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Cause Analysis of Motor Insurance Premium Hikes and
Countermeasures to the Related Drivers in Ireland
Student’s Name: Liqiao Yang
Student’s Number: 116102616
Module: EC3210 Principles of Insurance for Finance
Year: Summer 2017
Word Count: 2,001
Submission Deadline: 24 April 2017
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Contents
1. Introduction ……………………………………………………………………………………………………………. 3
2. Cause analysis of the premiums hikes ……………………………………………………………………….. 3
Figure 1 Insurance Ireland non-life members’ gross written premiums (€thousand) on
motor insurance 2012-2015 ………………………………………………………………………………………. 4
2.1 The cost of claims on motor insurance were keeping high ………………………………………. 5
Figure 2 Recent claims ratio and combined ratio on motor insurance in Ireland 2008-2015 5
2.2 Investment income decreased………………………………………………………………………………. 6
Figure 3 Non-life insurance market investment income returns in Ireland 2004-2015 ……… 6
2.3 The impact of regulation EU Gender Directive ……………………………………………………… 7
3. Countermeasures to the drivers …………………………………………………………………………………. 7
3.1 Increasing precautions when driving to be beneficial of no claims or low claims bonus 8
3.2 Drivers can buy a call option contract …………………………………………………………………… 8
Figure 4 A driver’s real expenditure for motor insurance with and without an option………. 9
3.3 Drivers need say more about their inner ……………………………………………………………….. 9
4. Conclusions ………………………………………………………………………………………………………….. 10
5. References ……………………………………………………………………………………………………………. 10
6. Appendices …………………………………………………………………………………………………………… 11
Table 1 Non-life insurance market gross written premiums and investment income returns
in Ireland 2004-2015 ……………………………………………………………………………………………… 11
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1. Introduction
In Irish non-life insurance market, motor insurance has been making a considerable
contribution. This is not just because it is a legal requirement when driving in a public place
in Ireland (Citizens Information). However, purchasing an insurance is also a loss of people’s
wealth, especially when the motor insurance premiums are getting higher and higher, which
makes some people suffer a lot from the insurance expenses. In November 2016, the Houses
of the Oireachtas released a new report on the rising costs of motor insurance in Ireland [1].
The report indicated that motor insurance premiums
①
had hiked by an annual average of
38.3%, whilst this rate had become 70% if focusing on the last three years according to the
data up to July 2016. Besides, the anecdote that some car owners had hit with 200% to 300%
increases to get their vehicles insured was also been encountered. Based on such phenomenon
that premiums hikes in motor insurance in Ireland, this paper aims to systematically analyse
its causes and provide some countermeasures for the related drivers to offset these rises from
the perspective of risk management and insurance.
2. Cause analysis of the premiums hikes
Premiums for purchasing motor insurance are the cost of transferring drivers’ risks related to
their vehicles. Commercial companies who sell insurance policies must receive premiums
that not only are ample to bear expected claim costs by policyholders and their own
administrative expenses, but also guarantee a proper expected compensation for obtaining
capital to support the sale of coverage [3, p. 134]. Harrington and Niehaus (2003) called these
premiums as fair premiums, which would be charged in a perfectly competitive insurance
markets.
However, by analysing data (See Figure 1) published by Insurance Ireland Limited, it is
apparent that the current motor insurance market in Ireland does not meet the assumption
about pricing the fair premiums. There are two giant companies, Aviva and AXA, who have
accounted for much larger motor insurance market shares than any others, whilst several
①
If not specifically addressed, the premiums denote motor insurance premiums in Ireland in this paper.
members’ gross written premiums percentages have been comparatively large, which
indicates that the current motor insurance market form in Ireland should be called
monopolistic competition market.
Figure 1 Insurance Ireland non-life members’ gross written premiums (€thousand) on motor
insurance 2012-2015
100000
150000
200000
250000
300000
350000
Premiums (€thousand)
2015
2014
2013
2012*
