far more aggressive price rise in two to three years".
According to the Insurance Statistical Review, published last month by the Irish Financial Services Regulatory Authority, motor insurance profits fell 38 per cent last year.
Combined profits from all companies in the market fell from €418 million in 2005 to under €259 million last year, on the back of premium income of €1.57 billion. However, the cost of claims rose 13 per cent in 2006 to €1.037 billion. Motor insurance accounts for almost 40 per cent of the insurance sector here.
Dick O'Driscoll, managing director with Hibernian told The Irish Times there "is no further scope for price reductions in motor insurance. And while we have no plans for rate increases, the medium view has got to be that prices cannot keep reducing."
John O'Neill, chief executive of Axa Ireland, agreed and said motor insurance premiums have fallen by up to 40 per cent over the last five years.
Howeverhe said the cost of medical inflation is running at 10 per cent and the cost of repairs for some of the newer models of cars is on the rise."
According to O'Neill, insurers had to try and anticipate forward wage inflation for people out of work for long periods due to a crash, and these forecasts suggested wage growth of 6 to 7 per cent per annum.
Despite reforms of the Irish insurance market, Mr O'Neill also said that motor insurance payouts in the Republic remained significantly higher than in other jurisdictions.
"If you look across the water, in the UK a whiplash injury might result in compensation of around £2,000 (€2,879), whereas an equivalent injury here could receive up to €10,000," he said.
Mike Kemp, chief executive of the Irish Insurance Federation (IIF) said that while it is too early to say when premiums would start to rise, "the rate of decrease has clearly slowed".
He said insurance reforms, such as the introduction of the Personal Injuries Assessment Board (PIAB), meant the process of settling claims was becoming cheaper but against that, the number of claims is on the rise with 2006 seeing 271,934 claims, 12 per cent on the pervious year.
Another factor behind lower insurance costs for motorists has been a fall in serious injury and fatal crashes, according to Mr Kemp, although he stressed "this trend is dependent on continuing resources to police drink-driving, speeding and non-wearing of seatbelts".
The average cost of insuring a small family car is now €950, according to the AA's Annual Cost of Motoring Survey, down 9 per cent compared with 2006. According to Conor Faughnan of the AA: "the word we are getting from the industry is that premiums in 2008 will be firmer."
However he said it remains difficult to assess the real level of profitability in the motor insurance market given the lack of transparency in certain areas.
