Increase in Insurance Premiums(explained)

SJT1

Hi,

Just wondering can anyone out there who works in the Insurance industry would give a simple explanation on why we're(consumers) are seeing such an increase in Insurance premiums year on year, I'm more interested in Motor Insurance Premiums if possible.....Thanks

Cracker86

Hi
In its simplest form insurance is like a pool, the premium acquired by underwriters contribute to the pool and claims come from this pool. The principal is that the premiums of the many cover the claims of the few. Unfortunately due to a recently developed claim culture the amount of money been taken from the pool has meant in order have the correct levels of claims reserves to be classed by the Central bank as solvent, insurers have had to get more money into the pool by increasing the premuims of the many. I know it seems unfair to punish everyone even those who don't claim but is the only way an insurer can stay solvent

Trish56

We are paying for a certain amount of people who stage accidents especially driving around roundabouts with 5 people in a car who will then claim for whiplash from your Insurance policy and in the majority of instances your insurance company will not even bother to inform you until you get the huge renewal premium in the post. Disgraceful.

I watched it happen and saw evening after evening vulnerable young girls run into the back of these people and it was not their fault.

Cracker86

The government I imagine will react to this new cash for crash phenomenon in the next 12 months I would imagine, the current average payout in Ireland for whiplash is 15k, compared to England where it is 5k (euro) and 1.5k on the continent. Crazy awards by judges and huge legal costs are huge contributor to increasing premiums

SJT1

Thanks very much for your feedback. Is there something going on also about Setanta Insurance collapsing and that contributing to the rise in premiums?

Cracker86

Yes and no, the collapse of an insurer like setanta or Quinn is generally passed over to the mibi to cover losses, mibi is a government fund that covers people hit by uninsured drivers etc. They acquire money by applying a levy to every insurance policy sold, the levy is now 5% and was 3% prior to the collapse of quinn. So although an increase in the levy compounds increase in your premium the real problem is the cost of claims and legal cost an insurer is hit with.

Nody

In addition which I've not seen mention is that the return on investments are way down; basically what the insurance companies look to do is take your premium and invest in government bonds and other low risk assets to help them grow in value while pending the need for paying it out. Today most government bonds of interest are basically giving zero return compared to previously when they would give 3% return which means that that loss of income has to be covered directly in the premiums as well.

To Elland Back

Cracker86 wrote: »

Yes and no, the collapse of an insurer like setanta or Quinn is generally passed over to the mibi to cover losses, mibi is a government fund that covers people hit by uninsured drivers etc. They acquire money by applying a levy to every insurance policy sold, the levy is now 5% and was 3% prior to the collapse of quinn. So although an increase in the levy compounds increase in your premium the real problem is the cost of claims and legal cost an insurer is hit with.

The MIBI is not funded by the levy applied to premiums. Each insurer contributes an agreed amount per policy to the MIBI to cover uninsured losses and this contribution is included in your premium before the levy is applied

The levy is part taxation and partly to cover insurance companies that became insolvent such as PMPA, ICI & Quinn Insurance. A recent court decision directed that the MIBI should be responsible for the losses incurred by the collapse of Setanta, though it hasn't been effected yet. It is being challenged (rightly IMO) by the Insurance Federation on the basis that Setanta's policyholders were not uninsured, there was just no money in the bank to meet the claims. That means Setanta's claims should be paid out of the insolvency fund.

stimpson

A quick google of "irish insurance profits" will show that many Irish insurers saw profits surge this year.

Graham

stimpson wrote: »

A quick google of "irish insurance profits" will show that many Irish insurers saw profits surge this year.

Here's what the quick google tells me....

Some insurers are seeing a return to profits after how many years of losses.

RSA’s Irish premiums fell by 4 per cent on a constant currency basis to £261 million.
Its Irish underwriting loss of £35m million in 2015 compares with a £108 million loss in 2014.

Across all its activities here, Aviva Ireland said its operating profit rose by 39pc at €85m for last year - up from €61.1m the previous year, and its best performance in five years.
Most rivals are making losses on general insurance, with a number of them hiking motor premiums by up to 50pc for private drivers.

From 2015

Its Irish unit cost RSA another £100 million in 2014, taking its total bill since the accounting irregularities were first reported to about £300 million, Mr Hester said.
He sees further losses in 2015 before RSA Ireland returns to profitability in 2016.

irishgeo

The failure to tackle the lawyers fees as requested by the EU and imf as part of the bailout has aslo led to the increasing price of insurance.

irishgrover

Nody wrote: »

In addition which I've not seen mention is that the return on investments are way down; basically what the insurance companies look to do is take your premium and invest in government bonds and other low risk assets to help them grow in value while pending the need for paying it out. Today most government bonds of interest are basically giving zero return compared to previously when they would give 3% return which means that that loss of income has to be covered directly in the premiums as well.

This should not be overlooked. A significant proportion of insurance company revenue and profits is derived from taking the premium (not all of it) paid by the policy holders and investing it in other areas. Low interest rates and low bond yields equate to significantly reduced revenue and profits. To counter act this lost revenue premiums tend to go up

newacc2015

The biggest reason why premiums are increasing is that they are too cheap. Quinn and other dodgy insurance companies started to slash prices to gain market share. So all other insurers followed them. Eventually Quinn and other insurers like Setanta disappeared from the market. But insurance companies were still in a loss making industry. Someone from the central bank AFAIK did the figures and found out the price of insurance is half of what it was 15 years ago adjusted for inflation

Insurance premiums are going up as insurance is loss making. FBD, RSA etc are all PLCs. Their accounts have to be audited and lying on them is a criminal offence ( there is a fair amount of nut jobs who will tell you insurers are profitable and they are just loss making because of accounting). You can read FBD's shareholders report and see the massive losses on insurance. It is not so much claims are soaring, it is just premiums are too low

You can read quotes on the motor forum of people having insurance on luxury cars for like €300 a year. That is ridiculous low IMO. If you look at marketing and admin expenses alone. Regardless of whether there is a claim or not, I seriously doubt insurers have much from premiums when you take expenses into account