Could insurance premiums really fall 16%?
Could the cost of motor insurance really be brought down by 16%? A recent press release from the ABI (Association of British Insurers) points out that tackling the 'compensation culture' in Ireland led to a major drop in motor premiums.
The ABI's Director General, Otto Thoresen, made the point as he replied to the Transport Select Committee's inquiry into the cost of motor insurance.
First of all, he said, there's an "urgent need" to reform the compensation system that exists in this country. This could really help cut insurance costs.
"Rising claims costs from personal injury claims, excessive legal costs, insurance fraud and uninsured driving, coupled with lower investment returns in recent years, have unfortunately led to rising motor insurance bills for many customers," Mr Thoresen said.
"In fact the motor insurance sector has not been profitable for the last sixteen years because the amount paid out in claims and expenses has been greater than that received in premiums."
He went on to call the Committee's report a "missed opportunity" because it didn't recognise the most important reason behind higher premiums: a "dysfunctional compensation system that encourages spurious and exaggerated personal injury claims and excessive legal costs".
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We need Government reforms to tackle these costs. When the Irish Government introduced this kind of reform, motor premiums fell by a full 16%, so we could see some real benefits in this country if we went the same way.
Something else the Government should be doing, he stressed, is introducing a tougher "learning to drive regime".
The press release ends with a look at the challenges motor insurance companies are facing - and what they're already doing to cut the costs consumers face.
Cutting customers' costs
The insurance industry is doing a lot to cut drivers' costs. For example, it's…
- Fighting insurance fraud. The insurance industry has introduced the national Insurance Fraud Register to track known insurance cheats - and has funded a dedicated unit within the City of London police to investigate insurance fraud.
- Campaigning for compensation system reform. With the backing of various retailers and other companies, the ABI has been calling for the Government to reform the system, aiming to cut both 'spurious and exaggerated personal injury claims' and 'excessive legal costs'.
- Helping younger drivers. Certain insurance policies are specifically designed to make insurance cheaper for younger drivers.
Cost pressures on motor insurance:
The insurance industry is facing its own financial challenges. To name a few…
- Rising personal injury claims. Between 2002 and 2010, the actual number of bodily injury claims that insurers received increased 72%.
- Excessive legal costs. Every day, drivers in the UK pay £2.7 million to claimant lawyers (through their motor insurance premiums). That's 10p in every pound. Low-value personal injury claims as a result of motor accidents actually cost 87p (paid to claimant lawyers) for every pound paid in compensation by insurance companies.
- Staged accidents & other fraud. In 2010, motor insurance companies identified 40,000 fraudulent claims (from 'crash for cash' accidents to fake whiplash claims), worth a total of £466 million.
- Uninsured drivers. Honest drivers face higher premiums because some people drive uninsured. It costs half a billion pounds per year to compensate the victims of accidents which involve uninsured drivers.
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Tags: insurance, car insurance, motor insurance, Association of British Insurers, ABI