So many of us are getting insurance quotes and renewal over the last year and asking “why is my car insurance going up?”.
The truth is most insurers are putting up their premiums across most books of business. The reason for the hikes in premiums is to get the insurers back on a sound financial footing. The aggressive competition in the insurance market over the last number of years has led to ever decreasing premiums while on the other hand the cost of claims has been rising.
The Insurance Ireland Factfile 2014 shows a combined operation ratio(COR) for motor insurance of 120.5%. This essentially means that for every €100 in premium taken in, insurers are paying out €120. Sometimes insurers can operate on just over 100% because interest and returns on investments offset the loss, but returns on investments are poor and interest rates are low. They simply can’t sustain the high ratio.
Cars are becoming more complex to repair with newer models housing expensive components in crash sensitive areas such as ADAS Sensors and Pedestrian Protections Systems.
The cost of injury claims are rising too as more people are claiming for personal injuries and higher compensation is being awarded.
There is also thing called “The Insurance Cycle” this breaks the market into both hard and soft conditions. We are currently entering the hard phase, this is when competition leaves the market as insurers struggle to make profit, underwriters set more stringent rules and prices rise. Below is a good diagram explaining the cycle from www.dandelion.ie, they have some more information there.
Last week the Court of Appeal upheld a previous ruling which means the MIBI will have to cover the cost of Setanta Insurance claims, this will not help prices either.
Unfortunately we are not likely to see premiums reduce for some time, the only way is up for the foreseeable future.