Motorists will pay more due to the demise of Setanta and the cost of fraudulent claims
Tim Redfern’s motor insurance renewal quote was €600, up from €456 the previous year, but he shopped around and eventually got his cover renewed for €404
When renewal time came last month, he was quoted €620 for the same level of cover. Horrified by an 82 per cent price hike, he decided to make a few calls. He was quoted €590 by AIG – a saving for sure, but not a big one. He persisted and “eventually I got an online quote of €290 with Aviva”, he says. “I checked it and rechecked it and it was the same level of cover.”
His story of a huge price increase is not uncommon, although the subsequent savings are a lot less common.
Over the past two years, the big players in the Republic’s car insurance market have talked up price increases while consumers picked up the tab. They were hit with premium hikes of about 25 per cent last year and face even bigger increases this year. Many will pay more than €400 more for a comprehensive policy in 2016 than they did two years earlier.
It was a different story between 2010 and 2014 when motorists saw premiums tumble as the Republic went from being one of the most expensive places inEurope for car insurance to one of the cheapest. Many assumed premiums were falling because of a decline in serious and fatal accidents due to better roads and safer cars.
They were wrong. Increased competition saw stalwarts such as Royal Sun Alliance and upstarts like Setanta Ireland fight hard for market share. It turns out they were fighting too hard, and in 2014 it became clear the numbers didn’t add up. Companies were taking in less in premiums than they were paying out in claims.
Setanta went to the wall in April 2014 and two years on, the motor insurance industry is still picking up the pieces. Last week the Court of Appeal rejected an appeal by the Motor Insurance Bureau of Ireland (MIBI) against a High Court decision that it must pay out on 1,750 outstanding claims left in the wake of Setanta’s demise.
“Today’s judgment immediately adds a further €90 million in costs to the entire insurance sector,” the MIBI said. “This adds to the current volatility in the insurance market generally, which is already under significant pressure from the increased cost of claims.”
Insurance companies “are being made pay for the mistakes of a competitor,” says Jonathan Hehir, managing director of online brokers coverinaclick.ie. “And not only was Setanta a competitor… it was a competitor that won business by quoting unrealistic pricing and that was essentially a rogue trader in the Irish market.”
He is both right and wrong. Setanta did win business by quoting unrealistic prices, but it won’t be the insurance companies who pay. Their customers will. Industry sources suggest the ruling will add €50 to an average premium until the €90 million in liabilities has been met.
But the real difficulty is not the ruling but the precedent. Setanta wasn’t a big player in the market and companies will cope with a €90 million loss. It would be unimaginably worse if a bigger player suffered a similar fate.
“The indirect implication of the Court’s decision is that all motor insurance providers in the Irish market will now be held responsible for any potential insolvencies of their competitors operating in Ireland, and that burden will place further pressure on premiums,” says Ciaran Phelan of the Irish Brokers Association.
Kevin Thompson, chief executive of Insurance Ireland, the umbrella group for the sector, said it could not “support the concept of the sector being guarantors for less prudent operators” and said the judgment underlined the need for “urgent legislative change” to ensure it could not happen again.