We should fix our flawed insurance system - rather than scrapping it altogether

Snowballing motor premiums have put the spotlight on the problematic sector.

By David Hughes Operations Director, Getcover

THE PHENOMENON OF massive premium hikes for motor insurance has been caused by a number of factors, including rising personal injury awards, rising legal costs, a flat investment market and a shrinking marketplace.

One radical solution that has been proposed is the development of a tax-funded government insurance system similar to the successful New Zealand model. However, there would be significant hurdles to its development in Ireland.

The system has been running in New Zealand for almost a century and, as a result, there is no ‘claims culture’ there. Because the system works on a ‘no fault’ basis, claimants can seek compensation for medical injury and expenses but not for compensatory damages. No doubt the Irish public would be somewhat apprehensive of this approach.

Furthermore, the shift to this model would involve the development, from scratch, of a government body – which would become a bureaucratic behemoth in no time.

It’s also a certainty that we would need to make fundamental changes to our legal system to facilitate the model. The effort involved, and the likely opposition to such a change, beggars belief.

Another significant barrier would be presented by probability of mass redundancies within the insurance sector.

Finally, although it’s unlikely to have a significant effect, it has been suggested that the no-fault model could lead to a moral hazard. If there is no penalty to an at-fault driver in the event of a claim, road safety may be compromised.

No knight in shining armour

A second solution that has been proposed is to broaden choice for consumers by encouraging other EU insurers into the Irish market. EU insurers, regulated in one member state, can do business in all others.

While this would increase competition, these insurers will be looking at all the same downsides as current insurers. Consequently, a knight in shining armour is unlikely to arrive any time soon.

The pricing of insurance moves in cycles and we hit the bottom a few years ago. The dramatic increase in premiums will continue until an existing provider, or a new market entrant, decides that there is room to cut premiums. This is not a matter of ‘if’ but ‘when’, although it’s likely to be some time before it happens.

The most practical solution would involve a fundamental reformation of the system of claims management in Ireland.

Two options

Currently claimants have two options when pursuing personal-injury claims.

One option is to seek redress through the Personal Injuries Assessment Board (PIAB). The board was set up to reduce legal costs and to set up reasonable and fair award levels for specific injuries.

However, there is an increasing trend towards legal representation by claimants, which is increasing costs. Furthermore, a large percentage of the board’s awards are subsequently appealed to the courts, defeating its purpose entirely.

The other option, which is becoming more popular, is to seek redress through the courts directly, and claimants are increasingly refusing the injuries board option in preference for the courts.

A fundamental reformation of the above system would require the appointment of a tripartite body made up of the insurance industry, the judiciary and the government working together to agree practical and cost-effective solutions.

A key element would be to grant the injuries board statutory authority, under which its decisions on awards would be subject to judicial review only in circumstances where the board acts in breach of its own rules.

This radical reform would ensure that reasonable caps could be set on fees and awards in turn providing a quick, fair and cost-effective resolution to personal injury claims.

Reformation could also have a significant impact on fraudulent claims through greater cooperation between the industry, the judiciary and An Garda Síochána.

The only thing for sure is that the system is dysfunctional and needs urgent attention.

David Hughes is operations director at GetCover.

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