10776-0.doc

Review of motor insurance premiums for young persons

Report submitted by PA Consulting Group to the Department of Transport

June 2008

Acknowledgements

This study, commissioned by the Department of Transport, would not have

been possible without the co-operation of the insurers and other relevant

stakeholders consulted. We would like to thank all those who agreed to

participate in this project and provided valuable time and insight. In particular,

specific thanks go to Michael Horan of the Irish Insurance Federation who

helped facilitate access to the relevant data sources used in our analysis.

The views expressed in this report do not represent those of

the Department of Transport.

Executive summary

The Motor Insurance Advisory Board (MIAB) was established in 1998 by the Department of Enterprise,

Trade and Employment to investigate and help address concerns about rising motor insurance costs,

in particular for young drivers (17-24 yrs). Since the publication of its findings in 2004 and the

implementation of the recommendations, the average level of motor insurance premiums has fallen.

However, it has been alleged in the public debate that some consumers, in particular young drivers,

have not benefited from this trend.

PA Consulting Group was commissioned by the Department of Transport to examine whether or not

young drivers have benefited to the same extent as other age groups from the general reduction since

2004 in motor insurance premiums. This review drew upon a variety of data (including data on all

policies held by private motorists between 2002 and 2005) together with consultations with a range of

key stakeholders, including insurers, representatives of young persons and those involved in road

safety.

The review has found that there is no evidence to suggest that young persons have not

benefited from the fall in motor insurance costs as much as other age groups. The key findings

were:

The number of persons aged 17-24 taking out car insurance increased dramatically between 2003

and 2005 (63%), far greater than for the overall population (18%). While the number of persons of

driving age in Ireland increased (by 10% between 2002 and 2005), the increase in the number of

17-24 year olds taking out car insurance took place at a time when there was a net decrease in the

population of this age group. Further, as a result of the introduction of the Declined Cases

Agreement, no young person has been refused a quote for insurance on grounds of age alone

Not only were more persons aged 17-24 buying motor insurance, the proportion that were buying

comprehensive insurance increased. This increase was largest for the age group 17-20, where the

proportion of those buying comprehensive insurance more than doubled between 2002 and 2005

Comparing insurance quotes for specific risk profiles between 2001 and 2007, the youngest age

group for which data were collected (24 year olds) had the largest reductions. This confirms the

view of consultees that the implementation of the MIAB recommendations has helped reduce motor

insurance premiums and that young persons have benefited significantly

The average price paid for insurance increased between 2000 to 2002 for all age groups, though

decreased between 2002 and 2005 to 19% below the 2000 level. In spite of buying an increased

proportion of comprehensive policies, the decrease in average price paid by those aged 17 to 24

years was greater than decreases for other age groups

Between 2000 and 2005, the average claims cost per policy dropped by 55%. However, between

2003 and 2005 the claims cost per policy reduced by only a small amount (9% on average), with no

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change in claims costs for policyholders aged 20 years and under and by only 5% for those aged

21 to 24 years old. While the cost per claim has decreased since 2003, these have been largely

offset by the increased number of claims since 2003. Those drivers aged 20 and under still

represent the highest risk of collision, while policyholders aged 21 to 24 years old represent the

next highest risk

Relative to other age groups, policyholders aged 17 to 24 had the largest surplus per policy of

premiums paid over direct claims costs. However, as this age group made on average more

claims and these claims were more expensive than other age group, the indirect costs (which are

not accounted for in the surplus calculation) are likely to be largest. Indeed the rate of surplus (that

is the surplus expressed as a proportion of the premium paid) was lower for this age group than for

any other age group except those aged 71 and over

Consultees saw that the motor insurance market is now more competitive than in previous years.

Some developments are particularly relevant to younger persons:

– The greater use of internet-based price comparator sites has provided consumers greater

visibility over product offerings, allowing the best deal to be secured

– A new insurer has entered the market and has targeted young persons

– Finally, insurers are developing new products, some of which are aimed at young drivers.

In terms of calculating premium, insurers use the same risk-based method for young persons as for

other age groups. This method is consistent with approaches applied in other countries.

The findings have thus shown that young persons have had a substantial reduction in motor insurance

costs from 2001 to 2007 and more young persons are taking out car insurance than before (at a time

when there was a net decrease in the population of this age group). In terms of quoted insurance

costs, young persons have benefited the most. In terms of actual price paid for insurance by young

persons, the reduction has been comparable but not as large as suggested by the premium surveys.

This is primarily because young drivers are more likely to buy more expensive, comprehensive motor

insurance (rather than Third, Party, Fire and Theft [TPFT]) than was previously the case.

On this basis we conclude that there is no evidence to suggest that "young persons have not

benefited from the fall in motor insurance costs as much as other age groups".

The consultation process highlighted a number of practical steps to help further reduce the costs of

insurance for young persons - these are listed in section 5.6. These are in addition to the Road Safety

Strategy 2007-2012, which will help increase road safety and reduce the number of collisions.

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Contents

Executive summary 1

1 Introduction 5

1.1 Background 5

1.2 Assignment objectives 5

1.3 Assignment approach and methodology 6

1.4 Data sources 8

1.5 Structure of this document 9

2 Motor insurance overview 10

2.1 Introduction 10

2.2 The possible impact of PIAB 12

2.3 Young drivers 14

3 Evidence from premium surveys 18

3.1 Background to premium surveys 18

3.2 Average insurance quotes 19

3.3 Best insurance quotes 21

3.4 Age groups 21 & 20 23

4 Evidence from policy data 24

4.1 Introduction 24

4.2 Total exposure 25

4.3 Premiums paid 28

4.4 Claims and their costs 30

4.5 Cost of providing insurance 34

4.6 Analysis by gender 37

5 Driving premiums down 40

5.1 The PIAB 40

5.2 Road safety activity 40

5.3 Competition 41

5.4 Insurance market cycle 42

5.5 Summary 42

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5.6 Looking forward - driving down future premiums 43

6 Conclusions 46

Appendix A: Data Tables 48

Appendix B: Glossary of Terms 53

Appendix C: References 55

Appendix D: Analytical assumptions 56

Appendix E: List of Consultees 62

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1 Introduction

PA Consulting Group (PA) was commissioned by the Department of Transport (DoT) to

carry out a review of insurance costs for young persons. This section sets out the context

of the review.

1.1 Background

The Motor Insurance Advisory Board (MIAB) was established in September 1998 by the

Department of Enterprise, Trade and Employment to help address concerns about rising motor

insurance costs, in particular for young drivers (defined as those aged 17-24 years). The MIAB

published its findings in 2004 - this included 67 recommendations to address a variety of issues, in

particular high motor insurance premiums.

Since the publication of the report and the implementation of its recommendations, average motor

insurance premiums have fallen. For example the average cost of motor insurance fell by 39%

between April 2003 and April 2007.1 However, it has been alleged that some consumers, in

particular young drivers, have not benefited from this trend.

The Department of Transport (DoT) has responsibility for the oversight of motor insurance and for

monitoring trends in motor insurance premiums. In the Government’s 10-Year Social Partnership

Agreement 2006-2015 “Towards 2016” a commitment was made in response to the allegations

mentioned above, specifically paragraph 31.3.4 states:

“The Government will commission an independent review of the effectiveness of the policy

measures introduced on foot of the MIAB report designed to reduce motor insurance costs to look

at the impact of these measures on young drivers and make recommendations on how to reduce

the cost of insurance for young drivers.”

This review was therefore commissioned to examine whether or not young drivers have benefited

to the same extent as other age groups from the general reduction in motor insurance premiums.

1.2 Assignment objectives

The specific terms of reference for the review were to:

a Analyse the method of calculation of premium costs for young drivers by insurance companies

in Ireland and compare with other countries

b Examine and determine the reasons for the difference in surplus earned premiums between

1 Source: Central Statistics Office (CSO) 2007

young drivers and other age groups

c Review the trends of insurance premiums for young drivers in Ireland since 2002 and provide a

detailed analysis of motor insurance cost increases/decreases for young drivers in the 17 to 24

age segments and by gender

d Review the current trends in collisions / claims for young drivers in Ireland

e Benchmark insurance premiums and collision frequency/claims for young persons in Ireland

against experience in other countries which have a similar insurance environment (e.g. UK)

f Review the effectiveness of those recommendations which were introduced on foot of the

MIAB report on the cost of insurance for young drivers

g Assess the likely future trends in premiums and collision frequency / claims taking account of

the actions planned by the various regulatory and enforcement agencies

h Undertake an analysis of the effectiveness of the Declined Cases Agreement in the young

driver insurance market

i Taking account of all of the above, make appropriate recommendations, if any, for practical

means of reducing the cost of insurance for young drivers.

1.3 Assignment approach and methodology

The diagram below summarises the five stage approach taken in undertaking this assignment.

Stage 2

Is motor insurance more expensive for young people in Ireland?

Stage 3:

If yes, why?

Market? Claims? Cost?

Is there less competition in Ireland for these customers?

Are they more likely to claim or are their claims

more expensive?

Are there additional regulatory / admin / other

costs for these customers?

Stage 4:

What can therefore be done?

Stage 5:

Reporting on the review

Stage 1:

Setting the review up in the correct manner

Stage 2

Is motor insurance more expensive for young people in Ireland?

Stage 3:

If yes, why?

Market? Claims? Cost?

Is there less competition in Ireland for these customers?

Are they more likely to claim or are their claims

more expensive?

Are there additional regulatory / admin / other

costs for these customers?

Stage 4:

What can therefore be done?

Stage 5:

Reporting on the review

Stage 1:

Setting the review up in the correct manner

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1.3.1 Stage 1: Initiate

The purpose of the initiation stage was to:

Discuss and agree the approach to be taken and the timetable for delivery with the Department

Highlight any particular issues around the delivery of the exercise

Identify key informants/contacts to be consulted and source key documents/data

Agree progress reporting mechanisms and their timing.

A Project Initiation Document was produced to ensure that there was common understanding as to

the nature of the roles and responsibilities of each party and an agreed vision as to the expected

deliverables. This document was approved by the Department prior to the subsequent stages.

1.3.2 Stage 2: Understand recent trends in premiums and claims

Stage 2 investigated and tested the statement that “…some consumers such as young drivers

have not benefited to the same extent from these trends (a reduction in premiums)”. This was

carried out using available data for young male and female drivers, and examining it against other

age groups and the total driving population. Specifically the following was analysed:

Historic claims data (claims costs) for Ireland between 2000 and 2005. This data

(approximately 16 million entries) was sourced through the Irish Insurance Federation (IIF)

Historic information on motor insurance premiums for Ireland, again from the IIF

Historic data for collision rates and fatalities on Irish roads sourced from an Garda Síochána

Comparable data for the UK and other European countries

This sought to address tasks (c), (d) and (e) of the terms of reference.

1.3.3 Stage 3: Review industry processes

Stage 3 reviewed industry processes to understand how they might have given rise to any

difference in premium among the various age groups. This involved a series of consultations with a

number of stakeholders, in particular:

Vehicle insurers

The Irish Insurance Federation (IIF), who are a representative body of the majority of motor

insurers in Ireland.

This sought to address tasks (a), (b), (f) and (h) of the terms of reference.

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1.3.4 Stage 4: Reviewing the way forward

There has been and continues to be a significant number of developments and activities being

undertaken by various regulatory and enforcement agencies in relation to road safety and vehicle

insurance. In order to provide some context for the analysis the following organisations were

consulted with:

The Department of Transport

The Road Safety Authority (RSA)

An Garda Síochána

Personal Injuries Assessment Board (PIAB)

National Youth Council of Ireland (NYCI)

This sought to address task (g) of the terms of reference.

1.3.5 Stage 5: Reporting

This written report is the culmination of all the above phases and covers task (i) of the task list.

1.4 Data sources

Two primary sources of data were used, namely:

The IIF premium surveys (henceforth referred to as "premium surveys") – the surveys are

conducted annually by the IIF and are based on quotes obtained from insurers for

comprehensive and third party fire and theft (TPFT) cover for a number of specific risk profiles.

These profiles remain constant year-on-year and allow comparison on a like-for-like basis. The

latest available data includes quotes for 2007

The insurers’ raw policy data (henceforth referred to as "policy data") – this data is based on

every private motor vehicle insurance policy issued between 2002 and 2005 (the most up-to-

date data available from insurers) and has data on the premium paid and any claims (and

associated costs incurred) made against the policy. Because the policy data relates to calendar

year and most individuals do not renew their vehicle insurance on the 1st January, the data

includes more than one record per policyholder per annum. To account for this, each record

has an "exposure" factor.2 The analysis of policy data has been factored by this and is thus

presented in terms of policy years rather than number of policies (i.e. one vehicle policy year

equals one vehicle covered for 12 months).

Both datasets have their limitations. Specifically:

The premium surveys do not collect data for the drivers under the age of 20

The policy data is not very current, the most recent data available for this study related to 2005.

Further, it does not include a number of costs, specifically:

2 The exposure factor takes account of how long each policy lasts within the calendar year. For example if someone

renewed their vehicle insurance on the 1st October, they would have two policies listed within a calendar years data; one

policy with an exposure factor of 0.75 (relating to January through September) and one with a factor of 0.25 (relating to

October through December).

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– Incurred But Not Reported (IBNR) collisions, i.e. where people have not yet made a claim

– Operational expenses, for example staff, accommodation and reinsurance costs

– Commissions paid to any brokers

– Contributions to costs of claims against uninsured drivers

– Windscreen claims.

However, taken together, the two datasets provide a strong evidence base against which to test the

assertion that young drivers have not benefited to the same extent as other drivers from a drop in

premium levels.

1.5 Structure of this document

This report is set out in six further chapters as follows:

Chapter 2 provides an overview of the motor insurance market and considers the possible

impact of the Personal Injuries Assessment Board (PIAB)

Chapter 3 presents analysis based on the premium surveys

Chapter 4 presents analysis based on the policy data

Chapter 5 looks at some factors that may have contributed to the premium reductions since

2003 and looks at potential measures that may lead to further reductions in motor insurance, in

particular for young drivers

Chapter 6 presents the review conclusions and recommendations.

This report also has six appendices as follows:

Appendix A lists data tables used in the analyses conducted in chapter 3

Appendix B lists a glossary of terms and acronyms used

Appendix C lists the documents referenced throughout this report

Appendix D validates the use of specific data files in the raw data analysis

Appendix E lists the review consultees.

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2 Motor insurance overview

This chapter provides an overview of the motor insurance market in Ireland and considers

some of the effects of the establishment of the Personal Injuries Assessment Board

(PIAB).

2.1 Introduction

Over the last 10 years there has been a dramatic increase in the driving population of Ireland.

While Ireland's population grew 17% between 1996 and 2006, the number of driver licence holders

(full and provisional) increased from 1,749,503 in 1996 to 2,444,159 in 2006 - a 40% increase.

Further, the number of registered motor vehicles and motor cycles increased from 1,338,616 in

1996 to 2,296,393 in 2006 - a 71% increase.3

Under the Road Traffic Act (1961) it is a legal requirement to have motor insurance when operating

a vehicle in a public place in Ireland. At a minimum, third party cover is required by law to indemnify

individuals against third party claims and damages. Failure to have motor insurance or driving

without insurance is generally punishable by a fine (of up to €2,500), disqualification from driving

and, at the discretion of the court, a term of imprisonment not exceeding six months.

In the case of a first offence of driving without insurance, the court may decide in special cases not

to impose a period of disqualification or to impose a period of disqualification of less than a year.

Since 1 June 2003, where the courts in Ireland decide not to impose a disqualification, drivers

convicted of a first offence of driving without insurance incur 5 penalty points on their licence record

in addition to any other penalty imposed by the court. A second offence results in automatic

disqualification from driving.

The Declined Cases Agreement (DCA) was introduced in 1981 following discussions between the

then Minister for Industry and Commerce and the Insurance Industry to address this problem. This

agreement is administered by the IIF. It means that any individual seeking insurance who has been

refused by three insurers can apply to be considered under the DCA and the insurance companies

will decide between them who will take the risk. Under the agreement an insurer may not decline a

risk on grounds of age alone.

The Irish insurance market is dominated by a small number of large insurers that sell policies

directly (for example telesales or online) or via intermediaries/brokers. In 2005, nine insurers

provided 99.9% of the IIF private motor market gross written premium.

3 2006 Road Collision Fact Book, RSA December 2007

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Based on the actual amounts paid by individuals, the recent trend in motor insurance policies has

seen a fall in premium of 38.7% between April 2003 and April 2007.4 This drop follows on from the

implementation of recommendations made by the MIAB in 2002. The recommendations attempted

to address factors that contributed to high insurance costs in 2002 including:

Collision rates

Levels of uninsured driving

Exaggerated claims5

Litigation procedures

Level of litigation costs

Rehabilitation

Hospital charges.

During this review, consultees made reference to a shift in the claims culture in Ireland and how it

has changed for the better, reducing the rates of exaggerated claims and their associated costs.

This, in conjunction with reduced collision rates (which reflects increased road safety measures)

and reduced costs associated with litigation (as a result of the introduction of to the Personal

Injuries Assessment Board), has resulted in a decrease in claims costs. The number of collisions

and the cost of these are discussed in detail in Section 4. Consultees highlighted that while

increases in medical costs may have offset this decrease to a degree, overall there has been a

reduction in claims costs.

Finding 01. Consultees highlighted that the implementation of the MIAB recommendations

has helped reduce motor insurance premiums.

In addition to this shift, insurers identified changes in the operations/behaviours within the

insurance industry itself. These have occurred as a result of added competition and government/

consumer influences. Indeed a recent survey of representatives from the motor insurance industry6

highlighted the continued downward pressure on motor insurance premiums.

Finding 02. Insurers believe the motor insurance market is more competitive than was

previously the case. They see that this has contributed to premium reductions beyond

those associated with the reduction in claims costs.

There is uncertainty about this trend continuing - the same survey highlighted that over 40% of

respondents believed that premiums would increase by 0-10% in 2008, whereas 40% believed that

premiums would decrease by 0-10%.

However, even with the substantial decrease in average premium paid, young drivers (17-24 yrs)

continue to pay higher levels of premium relative to older age groups.7 The question arises then,

as to whether or not the benefits from reduced premiums have been distributed equitably across

the various age groups after taking into account variations in associated risk.

4 Source: CSO 2007 (unpublished)

5 Exaggerated claims are akin to fraudulent claims in that claimants seek compensation beyond that which is deemed

commensurate to the damages (personal or material) sustained

6 Survey conducted by Deloitte at the Third Annual Motor Insurance Seminar 2007

7 Examination of premium quotes in chapter 3 illustrates the differences in premiums of young drivers compared to older age

groups.

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2.2 The possible impact of PIAB

The establishment of the PIAB was seen to be a key element of the reduction in premium

levels. While it is not possible to identify specific cause and effects, this section highlights

how the PIAB has contributed to the reduced premium levels.

The MIAB undertook a comprehensive analysis of liability insurance issues which resulted in 67

recommendations. These were adopted as part of the Agreed Programme for Government. One

recommendation was the establishment of the PIAB, an independent statutory body which

assesses the amount of compensation due to a person who has suffered a personal injury where

parties do not require adjudication on legal issues in Court. The PIAB was set up under the PIAB

Act 2003 and began operations for motor insurance in July 2004. In delivering compensation to

victims of personal injury collisions, the agency has three key objectives:

1. To reduce the cost of delivering compensation

2. To maintain the current level of compensation awards

3. To reduce the time to deliver compensation

Injuries related to motor collision claims come under its remit and represent over half of the volume

of cases processed to date.8 It was hoped that a reduction in claims costs would be passed on to

consumers in the form of reductions in insurance costs. There was general agreement amongst

consultees that the PIAB has contributed to the reductions in motor insurance premiums since its

inception.

2.2.1 Reduction in the cost of delivery

One of the primary reasons for the establishment of the PIAB was to help reduce insurance costs

to both industry and consumers. To date, analysis conducted by PIAB has shown a dramatic

decrease in delivery costs (in particular legal costs associated with processing a claim), with

overheads declining from 46% on top of compensation under the old system to less than 10%. This

represents a saving of nearly €24 million on personal injury cases dealt with by the PIAB up to

October 2006.9

The new insurance model also has had a direct impact on cases entering litigation. In 2004, around

15,000 High Court writs were issued in relation to road traffic collisions compared to just 750 in

2005. In the Circuit Court approximately 20,000 Civil Bills were issued in 2004, with this figure

being reduced to approximately 3,000 in 2005.10 Consultees suggested that these dramatic

reductions could be seen as a distortion created by the legal profession, prior to the introduction of

the PIAB, in a “rush to court”. As such, the true benefit of the PIAB will only be seen if these

figures continue to reduce or remain at 2005 levels.

8 As indicated in Q3 2007 statistics on the PIAB website; http://www.piab.ie/statistics.html9 A Cost-Benefit Analysis of the Personal Injuries Assessment Board, (Dec 2006), Dr. Vincent Hogan

10 A Cost-Benefit Analysis of the Personal Injuries Assessment Board (Dec 2006), Dr. Vincent Hogan

12

http://www.piab.ie/statistics.html

2.2.2 Maintaining the current level of compensation

The PIAB is structured in such a way as to limit the possibility of claimants' obtaining higher awards

via the courts. It uses the Book of Quantum, a consolidation of existing case law and industry

practice, as a reflection of actual compensation data compiled on various injury types that must be

regarded by the judiciary under the Civil Liability Act 2004.

Claimants have the right to reject the PIAB assessment and pursue legal proceedings. Up to the

end of 2006, 37% of the PIAB’s decisions have not been accepted by either party.11 This would

indicate that the majority of claimants consider the PIAB’s assessment as reasonable and do not

feel the need to pursue court proceedings in the search for higher awards.

Finding 03. While the precise effect of the PIAB is yet to be understood, insurers highlighted

that the PIAB has contributed to a downward pressure on costs.

2.2.3 Reducing the time to deliver compensation

The final objective of the PIAB, to speed up the assessment of claims, appears to have been

achieved. Analysis presented in the Private Motor Insurance Statistics 2005 indicates that the

PIAB, which had its first full year of operation in 2005, appears to be having a beneficial impact on

insurers’ claim costs and on the speed of settlements. Claims finalised one year after a collision

increased from 39% in 2004 to 44% in 2005 for claims under comprehensive cover and from 24%

in 2004 to 32% in 2005 for TPFT cover. Conclusive evidence of the PIAB’s effect will only be seen

if this trend continues in subsequent years’ data releases.

Overall the motor insurance industry see that PIAB has had a beneficial effect - over 70% of

respondents to a recent survey12 believed that the PIAB was having a positive impact on the

compensation culture.

Finding 04. Insurers also highlighted the positive impact of the PIAB in reducing time to

settle claims.

2.3 Young drivers

This section highlights that, relative to other age groups, young drivers have a different

(specifically higher) risk associated with them. This finding is confirmed later in the report

where the actual claims costs are compared across age profiles.

11 Stet (Dec 2006)

12 Survey conducted by Deloitte at the Third Annual Motor Insurance Seminar 2007

13

Motor insurance companies use risk pricing, that is, they seek to charge a premium based on the

probability of a claim being made and the likely size of the claim. The consultation process

confirmed that this same approach is used by insurers regardless of the driver's age, sex or vehicle

type and is an approach applied in other countries. In assessing the level of risk, insurers use a

range of factors. There is no hard and fast rule as to what are these factors. However, by way of

indication of the complexity of the risk pricing process, they can be summarised as shown below.

While age is only one factor that contributes to risk pricing, a driver's age is also likely to have an

impact on a number of other risk factors relative to the rest of the driving population. For example

consultees highlighted that:

Younger drivers typically have less driving experience

Younger drivers are more likely to hold provisional licence

Younger drivers are more likely to be in education and less likely to be in full-time employment.

Injury and fatality data supplied by the Garda National Traffic Bureau showed that in 2005 those

aged 18 to 24 represented around 26% of drivers injured or killed on the nation’s roads (as shown

in Figure 2.1) - a disproportionate amount given that this age group accounted for only 14% of the

driving age population and only 9% of policies held (see Figure 4.1).13

13 The percentage of policies is used as an approximation for the number of young drivers on the roads. It is important to

note that it does not include young named drivers.

14

Legal Costs

Total Claims Cost

License Type (Prov, Full,

internat, etc.)

Cost of Premiums for

drivers

Pricing Approach

Age

Medical Costs

Cost of Repair

Driver’s Vehicle repair

Costs

3rd Party’s Vehicle Repair

Costs

No. of Claims by total population of

drivers

Gender No. Accidents

Car Type (Coupe, GTI, etc.)

Engine Size

No. of insured drivers

Compensation /Settlement Costs

Admin Cost of processing

Claims

No. of Successful

Claims

Marital Status

Value of Car

Extras (windscreen, breakdown,

etc.)

Voluntary Excess Amount

Home Address

Driving Violations (points)

Occupation

Comprehensive

No. of claims by individual

Third Party Fire & Theft

Drivers Car

Driver attributes

Age of Car

No Claims Bonus

Porter’s Forces (Supplier Power, Threat of new

entrants, Buyer Power, Threat of Substitutes and

Rivalry/Competition)

No. of Large Claims

Access to 2nd car

Discounts (for having other products with same insurer)

Motor Insurance

Fraud

Annual Mileage

Protected Bonus

Figure 2.1 Persons aged 18-24 - their representation of the driving population and drivers

killed/seriously injured (2005)

Source: RSA Road Collision Facts 2006, Census

Figure 2.2 shows that this trend does not appear to be changing with young drivers exhibiting the

highest number of fatalities of all of the age groups. Indeed of the 152 vehicle drivers and

occupants killed in 2007 in road traffic collisions, 49 (32%) of them were aged 16-25.

Figure 2.2 Road fatalities for each age group up to November 2007 (driver purple, passenger orange)

Source: Garda National Traffic Bureau

Finding 05. The latest statistics show that a disproportionate number of young drivers are

killed in Ireland.

The higher collision rate of young persons is not an Irish phenomenon. A study in the UK

highlighted that young drivers are more likely to be killed or seriously injured in a road traffic

collision than any other age group. Young males in particular are at greatest risk: 17-20 year-old

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male drivers are almost ten times more likely to be killed or seriously injured while driving than 40-

59 year-old males.14

Insurers highlighted that young persons involved in collisions typically have higher average claims

costs. These are predominantly the result of greater levels of compensation awarded for personal

injuries. Compensation is determined by considering loss of earnings, future care costs and pain

and suffering. Young people with serious long-term injuries attract higher levels of compensation

than older people for the same long-term injury because they face loss of earnings and care costs

stretching over a longer period of their lives.

Further, when determining the claims cost of a collision the number of individuals injured and the

types of injuries sustained must also be taken into consideration. Typically young drivers are more

likely to carry passengers and these are typically of similar age. As a result claims cost from

collisions have the potential to be much greater. Studies have also shown that the risk of crashing

for young, particularly male, drivers increases when they carry their peers as passengers, and that

this risk increases with each additional passenger carried.15

This observation has been further corroborated when examining fatal collision data for North

America. It shows that, compared with those carrying no passengers, the risk of a fatal collision for

16-year-old drivers (in some areas individuals can begin driving at 16) is 39% higher when carrying

one passenger, 85% higher carrying two passengers and 182% higher with three or more.16

The combination of the above factors, along with a poorer regard for safety, contribute to a higher

risk associated with young drivers and therefore results in higher motor insurance premiums.

Finding 06. Young drivers are a higher risk when compared to older age categories.

Specifically, historical data has shown that young drivers have more collisions than any

other age group.

Risk pricing is generally acknowledged as an appropriate mechanism for developing a motor

insurance premium. Indeed the move away from risk pricing could exacerbate road safety issues.

In four Canadian provinces the Government provided public insurance and premiums that were

averaged across all risks.17 Relative to provinces where more conventional risk pricing

mechanisms operate, fatalities are 18% higher and young male admissions to hospital 59%

higher.18

14 Young Drivers: Road Safety and the Cost of Motoring-Interim report and consultation paper; published by the Association

of British Insurers (2005)

15 Regan, M and Mitsopoulos, E (2001) Understanding passenger influences on driver behaviour: implications for

road safety and recommendations for countermeasure development. Monash University Collision Research Centre,

Australia

16 Young Drivers: Improving their Safety Record; published by the Association of British Insurers (2006)

17 Public insurance is provided by the government in British Columbia, Saskatchewan & Manitoba. Quebec has a public no-

fault system for first person bodily injury.

18 Mullins, M (2003) “Public Auto Insurance: A mortality Warning for Motorists”, The Frazer Institute, Canada

16

One suggestion, as a result of this study, is that by removing the incentive for drivers to maintain a

claims-free track record that would influence premium, riskier behaviour is not penalised leading to

a greater level of unsafe driving behaviour. Thus a balance must be struck between affordability of

insurance and the need to encourage appropriate driving behaviours.

17

3 Evidence from premium surveys

In this chapter the perception that young drivers have not benefited to the same extent as

other age groups from the reduction in premiums is examined using premium surveys

(collected by the IIF). The most recently available data is utilised in this analysis, which

includes premium quotes received up to May 2007. All price figures presented in this

chapter are in Euro and are adjusted for inflation to 2007 values, except where explicitly

stated.

3.1 Background to premium surveys

Premium surveys allow comparison on like-for-like vehicle insurance costs over time.

The premium survey is conducted annually by the IIF. It consists of an array of premium quotes for

a defined set of risk profiles. Quotes are obtained for both comprehensive and TPFT cover from the

top eight insurers within the Irish market, specifically:

AIG

Allianz

Axa

Eagle Star

FBD

Hibernian

Quinn Direct

Royal & Sun Alliance

Twenty four risk profiles are assessed. They vary according to age (20, 21, 24, 30, 50, 60), sex

(male and female) and vehicle type. Two general vehicle types, with associated driver attributes,

are considered for each age group and sex. They are as follows:

Vehicle:1100cc Ford Fiesta - 2 years old - value €8,888 - driver resident in Dublin - no previous

collisions or convictions - full licence – social, domestic and pleasure use - insured only driving

(no named drivers) - 3 years no claims bonus

Vehicle:1600cc Volkswagen Golf - 2 years old - value €11,428 – driver resident in Dublin - no

previous collisions or convictions - full licence - social, domestic and pleasure use - insured only

driving (no named drivers) - 3 years no claims bonus.

In terms of data completeness, it is worth noting that no data was collected in 2005 and data

relating to 21 and 20 year olds was only collected between 2001 and 2004. Further, the number

of insurers providing quotes varied significantly between 2001 and 2004 across genders. On

some occasions only three insurers offered quotes for the young driver (20 and 21 year olds).

As a result of the Declined Cases Agreement this practice has since stopped and now all

insurers are obliged to provide quotes for all drivers.

18

3.2 Average insurance quotations

In this section average insurance quotations ("quotes") for 24, 30, 50 and 60 year olds are

compared between 2001 and 2007 for specific risk profiles. It is shown that while all age

groups have experienced premium reductions, the youngest age group for which there is

data (24 year olds) has benefited the most.

Table 3.1 shows that since 2001 the average premiums quoted for the various risk profiles have all

decreased, with the youngest age group for which data was collected (the 24 year old age group)

having the largest decreases (between 54-60%) relative to 2001.

Table 3.1 Percentage change in average premium for various risk profiles between 2001 and 2007

Age Sex Type 1100cc 1600cc

24 Male Comp -60% -59%

24 Male TPFT -55% -54%

24 Female Comp -59% -59%

24 Female TPFT -55% -55%

30 Male Comp -51% -51%

30 Male TPFT -51% -49%



50 Male Comp -53% -52%

50 Male TPFT -53% -52%



60 Male Comp -55% -54%

60 Male TPFT -54% -54%



Source: Premium surveys, inflation adjusted

Finding 07. The average vehicle premium quoted decreased significantly for all the age

groups between 2001 and 2007, with the youngest age group for which data were collected

(24 year olds) having the largest reduction.

19

Table 3.2 shows the average quoted premium for the 24 and 50 year old risk profiles for 2001,

2003 and 2007 together with the 24 year old quote expressed as a factor of the 50 year old quote

(for driving the same vehicle). This shows that between 2001 and 2003 there was little change in

the relative quotes. However, between 2003 and 2007 the quotes for 24 year olds have reduced

by on average 10% more than 50 year olds. For example in 2001, a 24 year old male was quoted

an average premium 2.96 times that of a 50 year old male for comprehensive insurance for a

1100cc vehicle. In 2003, this ratio had dropped to 2.94, while in 2007 this ratio had dropped to

2.53 - a drop of 14% between 2003 and 2007.

Table 3.2 Average quoted for 24 and 50 year olds (2001, 2003 & 2007)

24 year old 50 year old Young driver quote as

a factor of older driver

quote

Year Sex Type 1100cc 1600cc 1100cc 1600cc 1100cc 1600cc

2007 Male Comp €1,124 €1,426 €444 €566 2.53 2.52

TPFT €989 €1,252 €386 €491 2.57 2.55

Female Comp €798 €985 €397 €507 2.01 1.94

TPFT €686 €843 €347 €433 1.98 1.95

2003 Male Comp €3,139 €3,896 €1,067 €1,339 2.94 2.91

TPFT €2,523 €3,029 €884 €1,117 2.85 2.71

Female Comp €2,072 €2,582 €936 €1,211 2.21 2.13

TPFT €1,635 €1,979 €771 €976 2.12 2.03

2001 Male Comp €2,789 €3,444 €941 €1,190 2.96 2.89

TPFT €2,186 €2,720 €816 €1,016 2.68 2.68

Female Comp €1,938 €2,386 €804 €1,006 2.41 2.37

TPFT €1,517 €1,859 €685 €854 2.21 2.18

Source: Premium surveys, inflation adjusted

Finding 08. The gap between the average quoted premium for 24 year olds relative to 50

year olds reduced by 10% between 2003 and 2007.

20

3.3 Best insurance quotations

This section presents similar analysis to the previous section, except it is based on the

cheapest quote provided by insurers for the risk profiles (whereas the last section was

based on the average quote across insurers). Again this section shows that while all age

groups have experienced premium reductions, the youngest age group has benefited the

most.

While average quotes provide insight as to the cost of policies across insurers, some insurers may

provide quotes that are significantly cheaper. In practice (and providing that consumers shop

around and go with the cheapest quote), the best quote is the most relevant to analyse. Table 3.3

shows that since 2001 the best premiums quoted for the various risk profiles have all decreased,

with the youngest age group for which data was collected (the 24 year old age group) having the

largest decreases (between 51-70%) relative to 2001.

Table 3.3 Percentage change in best quote for various risk profiles between 2001 and 2007

Age Sex Type 1100cc 1600cc

24 Male Comp -70% -65%

24 Male TPFT -70% -69%



30 Male Comp -42% -46%

30 Male TPFT -48% -53%



50 Male Comp -51% -50%

50 Male TPFT -59% -57%



60 Male Comp -62% -57%

60 Male TPFT -63% -70%



Finding 09. The best vehicle premium quoted decreased significantly for all the age groups

between 2001 and 2007, with the youngest age group for which data were collected (24 year

olds) having the largest reduction.

21

Comparing Tables 3.1 and 3.3, it can be seen that between 2001 and 2007 the best quoted

premium has dropped by more than the average quoted premium (approximately 3%). This

indicates that relative to 2001 there was a wider range of premiums quoted for the risk profiles in

2007. For some risk profiles this drop has been larger. For example 24 year old males the best

quoted premium has dropped 12% more between 2001 and 2007 than the average quoted

premium. This reflects increased competition for the custom of this age group, where not one

insurer who provided best quote in 2003 provided best quote in 2007.

Table 3.4 shows the best quoted premium for the 24 and 50 year old risk profiles for 2001, 2003

and 2007 together with the 24 year old quote expressed as a factor of the 50 year old quote (for

driving the same vehicle). This follows the same trend as previously seen with the equivalent

analysis of average quotes (Table 3.2 and Finding 08).

Table 3.4 A comparison of the best young driver quote as a factor of the best older driver quote for

the years 2003 and 2007

Age 24 50 Young driver best

quote as a factor of

older driver best

quote

Year Sex Type 1100cc 1600cc 1100cc 1600cc 1100cc 1600cc

2007 Male Comp €691 €889 €376 €415 1.84 2.14

TPFT €502 €691 €277 €320 1.81 2.16

Female Comp €496 €582 €294 €367 1.69 1.59

TPFT €363 €396 €254 €250 1.43 1.58

2003 Male Comp €2,238 €2,398 €804 €1,044 2.78 2.30

TPFT €1,955 €2,113 €672 €776 2.91 2.72

Female Comp €1,227 €1,646 €696 €985 1.76 1.67

TPFT €805 €939 €458 €535 1.76 1.76

2001 Male Comp €2,332 €2,548 €766 €833 3.04 3.06

TPFT €1,660 €2,224 €680 €749 2.44 2.97

Female Comp €1,198 €1,558 €702 €833 1.71 1.87

TPFT €737 €834 €423 €467 1.74 1.79

22

Table 3.4 shows that the between 2003 and 2007 the quotes for 24 years have reduced by on

average 17% more than 50 year olds. For example in 2001, a 24 year old male was quoted an

average premium 3.04 times that of a 50 year old male for comprehensive insurance for a 1100cc

vehicle. In 2003, this ratio had dropped to 2.78, while in 2007 this ratio had dropped to 1.84 - a

drop of 34% between 2003 and 2007.

Finding 10. The gap between the best quoted premium for 24 year olds relative to 50 year

olds reduced by 17% between 2003 and 2007.

3.4 Age groups 20 & 21

In 2001 and 2004, the premium surveys also collected information for 20 and 21 year olds

(though not since then). This section examines premium quotes for this time period.

Between 2001 and 2004, the average premiums quoted for the various risk profiles have all

decreased by an average of 20%, with the youngest age group (the 20 year old age group) having

the largest average decrease (31%). The next youngest age group for which data was collected

(21 years olds) had the next largest average decrease (30%). Full data are shown in Appendix

A.3. It is worth noting that within these age groups, males benefited from a much larger drop (46%

and 32% for 20 and 21 year olds respectively) than females (16% and 29%), though as can be

seen in Appendix A.4 the premiums for males were much higher than for females.

The equivalent figures for best quote tell a similar story - 20 year olds had a decrease in best

premium quote of 32%, whilst 21 year olds had a decrease of 30% between 2001 and 2004.

Finding 11. Between 2001 and 2004, 20 and 21 year olds experienced the greatest quote

reduction relative to other age groups.

The premium surveys have shown that the cost (on a like-for-like basis) of vehicle insurance has

dropped for all age groups since 2001 and that the youngest age groups (for which data was

collected) benefited from the largest decreases.

23

4 Evidence from policy data

In this chapter the perception that young drivers have not benefited to the same extent as

other age groups from the reduction in premiums is examined using policy data, i.e what

people paid for insurance. The most recently available data has been used, covering

2000 to 2005. All costs are in Euro and baselined to 2005 (to take account of inflation).

4.1 Introduction

This section explains that the vehicle insurance policy data used in the analysis

represents 99% of the private motor market and provides information on what individuals

paid for insurance and the claims costs associated with these policies.

Nine insurers (accounting for 99.99% of the IIF private motor insurance market in 2005 gross

written premium terms) provided policy data. This covered calendar years 2000 to 2005 inclusive

and included details on each private motor policy over this period including premium paid and the

cost of any claims made. This is the same data used by the Financial Regulator for their annual

Private Motor Insurance Statistics. Insurers providing data were:

AIG

Allianz

AXA PMPA

Eagle Star

FBD

Hibernian

Quinn Direct

Royal & Sun Alliance

St. Paul

This data does not include all costs and revenues for the motor insurance industry. For example, it

does not include operational expenses (labour, advertising, IT and accommodation), reinsurance,

taxation, commission and contributions to the Motor Insurers’ Bureau of Ireland for claims against

uninsured motorists.

Further, the policy data does not include additional income sources. For example, investment

income (income received from investing premiums received) and reinsurance recoveries. Over the

last four years insurers highlighted that the returns on investment income they receive from the

premium paid (before paying out any claims costs) have declined substantially because stock

market returns have reduced.

These additional cost and income items are required to calculate the level of profit. However, it is

not the purpose of this report to comment on the industry's profitability; rather to examine the extent

to which young persons have benefited from premium reductions comparable to other age groups.

The remainder of this Chapter considers the following elements:

Section 4.2 presents analysis relating to exposure, i.e. the number of policies there are

Section 4.3 analyses the premiums paid for these policies

24

Section 4.4 looks at the claims associated with these premiums

Section 4.5 examines the difference between the premiums paid and the claims costs

Section 4.6 examines any premium reduction differentials between the sexes.

The analysis presented in the following sections is in terms of the following age groups of the

policy-holder: 20 year olds and under, 21-24, 25-30, 31-50, 51-70 and 71 and over.

4.2 Total exposure

In this section the growth in the number of vehicles insured (as measured by policy

exposure) is examined for the age groups. It is shown that there has been a substantial

increase in the policy exposure for those aged 20 years and under and that these persons

are increasingly likely to buy comprehensive policies.

Figure 4.1 shows the total policy exposure for the various age groups. The majority of policy

exposure (about three quarters) relates to those 31 years and older, with only 8.6% of policy

exposure (in 2005) relating to those under 25. Overall there has been a 39% increase in the total

policy exposure from 1.1m policy years in 2000 to 1.6m in 2005. The total number of private motor

insurance policies in 2005 broadly equates to the number of private motor vehicles as listed in the

2005 Irish Bulletin on Driver Statistics recorded (1,662,200).

Fig. 4.1 Motor insurance exposure by each age group by year (2000-2005)

Source: Insurers motor policy data

Figure 4.2 shows the year-on-year change in policy exposure for each of the age groups. For each

year between 2000 and 2005, the youngest age range (20 and under) had the largest year-on-year

percentage increase in policy exposure, whilst the second youngest age group (21-24 year olds)

had the second highest year-on-year percentage increase in policy exposure.

25

Fig. 4.2 Year on year percentage change in exposure by each age segment (2000-2005)


Overall, the total exposure for those:

Aged 20 years and under has more than trebled from 10,959 policy years in 2000 to 36,171 in

2005. The rate of increase in the number of policies (as measured by exposure) was fastest in

2004 and 2005

Aged 21 to 24 years old has nearly doubled from 54,669 policy years in 2000 to 100,818 in

2005. Again, the rate of increase in the number of policies (as measured by exposure) was

fastest in 2004 and 2005

Aged 25 and over has increased by approximately one third from 1,075,598 policy years in 2000

to 1,454,905 in 2005, with a steady rate of increase (of around 6% per annum) in the number of

policies (as measured by exposure) since 2001.

These changes need to be seen relative to population changes in Ireland. The Census provides

the most accurate measure of population and is conducted every four years.

Table 4.1 shows the population for the various age groupings for those aged 17 and over.

Between 2002 and 2006 there was an overall net increase in population aged 17 and over of 9.9%.

However, there was a net decrease in the age group 17 to 20 year olds (of 6.8%) and a modest

population increase of 6.3% for those aged 21 to 24 years old, i.e. while the overall population has

increased, the youngest driver age groups (those aged 17 to 24) has not increased at all (a small

net decrease).

26

Table 4.1 Population by age group (2002 and 2006)

2002 2006 % change 2002 to 2006

17-20 256,979 239,479 -6.8%

21-24 261,979 278,384 +6.3%

25-30 376,081 443,385 +17.9%

31-50 1,053,782 1,177,233 +11.7%

51-70 692,919 772,407 +11.5%

71+ 278,482 298,622 +7.2%

Total population 17+ 2,920,222 3,209,510 +9.9%

Source: Census, CSO

Thus while the population of persons aged:

17 to 20 has decreased by 6.8% between 2002 and 2006, the total exposure for this age group

increased by 107% between 2002 and 2005 (no data available for 2006)

20 to 24 has increased marginally (by 6.3%) between 2002 and 2006, the total exposure for this

age group increased by 51% between 2002 and 2005 (no data available for 2006)

25 and over increased by 121% between 2002 and 2006, the total exposure for this age group

increased by only 15% between 2002 and 2005 (no data available for 2006).

Finding 12. The increase in the total policy exposure for those aged 20 and under is far

greater than for any other age group and occurred at a time when there was a net

population decrease in this age group.

When insuring a vehicle, individuals can chose from a variety of cover types. Comprehensive

cover - as the name suggests - is the most thorough and as a consequence is the most expensive

cover. TPFT provides reduced cover for a reduced cost. The type of cover individuals chose can

be an indicator of how affordable individuals find vehicle insurance - a greater proportion of

comprehensive policies would imply more affordable insurance.

Overall, around 70% of all policies in place were comprehensive and this has remained fairly

constant between 2000 and 2005. Figure 4.3 below breaks this down for each of the age groups.

This shows that previously those in the younger age groups were much less likely to have

comprehensive insurance when compared to older age groups. Indeed in 2002 only 10% of

policyholders aged 20 and under were insured comprehensively. This has risen sharply, in

particular between 2004 and 2005 to a point where 19% of those aged 20 and under have

comprehensive policies. There was also a small increase between 2003 and 2005 in the

proportion of policyholders aged 21 to 24 years old who were comprehensively insured.

27

Fig. 4.3 Proportion of comprehensive policy exposure held (2000-2005)

Source: Insurers motor policy data.

Finding 13. Not only are more young persons buying motor insurance, since 2002 a greater

proportion of them are buying comprehensive insurance (which for an individual will be

more expensive). This is particularly the case for those aged 20 and under. For example in

2002 only 10% of policyholders aged 20 and under were insured comprehensively. By 2005

this had nearly doubled to 19%.

4.3 Premiums paid

This section presents analysis relating to the premiums paid by each age group and

shows that while there was an increase in premiums paid between 2000 and 2002, all age

groups paid on average 19% less in 2005 than they did in 2000.

Figure 4.4 shows the actual average premium paid for each age group.

Fig. 4.4 Average price per premium per policy year by each age group (between 2000 and 2005)


Figure 4.4 shows three key points:

28

Within any year there was a clear pattern in the level of premium paid across age groups.

Those aged 20 years and under paid on average more than any other age group, with those 21

to 24 years old paying the next highest average. Those in the highest age band paid least

Across all age groups, the average cost of insurance increased from 2000 to a maximum in

2002 and decreased steadily since then

In absolute terms (and taking account of inflation) the average premium paid in 2005 was 19%

less than that of 2000 and 30% less than the high point of 2002. For those aged 20 and under

the equivalent changes in average premium were 25% and 29% respectively (i.e. premium

decreases similar to the rest of the population).

Note that this analysis is based on price paid and does not take into account a whole range of other

factors, including the relative risk of age groupings and how these have changed and the

type/value of cars covered. For example with an increase in disposable income it might be

expected that the average value of vehicle insured has also increased. All other factors being

equal, this would result in an increase in premium costs. However with the exception of type of

insurance (which is considered below), no data were available for these other risk factors.

As was shown in Figure 4.3, the proportion of policies which were comprehensive has stayed

broadly consistent, while the proportion of those in the age group 20 years and younger who

bought comprehensive insurance increased significantly - from 10% in 2002 to 19% in 2005. Thus

not only did policyholders aged 20 and under benefit from an actual drop in premium costs

comparable to the rest of the population, they were also buying cover which, all other factors being

equal, is more expensive than TPFT.

In terms of actual price paid, there was little difference between the average premium for

comprehensive and TPFT cover for those aged 20 and under - €2,092 and €2,139 respectively in

2005, i.e only €47. This is considerably less than difference in quoted prices (Tables 3.2 and 3.4).

This is because with cheaper insurance being available those aged 20 and under who previously

bought TPFT were "upgrading" their cover to comprehensive.

Table 4.2 shows the price paid by age groupings relative to the 51-70 age grouping. For example

in 2005 the price paid by those aged 20 and under for one years motor insurance was on average

3.77 times more than that paid by those aged 51-70. Key points to note are as follows:

For those aged 20 and under, the price paid relative to those aged 51-70 has changed little

between 2000 and 2005. While the price differential decreased to 3.41 in 2003, it has

subsequently increased. This increase could be explained by the fact that this age group is

more likely to be buying comprehensive insurance cover in 2005 relative to 2003, though other

factors (for example claims) are also relevant. These are explored in Section 4.4 below

For those 21-24 years old, the price differential has decreased steadily from 2.63 in 2000 to

2.28 in 2005

While those aged over 70 have traditionally paid less for their insurance, this differential has

decreased.

29

Table 4.2 Price paid by age groups relative to the 51-70 age group (2000-2005)

Age grouping 2000 2001 2002 2003 2004 2005

20 and under 3.78 3.45 3.55 3.41 3.64 3.77

21-24 2.63 2.57 2.49 2.35 2.29 2.28

25-30 1.46 1.50 1.51 1.48 1.45 1.47

31-50 1.02 1.03 1.05 1.06 1.08 1.09

51-70 1.00 1.00 1.00 1.00 1.00 1.00

71+ 0.91 0.93 0.94 0.95 0.96 0.97


Finding 14. The average price paid for insurance increased from 2000 to a maximum in

2002, but decreased between 2002 and 2005 to 19% below the 2000 level. In spite of buying

an increased proportion of comprehensive policies, the decrease for those aged 20 years

and under was above average. This is entirely consistent with the premium survey analysis

presented in Chapter 3. While it is not possible to do an exact comparison - the survey data

is based on "notional" risk profiles rather than actual profiles - both datasets show a drop in

premiums paid from a high in 2002 to 2005.

4.4 Claims and their costs

This section presents analysis relating to the claims by each age group, both the rate of

claim and the average costs associated with claims. Overall this shows that there has

been a significant reduction in the total costs associated with claims.

The analysis of the premium data (as shown in Figures 4.4 and Table 4.2) between 2000 and 2005

showed that those aged 20 and under had a drop in average premium in percentage terms

comparable to other age groups. This, however, needs to be set against the context of the number

of claims made and the cost of these claims.

Figure 4.5 shows the claims rate by year for the various age groupings, i.e. the number of claims

per policy year of exposure.19 Overall, the average claim rate decreased from 0.103 in 2000 to

0.064 in 2005, i.e. a 38% reduction in claim rate. Claim rates varied significantly by age of

policyholder, with the youngest age group having the highest claim rate.

19 A rate of 0.12 would indicate for every 100 years policy exposure there would be 12 claims.

30

Fig. 4.5 Claims per policy year of exposure by each age group (2000-2005)


Figure 4.5 shows that between 2000 and 2003 there was a consistent drop in claim rates across all

age groupings, though since 2003 there has been a slight increase in the claim rate. This increase

has been largest for the youngest age groups - since 2003, claim rates have risen by 44% for those

20 years and under, 24% for those aged 21-24, 18% for those aged 25-30, 15% for those aged 31-

50, 13% for those aged 51-70 and 7% for those aged over 70.

Table 4.3 shows the claim rate by age groupings relative to the 51-70 age grouping. In 2000, those

aged 20 and under made on average 2.13 times the number of claims that those aged 51-70 and

while this differential decreased to 1.54 in 2002, it subsequently increased to 2.08 in 2005.

Table 4.3 Claim rate relative to the 51-70 age group (2000-2005)

Age grouping 2000 2001 2002 2003 2004 2005

20 and under 2.13 1.96 1.54 1.63 1.89 2.08

21-24 1.69 1.54 1.42 1.35 1.40 1.49

25-30 1.53 1.49 1.44 1.37 1.38 1.43

31-50 1.21 1.21 1.27 1.26 1.25 1.28

51-70 1.00 1.00 1.00 1.00 1.00 1.00

71+ 0.81 0.87 0.96 1.02 0.95 0.97


Claim rates vary by type of policy - by their very nature comprehensive policies are more likely to

result in a claim relative to TPFT cover. Figure 4.6 shows the claim rate for the 17 to 20 year old

policyholders for comprehensive and TPFT cover. This shows that comprehensive policies had

higher claim rates than TPFT cover. However both types had similar trends over the time period.

31

Fig. 4.6 Claims per policy year of exposure by insurance type (17-20 year olds, 2000-2005)


As well as the number of claims made, the cost of claims is a key factor in understanding the cost

of motor insurance. Because it may take a number of years before the full costs with a claim are

known, the cost information provided by insurers is "in development" - that is they are estimates.

Historically these estimates have under-stated costs, with the level of understatement being

smaller as the development year progresses. This is discussed further in Appendix D. However, in

reading the analysis below it must be remembered that more recent years claims cost data is likely

to be understated (probably in the region of 10%).

Figure 4.7 shows the average cost per claim by age group. In general the average cost per claim

associated has reduced across all age groupings from an average of €7,074 in 2000 to €5,168 in

2005 (a decrease of 27%).

Fig. 4.7 The average cost per claim by each age group (2000-2005)


32

Figure 4.7 shows that the average cost per claim varies significantly by age group. All age groups

had a reduction in the average cost per claim between 2000 and 2005, with those age 20 years

and under and the 21-24 year olds having the biggest decrease (39% and 40% respectively). The

largest proportion of this decrease occurred between 2003 and 2005. Table 4.4 expresses claims

costs as a ratio relative to the 51-70 age group and shows that the costs per claim for policyholders

aged 20 and under are more than double the 51-70 age group, though the gap between the two

age groups has decreased.

Table 4.4 Claim rate relative to the 51-70 age group (2000-2005)

Age grouping 2000 2001 2002 2003 2004 2005

20 and under 2.59 2.79 2.17 2.26 2.46 2.07

21-24 1.76 2.15 1.41 1.36 1.21 1.38

25-30 1.13 1.32 1.04 1.17 1.05 1.03

31-50 0.97 1.00 0.92 0.92 0.88 0.97

51-70 1.00 1.00 1.00 1.00 1.00 1.00

71+ 1.39 1.24 1.31 1.27 1.07 1.36


There are two factors relevant to estimating the cost of insurance policies ("average claims costs

per policy per policy year"), namely the probability of a claim occurring (as was shown in Figure

4.5) and the likely cost of these claims (as was shown in Figure 4.7). Figure 4.8 shows the claims

cost per policy year by age group. Overall this has decreased by 55% between 2000 and 2005.

Since 2003, average claims cost per policy per year have remained fairly static - while the cost per

claim has decreased since 2003 (as was shown in Figure 4.7), this has been offset by the

increased number of claims (as was shown in Figure 4.5).

Fig. 4.8 Average claims cost per policy year by each age group (2000-2005)


33

Table 4.5 expresses claims costs per policy as a ratio relative to the 51-70 age group. In 2000,

policyholders aged 20 years and under were 2.13 times more likely to make a claim than those

aged 51-70 (as per Table 4.4) and these claims were 2.59 times more costly than for policyholders

aged 51-70 (as per Table 4.5). As a result, the average claim per policy for those aged 20 years

and under was 5.52 (the product of 2.13 and 2.59) times more costly than for those in the 51-70

age group. Table 4.5 shows since 2000 the claims cost for the youngest two age groups has

dropped, though the recent trend has been a rise in claims cost per policy.

Table 4.5 The average claims cost per policy relative to 51-70 year olds (2000-2005)

Age grouping 2000 2001 2002 2003 2004 2005

20 and under 5.52 5.45 3.34 3.69 4.64 4.31

21-24 2.97 3.32 2.00 1.84 1.70 2.06

25-30 1.72 1.95 1.50 1.60 1.46 1.48

31-50 1.18 1.21 1.17 1.15 1.11 1.23

51-70 1.00 1.00 1.00 1.00 1.00 1.00

71+ 1.13 1.08 1.26 1.29 1.02 1.31


Finding 15. All age groups have shown a significant drop in the average cost per policy (on

average 55%) between 2000 and 2005. Since 2003, claims cost per policy have reduced by

only a small amount (9% on average), with no change in claims costs for policyholders aged

20 years and under. While the cost per claim has decreased since 2003, these have been

largely offset by the increased number of claims per policy since 2003.

4.5 Cost of providing insurance

In this section it is demonstrated that while young drivers produce the highest surplus (that

is the average premium income minus the average claim per policy cost), the rate of

surplus for young drivers is not disproportionate, i.e. relative to other age groups, they are

not being overcharged and have benefited to the same extent, if not more than, older

drivers. It is important to remember that surplus does not represent profit.

Figure 4.4 showed the average premium paid per policy year, while Figure 4.8 showed the average

cost per policy year to insurers in terms of claims (not including other costs). On this basis, the

average surplus per policy year can be calculated and is shown in Figure 4.9. This shows that in

2000, the cost of claims to insurers for the youngest age group (20 years and under) exceeded the

premium income (i.e. there was a net deficit). In all subsequent years insurers have seen a net

surplus of policy income over claims costs.

34

Fig. 4.9 Average surplus/deficit per policy year by age group (2000-2005)


Within any year (except for 2000), the size of surplus is largest for the youngest age groups. This

is perhaps not surprising - the younger age groups have higher premiums (as shown in Figure 4.4)

and the highest risk (as shown in Figure 4.8). This can be taken account of by dividing the average

surplus/deficit per policy by the average premium for each age grouping - this is shown in Figure

4.10.

Fig. 4.10 Rate of surplus/deficit per age group (2000-2005)


Figure 4.10 shows that since 2002, the rate of surplus has been fairly similar across all age groups.

During this time the rate of surplus relating to policyholders aged 20 years and under has been

lowest once and second lowest twice, i.e. the rate of surplus is not high relative to other age

groupings.

35

It could be argued that because the premiums of policyholders aged 20 years and under are

higher, their total net contribution to insurer surplus is larger. Figure 4.11 shows the total net

surplus and the contributions by age group. It should be remembered that in Figures 4.9 to 4.11,

the size of surplus is likely to be over-stated as the claims data is in development. This over-

statement is likely to be largest (probably in the region of 10%) for most recent years (i.e. 2005)

and this over-statement will be largest for those groups with the largest claims (i.e. those aged 17

to 24).

Fig. 4.11 Total surplus/deficit per age group for each year


Figure 4.11 shows that the total size of the surplus increased five-fold between 2000 and 2003,

though subsequently decreased 28% between 2003 and 2005 (at a time when there was a 14%

increase in policy exposure). Between 2003 and 2005:

The surplus contributed by policyholders aged 17 to 24 years dropped from €126m to €117m

At a time when the policy exposure increased for this age group increased by 54% (i.e. there

are substantially more policies for this age group which contributed to the overall surplus)

And the average claim cost per policy for this age group fell by only 2%.

The cost to insurers for handling claims (in terms of processing and internal costs) is not included

in the claims cost data. It is reasonable to assume that these costs (which would be funded out of

the surplus) will be highest for those that make the most number of claims (in this case those

policyholders in the age group 17 to 24 years) and those with the most costly claims (again those in

the age group 17 to 24 years).

36

In underwriting insurance and determining premium rates, actuaries consider a range of factors

relating to risk, as set out in Section 2.4. In addition they also consider the number of policies

(commonly referred to as the "size of book"), within an age grouping. This helps reduce

uncertainty around risk (though does not reduce the risk itself).20 The analysis has shown that

policyholders aged 20 years and 21 to 24 years old have the smallest number of policies and

therefore there is greater uncertainty around their risk. This is likely to be factored into the

premium costs.

Finding 16. Policyholders aged 20 and under made the largest proportionate contribution to

the total surplus. This, however, does not recognise that:

Since 2003, the rate of surplus for this age group has been lower than all other age

groups other than those aged 71 and over

Those aged 20 and under make more claims than for any other age group and these

claims are more expensive. The full cost of these claims is not recognised in the data

and would have to be funded out of the surplus

The number of policies ("size of book") for this age group is small and therefore the

uncertainty around this risk is greatest (relative to other age groups).

4.6 Analysis by gender

In this section the policies for males and females are analysed separately and found to

exhibit no unusual or dissimilar trends than that of the population as a whole.

This study was also interested in any gender differentials, in particular had males benefited from

any premium decreases to a greater extent than females. Figures 4.12 and 4.13 bring together this

analysis in presenting the marginal return (as per Figure 4.10) for females and males respectively.

20 By way of example, when a coin is tossed there is a 50% probability that it will be heads and 50% probability that it will be

tails - this represents a known and constant risk. If a coin is tossed once, there is a high degree of uncertainty around this

(constant) risk - it will either be one or the other. With a 100 tosses, the uncertainty reduces - while it may not be exactly

50:50, it is very unlikely to be 100:0 or 0:100 (the same ratios as a single toss). As the number of tosses increases, the

uncertainty around the risk also decreases.

37

Fig. 4.12 Rate of surplus/deficit per age group for each year (females)

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

2000 2001 2002 2003 2004 2005

20 & under 21-24

25-30 31-50

51-70 71+


Fig. 4.13 Rate of surplus/deficit per age group for each year (males)

-0.40

-0.20

0.00

0.20

0.40

0.60

0.80

2000 2001 2002 2003 2004 2005

20 & under 21-24

25-30 31-50

51-70 71+


This analysis shows a similar profile for the rate of surplus/deficit over time for both sexes - in

general between 2003 and 2005 the rate of surplus/deficit for the same age group varied by only a

few percentage points.

In order to better understand the two profiles, Figure 4.14 shows the ratio between rate of surplus

for males and the rate of surplus for females. If there was significant difference between the sexes

in how they have benefited from changes in premium costs this would be indicated by:

A value significantly different from1.0

38

A significant change over time in the ratio.

Fig. 4.14 Rate of surplus/deficit per age group - male surplus divided by female surplus

In general there is a broad similarity for the age groups and over time, indicating that both sexes

have benefited similarly with the exception of:

In 2000 and 2001 for those aged 20 and under. This anomaly is due to a low surplus for males

(in fact a deficit in 2000) rather than a disproportionately high surplus rate for females

In 2004 and 2005 for those aged 71 and over. Again this anomaly is due to a low surplus for

females rather than a disproportionately high surplus rate for males

Finding 17. The analysis did not show any significant trend difference in rate of

surplus/deficit between sexes from 2000 to 2005.

5 Driving premiums down

There are a number of factors that could have contributed to the reduction in premiums

over the last four to five years. Identifying specific cause and effect is not possible given

the data sources available. As a result it was not feasible to calculate the actual savings

made and passed onto consumers. This chapter describes the factors that are likely to

have influenced premium reductions and makes some qualitative assessment of their

impact (based on the consultation process).

5.1 The PIAB

The introduction of the PIAB (following the recommendations made by the MIAB) has had a

positive impact on the personal injury claims process. There has been a reduction in the time

taken to process claims, (as shown in Section 2.3.3) and the costs associated with litigation has

reduced the overall cost of claims for the insurer (as evidenced in Figure 4.8, 2004 to 2005

reduction in average claim paid). Further, in conjunction with the IIF anti-fraud campaign and the

Civil Liability and Courts Act 2004 (which made making a fraudulent claim a criminal offence) there

is a perception that the claims culture has changed. In particular claimants are seen to be less

likely to claim fraudulently and there is a greater willingness to settle.

However, it should be noted that the impact of claims whose PIAB settlement was rejected has yet

to be fully understood (as they are being processed through the courts). If resulting awards are

higher than those initially offered by the PIAB then the positive impact on claims costs may be

slightly offset, in particular if more claimants in future decide to reject the PIAB settlement.

5.2 Road safety activity

A number of initiatives in relation to improving road safety have been established in the last 4 to 5

years. They are as follows:

Road Safety Authority (RSA) – The RSA was established in September 2006 with the goal of

bringing “Ireland's road safety record into line with "best practice" countries throughout the

World”. Driver licensing and testing are included in their remit and recent changes to the

licensing system (pending introduction learner permits and mandatory accompaniment) are

intended to mitigate against learner driver inexperience, increase time spent gaining experience

on the road and improve driver safety amongst this segment.

Random Breath Testing – The introduction of random breath testing in 2006 and its subsequent

enforcement has had an impact on collision rates. Attitudes towards the acceptance of alcohol

combined with driving are changing and a pending reduction to the legal blood alcohol limit has

the potential to further reduce the number of collisions involving alcohol.

The Penalty Points System – The penalty points system was adopted to deter people from

unsafe driving practices such as speeding, using a mobile phone while driving and dangerous

manoeuvres (dangerous overtaking, failure to obey traffic lights, etc.). Speeding in particular has

been targeted and the increase in speed limit enforcement by Gardaí has seen a certain level of

success.

The latter two initiatives were cited by insurers as having a significant impact on the reduction in

vehicle collision rates seen over the last few years. However, vehicle collision rates are on the

increase once again21 and therefore highlights the need for a continued effort in improving road

safety and driver behaviour.

The improved quality of roads as well as a greater number of safety features on newer cars has

facilitated safer driving and fewer serious or fatal collisions. Moreover, better quality and more

numerous car safety features have also had a direct impact on motor insurance premiums by

reducing the associated risk on a policy and therefore reducing the premium rate.

The net impact of a range of road safety measures (combining driver education, engineering

solutions and enforcement) has meant that between 2001 and 2007 road fatalities have decreased

from 411 per annum to 33822 while the number of vehicles on Irish roads has increased

significantly. No figures are collected on the number of injury (including serious injury) collisions.

5.3 Competition

While it has been suggested that public pressure over high motor insurance premiums could have

led to greater competition in the market place, there is no evidence to suggest that insurers were

making exaggerated profits from motor policies. In terms of motor insurance provision in Ireland,

the market is now seen to be more competitive than in previous years. Specific examples of this

include:

The greater use of internet-based price comparator sites has provided consumers with greater

visibility over product offerings. It is thus much easier to compare prices across insurers and

find the best deal.

A new insurer has entered the market and has a meaningful market share

Insurers are in a situation now where surplus margins on premiums relative to claims costs are

stable and there is a viable business for them. The market is thus relatively stable

Finally, insurers are developing new products. These include products aimed at specific

groups, such as young drivers, and seek to reduce risk by applying certain stipulations (for

21 Vehicle collision rate is synonymous with the rate of claim i.e. the number of claims made by policyholders. The 2005

Private Motor Insurance Statistics references the collision rate as showing a continued trend of increase in 2005 as first

detected in 2004 after a sharp decline between 1997 and 2003.

22 Source: http://www.garda.ie/statistics98/nroadstats.html

41

http://www.garda.ie/statistics98/nroadstats.html

example no driving at night or restricted number of passengers) or encourage enhanced driving

education, thereby changing behaviours.

Further, customer retention is now a high priority for insurers, with many attempting to minimise the

occurrence of lapses23 by swiftly matching cheaper quotes from their competitors.

The consultations highlighted that young drivers are extremely price sensitive and therefore harder

to retain based on product differentiation alone. Retention of these younger age groups was cited

as being primarily based on price and, fluctuating prices resulting from competition within the

market place has created a poorer retention experience amongst certain insurers for these age

groups. For these insurers this leads to a shorter period of time over which to recoup acquisition

expenses and therefore also influences premium levels.24

5.4 Insurance market cycle

It was suggested by consultees that the insurance industry exhibits a cyclical trend in relation to

profits and losses. In the late ’90’s/early 2000’s deficits were being experienced. In consultations it

was cited that as a result of this insurers adjusted premium levels to compensate. However, these

adjustments were conservative in nature (from the point of view of the insurance industry) and this

led to a turn around in the industry producing significant surpluses. It has been suggested that the

industry then went through a corrective period at the beginning of 2003. This process, aided by

other initiatives, has helped to decrease premiums.

The current feeling across the industry is one of uncertainty with respect to whether or not

premiums will decrease further. During the consultation process insurers suggested that the soft

cycle25 is drawing to an end. However, premium increases may not yet be seen for some months

due to the level of competition. Indeed any short term increases will most likely be due to

inflationary pressures.

Finding 18. The insurance market is currently in a ‘soft cycle’ where premium levels are

decreasing. The industry highlighted that this trend cannot continue, with pressure on

premium levels due to cost inflation.

5.5 Summary

A number of factors have contributed to the reduction in premiums levels. These include:

The establishment and operation of the Personal Injuries Assessment Board (PIAB)

The IIF Anti-fraud campaign

23 A lapse occurs when an existing customer receives a cheaper quote elsewhere and consequently moves to the other

insurer. To prevent this and retain customers insurers tend to match the cheaper quote.

24 Premiums must be higher in order to regain the acquisition expenses in the shorter time periods25 A 'soft cycle' is part of the overall insurance cycle and represents a period in which premiums are low, capital base is low

and competition is high.

42

Reduction in (serious) collision frequency through road safety activities, changes in law and

enforcement activities including:

– Much greater enforcement, in particular random breath testing

– The introduction of the penalty points system

– Greater speed limit enforcement by Gardaí

– Improved roads

Competition in the market

The insurance market cycle.

However, given the cyclical nature of the insurance market premium reductions will eventually

cease, but consumers will find a price increase difficult to accept if insurers are seen to be making

substantial profits.

5.6 Looking forward - driving down future premiums

Premium income constitutes the vast majority of insurers' revenue26 and is the primary source for

the provision of funds to meet claims costs. Premium levels are primarily determined by the

probability of making a claim (risk) and the cost of a claim. Collision rates directly influence both

these factors in the following manner:

The type and number of collisions dictate the total cost of claims

The representation of the various age segments within the collision rate provides a means to

calculating the associated risk.

Therefore, in order to reduce premium levels, without affecting profitability, an insurer’s claims

costs must be reduced and the inherent risk associated with the various age groups must be

minimised. Improving road safety and driver behaviour can reduce collision rates and by doing so

the overall cost of claims and risk levels of the population as a whole can also be reduced. It should

be noted that if this were to occur, while premiums will, in general, be reduced, premium levels will

still differ across age groups due to varying risk and different average cost of claims.

Consultations conducted with relevant stakeholders identified a number of actions to reduce

collision rates and consequently claim costs. Many of these are explicitly addressed within the

Road Safety Strategy 2007-2012. However, the following actions are worthy of mention:

A limit placed on engine capacity (for example, less than 1400cc) permitted for learner drivers

and drivers who have recently passed their driving test would reduce the levels of risk

associated with relatively inexperienced drivers driving high powered vehicles. There are

currently restrictions on engine capacity for learner motorcyclists and the RSA is considering the

implementation of such restrictions for learner drivers

26 Other sources of income include re-insurance returns and investment income.

43

Restrictions preventing young drivers transporting multiple passengers of the same age has the

potential to reduce collisions amongst that age group. It has been previously cited that young

drivers exhibit even riskier driving behaviour when driving with young passengers and that this

leads to an even greater propensity for collisions. Therefore stopping this behaviour would,

conceivably, reduce collision rates

Mechanical restrictions on the speed at which a car can travel would also reduce risk levels.

This could be an option where a customer would elect to install such a restriction thus availing

of a reduction in premium, if offered

The use of in-car tracking and monitoring technology to report on driver behaviour (e.g. speeds,

breaking patterns, etc.). This is something that parents could also use to monitor their children’s

driving patterns

Further participation from insurers in safe driver programs and a greater up-take by young

drivers would improve driver safety while also reducing premiums. When undertaken (and

passed) by young drivers insurers reduce premium levels. This premium reduction provides the

incentive for drivers to participate while the insurer gains from having safer drivers on their

books and as a result fewer claims (in theory).

Alternative avenues of claims cost reduction, other than reducing collision rates, exist and are

described below:

Costs associated with fraudulent claims still contribute to a portion of claims costs. Anti-fraud

campaigns of the past combined with criminal prosecution of fraudulent claimants have been

successful deterrents to this behaviour. However, premium levels could be further reduced by

removing this element of claims costs. Claims investigation from insurers as well as strict

enforcement of penalties (fines and/or prison term) is required to achieve this along with

continued campaigning to maintain awareness amongst the public

Costs associated with uninsured driving. At present, drivers caught without insurance incur a

mandatory court appearance and upon conviction receive a fine and penalty points. However,

stricter fines and penalties (e.g. on-the-spot confiscation of vehicle) upon identification of

uninsured drivers would introduce a greater deterrent to this type of misdemeanour and thus

reduce levels with a knock-on effect for premiums.

The final measure rests on the shoulders of the consumer and in this case the young driver. They

must take it upon themselves to “shop around” for the best premium prices on offer. This places

pressure on insurers to improve management expense ratios (operational costs versus revenues)

and therefore streamline operations for greater efficiency as well as promoting competition.

Moreover, the onus is on the young drivers themselves to change their driving behaviour and

directly influence their associated risk through safer more responsible driving.

44

Finding 19. A range of measures are being implemented as part of the Road Safety Strategy

2007-2012 which will help reduce premiums (through increasing road safety). Consultees

highlighted other measures to help reduce premiums. There was also recognition that there

is an onus on the young driver to take responsibility for their driving behaviour and change

it for the better thus directly reducing their associated levels of risk and consequently their

own insurance costs.

45

6 Conclusions

The review has found that:

The number of persons aged 17-24 taking out car insurance increased dramatically between

2003 and 2005 (63%), far greater than for the overall population (18%). While the number of

persons of driving age in Ireland increased (by 10% between 2002 and 2005), the increase in

the number of 17-24 year olds taking out car insurance took place at a time when there was a

net decrease in the population of this age group (Finding 12). Further, as a result of the

introduction of the Declined Cases Agreement, no young person has been refused a quote for

insurance on grounds of age alone

Not only were more persons aged 17-24 buying motor insurance, the proportion that were

buying comprehensive insurance increased. This increase was largest for the age group 17-20,

where the proportion of those buying comprehensive insurance more than doubled between

2002 and 2005 (Finding 13)

The average price paid for insurance increased from 2000 to 2002 for all age groups, though

decreased between 2002 and 2005 to 19% below the 2000 level. In spite of buying an

increased proportion of comprehensive policies, the decrease in average price paid by those

aged 17 to 24 years was greater than decreases for other age groups (Finding 14)

Comparing insurance quotes for specific risk profiles between 2001 and 2007, the youngest age

group for which data were collected (24 year olds) had the largest reductions. (Finding 8, 9 &

10) This confirms the view of consultees that the implementation of the MIAB recommendations

has helped reduce motor insurance premiums and that young persons had benefited the most

(Finding 01 & 03)

Between 2000 and 2005, the average claims cost per policy dropped by 55%. However

between 2003 and 2005 the claims cost per policy reduced by only a small amount (9% on

average), with no change in claims costs for policyholders aged 20 years and under and by only

5% for those aged 21 to 24 years old. While the cost per claim has decreased since 2003,

these have been largely offset by the increased number of claims per policy since 2003. Those

drivers aged 20 and under still represent the highest risk of collision, while policyholders aged

21 to 24 years old represent the next highest risk (Finding 05, 14 and 15)

Relative to other age groups, policyholders aged 17 to 24 had the largest surplus per policy of

premiums paid over direct claims costs. However, as this age group made on average more

claims and these claims were more expensive than other age group, the indirect costs (which

are not accounted for in the surplus calculation) are likely to be largest. Indeed the rate of

surplus (that is the surplus expressed as a proportion of the premium paid) was lower for this

age group than for any other age group except those aged 71 and over (Finding 16)

46

Consultees saw that the motor insurance market is now more competitive than in previous years

(Finding 02). Some developments are particularly relevant to younger persons:

– The greater use of internet-based price comparator sites has provided consumers greater

visibility over product offerings, allowing the best deal to be secured

– A new insurer has entered the market and has targeted young persons

– Finally, insurers are developing new products, some of which are aimed at young drivers.

The findings have thus shown that young persons have had a substantial reduction in motor

insurance costs from 2001 to 2007 and more young persons are taking out car insurance than

before (at a time when there was a net decrease in the population of this age group). In terms of

quoted insurance costs, young persons have benefited the most. In terms of actual price paid for

insurance by young persons, the reduction has been comparable but not as large as suggested by

the premium surveys. This is primarily because young drivers are more likely to buy more

expensive, comprehensive motor insurance (rather than TPFT) than was previously the case.

On this basis we conclude that there is no evidence to suggest that "young persons have

not benefited from the fall in motor insurance costs as much as other age groups".

The consultation process highlighted a number of practical steps to help further reduce the costs of

insurance for young persons - these are listed in section 5.6. These are on top of the Road Safety

Strategy 2007-2012, which will help increase road safety and reduce the number of collisions.

47

Appendix A: Data Tables

Table A.1 – The percentage change year on year in average premium (average of quotes from each of the insurers) for each risk profile (a positive value represents

an increase, while a negative value represents a decrease) – indexed to 2007 prices

Year 2002 2003 2004 2006 2007 2001-2007

Overall %

Change

Age Sex Type 1100c

c

1600c

c

1100c

c

1600c

c

1100c

c

1600c

c

1100c

c

1600c

c

1100c

c

1600c

c

1100c

c

1600c

c

24 Male Comp 27.5% 25.2% -11.7% -9.7% -23.6% -21.6% -26.3% -25.8% -36.4% -37.1% -60% -59%

TPFT 34.1% 33.3% -13.9% -16.5% -22.8% -17.3% -25.7% -25.2% -31.6% -33.2% -55% -54%

Female Comp 14.4% 14.7% -6.6% -5.7% -20.2% -19.4% -20.4% -20.3% -39.3% -40.6% -59% -59%

TPFT 15.2% 16.9% -6.4% -8.9% -18.6% -14.3% -21.0% -20.6% -34.7% -37.4% -55% -55%

30 Male Comp 29.8% 28.8% -8.3% -7.5% -28.3% -25.9% -23.4% -23.2% -24.4% -27.2% -51% -51%

TPFT 25.0% 26.2% -8.8% -7.9% -23.2% -20.8% -24.2% -23.6% -25.5% -28.1% -51% -49%

Female Comp 20.0% 19.2% -2.1% -0.9% -28.8% -27.5% -24.2% -23.3% -18.7% -22.1% -48% -49%

TPFT 20.3% 23.7% -4.8% -4.1% -24.5% -22.6% -19.6% -24.0% -24.5% -23.1% -48% -46%

Year 2002 2003 2004 2006 2007 2001-2007

Overall %

Change

50 Male Comp 22.5% 22.7% -7.5% -8.3% -29.2% -26.4% -23.7% -22.9% -23.0% -25.5% -53% -52%

TPFT 19.1% 20.4% -9.0% -8.6% -24.2% -22.2% -24.8% -23.9% -23.5% -25.8% -53% -52%

Female Comp 18.5% 19.9% -1.7% 0.4% -30.7% -30.1% -23.5% -23.6% -20.1% -21.6% -51% -50%

TPFT 19.2% 20.4% -5.6% -5.1% -26.5% -24.7% -22.5% -23.0% -20.9% -23.5% -49% -49%

60 Male Comp 23.0% 23.3% -5.5% -6.1% -31.7% -29.3% -25.4% -25.0% -23.4% -25.5% -55% -54%

TPFT 19.7% 21.1% -6.7% -6.4% -27.5% -25.7% -25.3% -25.7% -23.9% -26.5% -54% -54%

Female Comp 19.2% 20.3% -0.7% 1.4% -33.0% -32.2% -25.6% -25.7% -18.8% -22.4% -52% -52%

TPFT 18.2% 19.8% -4.8% -4.5% -28.0% -26.1% -24.3% -25.6% -20.5% -22.6% -51% -51%

49

Table A.2 – Best premium quotes for 2001 and 2007 for each of the risk profiles and the percentage

change in best premium quote between 2003 and 2007 for each risk profile (positive value

represents an increase, while a negative value represents a decrease) – indexed to 2007

prices

Year 2001

(€)

2007

(€)

2007/2001 (%)

change

Age Sex Type 1100cc 1600cc 1100cc 1600cc 1100cc 1600cc

24 Male Comp 2332 2548 691 889 -70% -65%

TPFT 1660 2224 502 691 -70% -69%

Female Comp 1198 1558 496 582 -59% -63%

TPFT 737 834 363 396 -51% -53%

30 Male Comp 766 833 443 446 -42% -46%

TPFT 680 749 353 352 -48% -53%

Female Comp 766 833 372 394 -51% -53%

TPFT 530 582 270 314 -49% -46%

50 Male Comp 766 833 376 415 -51% -50%

TPFT 680 749 277 320 -59% -57%

Female Comp 702 833 294 367 -58% -56%

TPFT 423 467 254 250 -40% -46%

60 Male Comp 766 833 288 358 -62% -57%

TPFT 680 833 250 250 -63% -70%

Female Comp 680 833 275 265 -60% -68%

TPFT 399 439 237 240 -41% -45%

Table A.3 – The percentage change year on year in average premium (average of quotes from each of

the insurers) for all risk profiles (positive value represents an increase, while a negative

value represents a decrease) from 2001 to 2004 – indexed to 2004

Year 2002 2003 2004 Overall Reduction

(2001-2004)

Age Sex Type 1100cc 1600cc 1100cc 1600cc 1100cc 1600cc 1100cc 1600cc

20 Male Comp -20.7% -21.7% -28.7% -14.9% -14.6% -25.9% -51.7% -50.6%

TPFT -1.9% 1.5% -25.4% -20.2% -19.5% -24.1% -41.1% -38.5%

Female Comp 8.4% 20.1% -16.8% -12.2% -19.1% -20.8% -27.0% -16.5%

TPFT 35.3% 57.0% -25.8% -27.3% -15.5% -18.8% -15.1% -7.4%

21 Male Comp 7.7% 7.3% -22.4% -20.9% -24.1% -20.7% -36.6% -32.7%

TPFT 10.2% 9.2% -19.2% -19.6% -20.5% -17.7% -29.2% -27.7%

Female Comp 1.7% 0.8% -13.6% -10.7% -21.4% -19.2% -30.9% -27.2%

TPFT 7.4% 7.0% -19.4% -20.4% -17.5% -15.3% -28.6% -27.8%

24 Male Comp 27.5% 25.2% -11.7% -9.7% -23.6% -21.6% -13.9% -11.3%

TPFT 34.1% 33.3% -13.9% -16.5% -22.8% -17.3% -10.9% -7.9%

Female Comp 14.4% 14.7% -6.6% -5.7% -20.2% -19.4% -14.7% -12.8%

TPFT 15.2% 16.9% -6.4% -8.9% -18.6% -14.3% -12.3% -8.7%

30 Male Comp 29.8% 28.8% -8.3% -7.5% -28.3% -25.9% -14.7% -11.7%

TPFT 25.0% 26.2% -8.8% -7.9% -23.2% -20.8% -12.4% -7.9%

Female Comp 20.0% 19.2% -2.1% -0.9% -28.8% -27.5% -16.3% -14.3%

TPFT 20.3% 23.7% -4.8% -4.1% -24.5% -22.6% -13.5% -8.1%

50 Male Comp 22.5% 22.7% -7.5% -8.3% -29.2% -26.4% -19.8% -17.2%

TPFT 19.1% 20.4% -9.0% -8.6% -24.2% -22.2% -17.9% -14.5%

Female Comp 18.5% 19.9% -1.7% 0.4% -30.7% -30.1% -19.3% -15.9%

TPFT 19.2% 20.4% -5.6% -5.1% -26.5% -24.7% -17.3% -14.0%

60 Male Comp 23.0% 23.3% -5.5% -6.1% -31.7% -29.3% -20.6% -18.1%

TPFT 19.7% 21.1% -6.7% -6.4% -27.5% -25.7% -19.1% -15.8%

Female Comp 19.2% 20.3% -0.7% 1.4% -33.0% -32.2% -20.7% -17.2%

TPFT 18.2% 19.8% -4.8% -4.5% -28.0% -26.1% -19.0% -15.5%

Table A.4 – The overall percentage change in best quoted premium (best quote from one of the

insurers) for the 21yrs and 20yrs risk profiles between 2001 and 2004 - indexed to 2004

(positive value represents an increase, while a negative value represents a decrease)

Year 2001 2004 2004/2001 (%)

change

Age Sex Type 1100cc 1600cc 1100cc 1600cc 1100cc 1600cc

20 Male Comp €4,507 €4,818 €2,544 €3,028 -44% -37%

TPFT €3,988 €4,230 €2,180 €2,615 -45% -38%

Female Comp €2,339 €2,164 €1,509 €2,132 -35% -2%

TPFT €1,927 €1,841 €1,140 €1,572 -41% -15%

21 Male Comp €2,636 €2,820 €1,626 €1,817 -38% -36%

TPFT €1,803 €2,534 €1,444 €1,558 -20% -39%

Female Comp €1,276 €1,652 €910 €996 -29% -40%

TPFT €896 €1,015 €718 €815 -20% -20%

52

Appendix B: Glossary of Terms

Term Used Definition

Average Cost per Policy The total cost of claims divided by the total number of policies

Average Cost per Claim The total cost of claims divided by the total number of claims

Average Earned Premium

Income per Policy

The total earned premium income divided by the total number of policies

Average Surplus/Deficit per

Policy

The total earned premium income less the total cost of claims divided by the

total number of policies

Book of Quantum Book used as a guideline as to the likely range of compensation for a

particular injury compiled on behalf of the PIAB by independent consultants. It

is an aid in the assessment of compensation to which a person (claimant) may

be entitled when injured due to the fault of another (respondent).

Claim Rate The proportion of policies upon which a claim is made, i.e. the number of

claims divided by the number of policies

Comparative Risk Factor Simplistic measure of risk based on the comparison of one age groups

premium to another. The factor is calculated by dividing the larger premium by

the smaller one and the resulting value reflects the additional risk associated

with the larger premium group.

CSO Central Statistics Office

Development Year A single year in the period of time up until which the full cost of a claim is

developed. For the majority of claims this period is 5 years.

DoT Department of Transport

IBNR Incurred but not reported claims. These are claims that relate to a given

accident year but are not reported within that year and thus their claims costs

must be added to subsequent development years.

IFSRA The Irish Financial Services Regulatory Authority

IIF The Irish Insurance Federation is the representative body for insurance

companies in Ireland.

Lapse Occurs when an insurer’s existing customer receives a cheaper premium

quote from a competing insurer and consequently moves to that insurer.

Loss Ratio The ratio of (potential) claim versus premium

MIAB The Motor Insurance Advisory Board

53

Term Used Definition

MIBI The Motor Insurer’s Bureau of Ireland was established for purpose of

compensating victims of road traffic accidents caused by uninsured and

unidentified vehicles.

NYCI National Youth Council of Ireland

PA PA Consulting Group

PIAB The Personal Injuries Assessment Board

Rate of Surplus/Deficit The average surplus/deficit per policy divided by the average premium

RSA The Road Safety Authority

Settlement Rate The percentage of claims reported in a given year whose full cost is developed

and which are therefore settled

Surplus/Deficit The total earned premium income minus the total cost of claims. It is important

to note that this is NOT profit or loss.

Time to settlement The time taken for a claim to be resolved by insurers and final settlements

paid

Total Cost of Claims The sum cost of all notified claims for a given year

Total Earned Premium

Income

The sum of all premium income received with respect to the exposure for a

given year (e.g. a 2007 policy with an exposure of 1.0 and a premium of €500

has €500 of earned premium income for 2007; a 2007 policy with an exposure

of 0.5 and a premium of €500 has €250 of earned premium income for 2007)

TPFT Third Party Fire and Theft

54

Appendix C: References

Documents used in the preparation and/or referenced in the report include:

A Cost-Benefit Analysis of the Personal Injuries Assessment Board, December 2006

Final Report of the MIAB, Annotated version of the Recommendations

Insurance Statistical Review 2006; (Irish) Financial Regulator

MIAB Report 2004

Public Auto Insurance: A mortality Warning for Motorists, Mullins, M (2003), The Frazer Institute

Private Motor Insurance Statistics 2005; (Irish) Financial Regulator

Road Collision Facts 2005; Road Safety Authority (RSA)

Road Collision Facts 2004; National Roads Authority (NRA)

Road Safety Strategy 2007-2012, Road Safety Authority (Oct 2007)

Towards 2016 – Ten-Year Social Partnership Framework Agreement 2006-2015

Understanding passenger influences on driver behaviour: implications for road safety and

recommendations for countermeasure development; Regan, M & Mitsopoulos (2003), Monash

University Accident Research Centre

Young Drivers: Improving their Safety Record; Association of British Insurers (ABI) September

2006

Young Drivers: Reducing Death on the Roads, Four Actions to Save Lives; ABI September

2006

Young Drivers: Road Safety and the Cost of Motoring, Interim report and consultation paper;

ABI June 2005

Appendix D: Analytical assumptions

When claims are made against motor policies, it may take a number of years before the

full extent of the costs are incurred. This appendix provides justification that using

datasets which are still in development will have a negligible impact in the context of this

study.

Development Year

In most cases, when a collision occurs the full cost of any resulting claim may not be apparent for a

number of years (in particular where medical costs are involved). Insurers make an initial estimate

of costs in their annual return and update this on an annual basis - this evolution is presented as

development years. For example the initial estimates of costs associated with collisions in 2004 as

measured at year-end 2004 are defined as year 1 development costs (labelled ‘04at04’), while the

costs for 2004 collisions as measured at year-end 2005 are defined as year 2 development costs

for 2004 (labelled ‘04at05'). The number of years taken for the full cost of a claim to be realised

varies according to claim type but is typically within 5 years, e.g. 2004 claim costs should be fully

developed in development year 5, i.e. ‘04at08’.

The following policy data files were used in the analysis described in chapter 4:

00AT04 – 2000 accident year in development year 5






Each represents the most recent data available for each year under examination, namely, 2000 to

2005. PA is aware that each of these files represents a different development year and as such,

the amalgam of data does not correspond to a strict like-for-like comparison. Policy volumes are

not affected by development year, but premium income (to a small extent) and claims data are and

consequently so too is surplus/deficit. However, a number of reasonable assumptions have been

made, described below, that validate the selection of this dataset and the comparison of the data

therein.

The effect of different stages of claim costs development across the 02AT05, 03AT05, 04AT05 and

05AT05 files, representing different development years, has negligible impact on the general trends

observed in the data analysis presented in chapter 4. This is demonstrated below.

02AT05

Table D1 – 2002 accident year development year data

Year De

v

Yr

Premium

Income (€)

Cost Paid (€) Estimated

Cost (€)

Total Cost

(€)

Surplus/Deficit

(€)

Costs

Settled

(%)

Comprehensive Cover

2002@200

2

1 818,247,842 120,097,892 214,358,812 334,456,577 483,791,265 36

2002@200

3

2 819,925,000 180,280,000 173,855,000 354,135,000 465,790,000 51

2002@200

4

3 819,925,000 224,934,000 137,431,000 362,365,000 457,560,000 62

2002@200

5

4 819,925,000 268,876,000 97,269,900 366,146,000 453,779,000 73

TPFT Cover

2002@200

2

1 365,618,334 24,390,173 100,625,698 125,015,871 240,602,463 20

2002@200

3

2 365,296,000 52,058,100 90,087,700 142,146,000 223,150,000 37

2002@200

4

3 365,293,000 82,108,600 70,172,800 152,281,000 213,012,000 54

2002@200

5

4 365,293,000 107,092,000 53,562,200 160,655,000 204,638,000 67

Source: Private Motor Insurance Statistics 2005

From Table D.1, it can be seen that around 70% of claim costs have been settled in year 4

development for 2002 for both types of cover, close to the 80% to assume fully developed data.

For comprehensive cover the difference between total costs for development years 3 and 4 is

approximately 1%. Even with a similar increase into year 5 development the changing effect on

costs is tiny and therefore is assumed to have a negligible effect on claim cost trends.

For TPFT cover the difference between total costs for development years 3 and 4 is approximately

5%. This is slightly more than that seen for comprehensive cover but from an analysis of 2001 year

4 and 5 development total costs the difference is approximately 1% (€174,000,000 year 4

development and €176,064,000 year 5 development27). Assuming a similar correction for the 2002

accident year allows a further fluctuation to be considered as having a negligible effect on claim

cost trends.

27 Private Motor Insurance Statistics 2005

57

03AT05

Table D.2 – 2003 accident year development year data

Year De

v

Yr

Premium

Income (€)

Cost Paid

(€)

Estimated

Cost (€)

Total Cost

(€)

Surplus/Deficit

(€)

Costs

Settled

(%)

Comprehensive Cover

2003@200

3

1 849,050,00

0

102,565,00

0

172,206,00

0

274,771,00

0

574,279,000 37

2003@200

4

2 849,049,00

0

151,630,00

0

144,415,00

0

296,045,00

0

553,004,000 51

2003@200

5

3 849,049,00

0

190,717,00

0

113,470,00

0

304,187,00

0

544,862,000 63

TPFT Cover

2003@200

3

1 383,426,00

0

22,093,400 76,787,300 98,880,700 284,545,300 22

2003@200

4

2 383,426,00

0

41,994,700 72,026,800 114,022,00

0

269,404,000 37

2003@200

5

3 383,426,00

0

62,514,400 66,156,100 128,671,00

0

254,755,000 49


Table D.2 shows cost development data for the 2003 accident year for both types of cover.

For comprehensive cover the difference between total costs for development years 2 and 3 is

approximately 3%. Examining cost changes for accident years 2001 and 2002 between year 3 and

4 development yields 2% and 1%, respectively. Assuming equivalent changes going into year 4

development for 2003 and for year 5, a negligible effect on claim cost trends is assumed.

For TPFT cover the difference between total costs for development years 2 and 3 is approximately

13%. However, examining cost changes for accident years 2001 and 2002 shows the following:

For 2001, 2% claim cost change between development years 3 & 4, and 1% claim cost change

between development years 4 & 5

For 2002, 5% claim cost change between development years 3 & 4

If a similar pattern in cost development for 2003 is assumed it is reasonable to treat the resulting

effect on claim cost trends as negligible.

58

04AT05


Year De

v

Yr

Premium

Income (€)

Cost Paid

(€)

Estimated

Cost (€)

Total Cost

(€)

Surplus/Deficit

(€)

Costs

Settled

(%)

Comprehensive Cover

2004@200

4

1 786,740,00

0

123,491,00

0

193,307,00

0

316,798,00

0

469,942,000 39

2004@200

5

2 786,740,00

0

177,635,00

0

132,409,00

0

310,044,00

0

476,696,000 57

TPFT Cover

2004@200

4

1 375,830,00

0

31,690,100 98,553,500 130,244,00

0

245,586,000 24

2004@200

5

2 375,831,00

0

53,177,300 92,296,600 145,474,00

0

230,357,000 37



Examining comprehensive cover shows a reduction in total costs between year 1 and 2

development. Statement S4 indicates that the largest increase in total cost would be expected in

year 2 development. This is obviously not the case here, however, it should be noted that midway

through 2004 saw the beginning of operations of the PIAB. As mentioned in section 2.3.1 this could

have spurred a “rushing to court” and therefore a delay in the development of claim costs. As such,

total cost increases could be expected in subsequent development years. Later years submissions

are required to determine this but, even with an increase in total costs, based on previous accident

year total cost trends, cost fluctuations may only be to the order of 3% to 4% for each remaining

development year. Therefore it is reasonable to treat such changes as negligible to the overall

claim cost trends observed from accident year to accident year.

For the TPFT cover the expected total cost change going into year 3 development, based on the

2003, 2002 and 2001 accident years, is of the order of 7-12%. In itself the amount that this

represents is not insignificant (€17m approx.). However, taken as a percentage of the total cost for

comprehensive and TPFT combined, it has a negligible effect on the overall claim cost trends

described in chapter 4 analysis, representing approximately a 3% increase.

59

05AT05


Year De

v

Yr

Premium

Income (€)

Cost Paid

(€)

Estimated

Cost (€)

Total Cost

(€)

Surplus/Deficit

(€)

Costs

Settled

(%)

Comprehensive Cover

2005@200

5

1 747,023,00

0

157,212,00

0

201,900,00

0

359,112,00

0

387,911,000 44

TPFT Cover

2005@200

5

1 357,651,00

0

42,496,700 90,790,100 133,287,00

0

224,364,000 32



It is recognised that only a single year of development is captured in this data and total cost

increases are likely to occur. This cost increase will be more pronounced for TPFT than for

comprehensive cover, based on previous accident year data. However, again, these changes while

impacting on the actual monetary figures have a negligible effect on the claim cost trends from

accident year to accident year described in chapter 4 analysis.

Table D.5 below shows the total estimated claims costs across the development years for the data

provided. Underneath is a comparison against the most recent data. For example for the 2001

data the year 4 development costs (€727.787m) are 2.3% lower than the year 5 costs, while the

year 3 development costs (€717.969m) are 1.0% lower than the year 5 costs.

60

Table D.5 – All development year claims costs

Development year

Year 1 Year 2 Year 3 Year 4 Year 5

2000 €717,969,758 €727,787,201 €711,207,385

2001 €666,213,257 €680,185,774 €673,906,145 €668,914,642

2002 €542,517,131 €595,755,394 €613,035,562 €613,477,289

2003 €436,593,724 €492,004,920 €520,797,341

2004 €519,239,962 €541,562,372

2005 €549,443,053

2000 - - -1.0% -2.3%

2001 - 0.4% -1.7% -0.7%

2002 11.6% 2.9% 0.1%

2003 16.2% 5.5%

2004 4.1%

2005

The effect of the varying stages of development across the selected files thus has negligible impact

on the analysis and identification of trends presented in chapter 4.

Summary

It is assumed that claims data for 00AT04, 01AT05, 02AT05 and 03AT05 are mostly complete

datasets available and that any differences from subsequent years development are negligible in

the context of this study. For 04AT05 and 05AT05 it has been assumed that increases in claims

cost over further development years are also negligible. However, it is recognised that this latter

assumption may result in higher than actual surpluses indicated for those years but should not

affect the general trends observed in the data.

61

Appendix E: List of Consultees

We would like to thank all consultees who provided valuable time and insight. Specifically:

AIG - Aidan Connaughton, Consumer Lines Director & Tom Donlon, Actuarial Services Manager

Allianz - Sean McGrath, Director of Sales and Marketing

AXA - Derek Bain, Director of Actuarial Services

Eagle Star - Sean O’Hurley, Head of Market Pricing and Product Management

FBD - Martin Moran, Executive Director of Insurance & Mark Toher, Statistical Research &

Analysis

Hibernian - Trevor Lowry, Private Motor Product Manager

Quinn Direct - Shane Morrison, Finance Planning Director

Royal & Sun Alliance - Gerard Bradley, Director of Personal Underwriting and Pricing

Irish Brokers Association – Brian McNelis, Director General

IIF – Michael Horan, Manager Non-life Insurance

PIAB – Patricia Byron, Chief Executive of PIAB

PIAB – Dorothea Dowling, Non-Executive Chair of PIAB (former Chairperson of MIAB)

An Garda Síochána – Eddie Rock, Assistant Commissioner, Garda Traffic Corps & Cornelius

O’Donohue, Superintendent, Garda National Traffic Bureau

National Youth Council of Ireland – James Doorley, Assistant Director

Road Safety Authority - Noel Brett, Chief Executive

Honda Ireland Distributors (motor cycle interest) – Robert Galbraith, Managing Director

Motorcycle Action Group (MAG) Ireland – Linda O’Loideoin

62