The Gazette 1987

GAZETTE

APRIL 1987

8 . Reduc t i on of t he I nsur ance

P r emi ums

High insurance premiums seem to

be the principal reason why we

have so many uninsured drivers in

Ireland, and it would appear that

unless a concentrated effort is

made to reduce these premiums no

real progress can be made in reduc-

ing the number of uninsured

drivers. In this connection the

following points are relevant. The

premium income required by in-

surance companies reflects three

cost factors:

(a) the volume of accidents in'

society;

(b) the administration costs

incurred and the profit margin

required by insurance com-

panies; and

A further word should be said

about each of these.

(a) The volume of accidents in

society

To reduce the number of ac-

cidents greater enforcement of

traffic regulations would help. It

appears that there has been a re-

duction in the number of people

killed on Irish roads in recent years

although there may not have been

a significant reduction in the total

number of accidents. A more

aggressive enforcement of traffic

regulations by the Gardai, the intro-

duction of the compulsory seat belt

rule and an active T.V. campaign

on the dangers of drinking and

driving have all helped no doubt.

Similar lines of action should be

continued so as not just to reduce

the number of fatal accidents but

also to reduce the total number of

accidents, for in this context it is

worth mentioning that in our

system a non-fatal accident may

be more costly to an insurance

company than a fatal accident. Ex-

hortation and education, however,

may be equally important instru-

ments in any effort to reduce the

amount of accidents in society.

(b) Administrative costs and profit

margins

There is room for believing that

the insurance industry itself could

contribute to the reduction of the

premiums by reducing its own

costs. The experience of Mr. K.

Kelly, Administrator of PMPA, in

recent years indicates that early

settlements which avoid high legal

costs and the restructuring of in-

surance premiums can result in

substantial savings. (Mr. Kelly gave

these as reasons for his ability to

halve the losses of the PMPA from

£27 million to £13 million in 1983.)

Furthermore, the insurance in-

dustry is on record as having said

that it does nt have proper records

or statistical data in relation to ac-

cidents, settlements, etc. (see

MacLiam Report, 1982, para. 11

and para. 12), a factor which if

true, makes it difficult to under-

stand how they do business at all.

Of all the industries, surely the in-

surance industry cannot conduct

its business without an adequate

statistical data bank.

Finally, in looking at the in-

surance companies' profits/losses

in the motor business one must

take into account the investment

income

generated

the

premiums. Not to do so provides a

false picture of what is happening

in the industry.

(c) The level of claims and awards

It would be surprising if in a

recessionary period insurance

claims did not increase. I have no

figures on this, but suspect that in

recent years this indeed has been

the case. The public are becoming

more conscious of their legal rights

and because of contracting legal

business in other areas solicitors do

not discourage litigation. The rules

relating to liability are deficient and

the method of handling such dis-

putes in our legal system, is slow,

inefficient and expensive. More-

over, it is a system which does not

necessarily bring justice in its

wake.

Under the present system to

recover compensation for road

traffic injuries the injured person

must prove (i) that the defendant

owed him a duty of care; (ii) that

the defendant was in breach of this

duty (i.e. acted unreasonably), (iii)

that the plaintiff suffered damage

and (iv) that the defendant's con-

duct caused the injuries to the

plaintiff. The system aims at pro-

viding the plaintiff with full com-

pensation if the defendant has

been negligent.

There are, however, from the in-

jured person's point of view, many

factors which militate against full

recovery. First, normally speaking,

the plaintiff will only recover if he

can

prove fault.

If he fails to do this

he will get nothing. Second, his

recovery will be reduced by the

amount of his own fault if he has

contributed to the injury. Third, in

so far as physical or psychological

injuries are involved, full appreci-

ation in Court of his injuries is

dependent on his ability to provide

convincing medical evidence and

prognoses. Fourth, immediate

financial needs, uncertainty of out-

come, inadequate advice, and fear

of legal costs are all pressures

which can suggest to the plaintiff

that he should accept com-

pensation well below that to which

he might be objectively entitled; a

bird in the hand being better than

two in the bush. In other words,

the system militates against full

recovery. The pressures operating

within the system are on the in-

jured person to accept less than the

system suggests he is entitled to.

In practice, the lawyer advising will

look upon each of these difficulties

as a discounting factor. Difficulties

in proof may suggest that the claim

should be abated by 10%; weak

medical evidence may also force a

further 10% discount and so on. In

the end the plaintiff may have to

accept in settlement far less than

that to which he is objectively

entitled.

The system is fraught with

hazards and risks for both injured

persons and for the insurance com-

panies. There is a large gambling

dimension in the process. With

justification it has been termed

" f o r ens ic l o t t e r y ". It is a

dangerous jungle which at present

requires a large legal input.

It is estimated that between

16% —20% of motor insurance

premiums are attributable to legal

costs and it is clear that if these

could be substantially modified

insurance premiums might be pro-

portionally reduced. An examin-

ation of the legal basis for

compensating victims of motor

accidents is long overdue. It is

suggested that a system which

provided for

strict liability

or which

adopted a

no-fauit system

would

be cheaper and more efficient as

well as being more just to all con-

cerned. It would also reduce legal

costs.

Short of this kind of fundamental

"rethink" minor adjustments in the

system (e.-g. abolition of the jury