My quote is how much?” Yes, this is the reaction of many consumers as their usual €500 and something insurance quote has this year jumped to the €700 mark and above. Slamming down the phone, you start to ring around and although you might be able to save something, it isn’t anywhere near your 2014 price.

This is the unfortunate reality facing consumers.

FBD, the insurance provider for many farming families, has received a lot of attention in recent weeks and confirmed it is likely to implement low double-digit increases on average to motor insurance premiums over the next year. If farmers or their families have motor policies, this will also affect them.

However, they won’t be alone with these price hikes. Irish Country Living spoke to Conor Faughnan, director of consumer affairs with the AA, and Conor Gouldson, company secretary at FBD, about what has contributed to the price hike.

1. INCREASE IN TRAFFIC

More traffic on the road means more claims. Conor Faughnan says: “Car sales are up by 30% year on year, fuel sales have increased significantly and national road data shows that our motorways are busier. Here in the AA we can see this ourselves from our road watch reports.

“And this is a good thing in a way, it’s a symptom of economic recovery, showing more people are travelling to and from their jobs. However, it also means more exposure to risk and additional crashes and damages that must be claimed for. Statistics from rescue patrol forces collaborate this and it is a contributing factor to insurance hikes.”

2. SETTLING CLAIMS IS MORE EXPENSIVE

With this increased traffic, not only are there more claims, but they are now more expensive to settle. In fact, they are increasing very sharply at the moment.

“Clearer data is needed into why this is happening,” says Conor Faughnan. “But one contributing factor is that last year there was a change in court limits, increasing the maximum claim for a personal injury from €38,000 to €60,000. It doesn’t have a big impact on those claiming for minor injuries, but it does impact more serious incidents.”

This is supported by Conor Gouldson of FBD, who says that “the average court claim was 27% more in 2014 than in 2013. This is at a time when there is little or no inflation at all in Ireland. So, just to stand still, the motor insurance industry would need to put through very substantial increases to absorb the claims inflation”.

3. FRAUD

Did you know that €60 of your policy isn’t actually going towards insuring you? Instead, it’s paid into a fund to protect people who are injured as a result of people who don’t pay their insurance. This is a tough bone to swallow if you, like many others, keep all your bills above board, but are faced with mounting prices.

Conor Faughnan says: “Fraud covers so many aspects. It can range from the extreme end of the spectrum where criminals are staging accidents to make big claims, to people faking their insurance disks. However, it also includes not claiming your penalty points. Approximately 6-8% of cars on the road are not insured properly, which is contributing to the price of your premium.”

4. THE OVERRIDING ISSUE: AN UNSTABLE MARKET

While all the above issues are impacting premium prices, they pale in comparison with the fact that the car insurance market in Ireland is currently very unstable.

Conor Faughnan explains.

“From 2009 to 2013, there was a very vigorous price war in the car insurance industry. On the upside, consumers were getting great prices, but it turned out to be reckless pricing and, as a result, we are paying the price now.

“A number of operators in particular acted very foolishly. Quinn Insurance, for example, was offering extremely low prices, but it wasn’t putting the correct reserves in place. So when its claims started to mature, the enterprise went broke, causing a lot of damage.”

“Another epic failure was when Setanta Insurance went bust, leaving 870,000 people’s policies null and void, with van drivers especially affected.

“During this time, insurance companies were furiously competing for market share, but it was all mounting to an insurance disaster. They could get away with these prices in year one, and even year two, but as claims matured over time, they didn’t have the reserves in place to pay out. Insurance at its core takes risks, but it must have a sum in reserve for claims.

“Furthermore, on top of the fact that the insurance companies sold their policies too cheap, it also transpired that the cost of servicing these policies was higher than they anticipated.

“We are where we are now and it means that collectively, the motor insurance industry must do their best to stay in business as well as increase money in their reserves. As a result, they need to be more prudent in their assumptions about the policies they are selling this year.”

What does this all mean for us? Higher policies?

Conor Gouldson says: “These increases are necessary to restore the sector to profitability – it is not in anyone’s interest for the motor insurance sector to lose money every year.”

While the situation can be very irritating for consumers that now have to pay the price, Conor Faughnan says it is worth looking at it from the other angle.

“In theory, the prices that insurance companies are going to be charging now and into the future are really the prices they should have been charging all along.

“It just feels like a tremendous kick in the teeth because there is such a dramatic jump up in price and the issue is going to get worse before it gets better.”

However, it is worth noting that even with the 20% increase, we are still paying less for insurance now than we did 10 years ago. According to the Central Bank, the average motor insurance premium in 2015 (€661) is 27% below what it was 12 years ago (2003: €905 – source: Central Bank/CSO).