This document describes changes to the method of calculating the Irish Consumer Price Index (CPI) and Harmonised Index for Consumer Prices (HICP). This change is for Motor Insurance. It describes the methodology change and the reasons for this change.
| Details of Methodology Change | |
|---|---|
| Items affected | Motor Insurance (except motorcycle insurance) (COICOP 12.5.4.1)[1] |
| Weight of items affected |
1.1% of Irish CPI 0.3% of Irish HICP |
| Date of change | January 2022 |
| Description |
1. Data Source. Changing how data is sourced for this index to web-scraping of data on insurance quotes, with more driver profiles and quotations collected. 2. Index Calculation. Reflecting the price of insurance for all drivers, including those not renewing their insurance in the current month, in the calculation of the index. This change smooths out short-term changes in the index while preserving the long-term impact of price changes. |
The CSO currently collects monthly quotations for representative profiles of drivers from insurance companies. These profiles include all relevant details about the driver (such as their age, sex, location, occupation) and about the car (such as model, age, mileage).
A price relative is calculated for each profile where the quotation for the current month is compared with the corresponding quotation for the previous month. The price relatives are combined to compute an overall relative for each company in the sample. These price relatives are then weighted by each company’s market share to compute the overall month-on-month change for motor insurance.
Data Source: Web-scraping quotations from insurers allows quotations to be collected for a greater number of profiles. Increasing the sample of representative driver profiles will lead to a higher quality index.
Index Calculation: The current calculation method treats price changes in motor insurance as if applying to all drivers in the current month. However, for drivers who are not renewing their insurance in the current month, the price of insurance is the same as last month, and any price change will not affect them until their renewal date. The new calculation method now takes account of this lag in the full impact of an insurance price change.
The current method described above will mostly continue. There are two changes to the method.
1. The CSO will get quotations for representative driver profiles from web-scraping, collecting hundreds of representative quotes from each insurer.
2. The CSO will apply an adjustment factor to reflect the fact that changes in the cost of motor insurance only affect a motorist from their renewal date. This will result in a smoother index than previously, with less sudden monthly increases and decreases, but will not change the longer-term behaviour of the index.
The CSO has simulated the effect of these changes on the index over three years, from September 2018 to September 2021. This analysis estimated that if the new methodology had been used in that period, it would have resulted in the following difference in terms of percentage points:
The change in methodology has a bigger impact on the CPI than on the HICP because motor insurance has a higher weight in the CPI basket than in the HICP basket. This is because the non-service part of motor insurance (i.e. the part of insurance costs due to insurance pay-outs) is included in the weight of motor insurance in the CPI, but is not included in the motor insurance weight for the HICP.
The change in methodology described here will not lead to any revisions to the CPI or HICP.
Once the CPI indices are published, they are never revised.
The HICP can be revised in the case of a mistake or if there is new or improved information. Neither of these is the case with this change in methodology. See the EC Regulation number 1921/2001 for the HICP revisions policy.
https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32001R1921&from=EN
[1] Classification of Individual Consumption According to Purpose (COICOP)