The cost of car insurance in Northern Ireland has been under the spotlight in recent years for very good reason. It is a compulsory purchase and therefore is effectively a utility.
A brief history lesson:
Back in 2009 the Consumer Council for Northern Ireland published results of research into cost of private car insurance in NI and concluded that there were specific issues that should be investigated.
In 2011 the Consumer Council made a formal submission to the Office of Fair Trading, requesting that it examine the operation of the car insurance market in Northern Ireland. It also petitioned local government to investigate specific issues: the impact of costs associated with insurance claims and the availability of car insurance to young drivers.
An investigation of lack of competition in the Northern Ireland car insurance market was carried out by the Competition and Markets Authority (CMA), as part of a wider investigation into operation of the UK car insurance market.
In 2013 the CMA concluded that no action was necessary in respect of the Northern Ireland market investigation. The CMA report, however, did conclude the following:
- There is a relative lack of competition in the Northern Ireland market (compared to that of Great Britain), particularly for young drivers and those classed as high risk.
- There are indications of a higher level of profitability for insurers writing Northern Ireland car insurance business.
- There are significant barriers to entry into the market for new insurance providers.
A special working group in Stormont was set up in 2013 to investigate the operation of the Northern Ireland car insurance market. Through 2013 & 14 this heard evidence from ABI, BIBA, Law Society of Northern Ireland, in addition to various organisations, both commercial and non commercial. The concluding report of that working group is, I understand, due to be published soon.
Meanwhile, in the past 2 years, we have seen a ratcheting up of competition in the Northern Ireland car insurance market. This has coincided with the CMA’s 2013 report. For the first time there was information publicly available to indicate how the Northern Ireland market compares to that of Great Britain in terms of overall claim expense and profitability. Such information is available for the UK as a whole and is not therefore a barrier to entry into the market in Great Britain. This in my view and in my experience, is the biggest barrier to entry into the Northern Ireland car insurance market.
In addition to a lack of availability of meaningful market information, the size of the market is a barrier. For insurers writing motor business in the mass market they need volume. In Northern Ireland we simply don’t have enough volume to sustain more than a handful of insurers.
Every motor insurer knows that the Northern Ireland market is different. There are a number of varied differences that collectively make the Northern Ireland market a significantly different proposition from that of Great Britain. Over time there have been many who have entered the market, perceiving opportunity and who have had to beat a hasty retreat after suffering losses.
All indicators suggest that we are at the beginning of a period of premium increase. As with Great Britain and Republic of Ireland, Northern Ireland has recently undergone a period in which car insurance premiums have been too cheap.
The findings of the Stormont Committee will make interesting reading. I hope they do not overlook the issue of cost of car insurance to young drivers and other high risk groups. In terms of availability and affordability of product, I believe this is where the biggest issues lie.
I conclude that the Northern Ireland car insurance market is competitive, but it is constrained by its size, a lack of transparency in terms of publicly available claims cost data and its various idiosyncrasies.
First published on LinkedIn 18th November 2015