As I said during the recent Adjournment Debate on the same subject, no Government like to have to approve of increases in any sphere and least of all in the motor insurance sector where so many members of the community are affected. However, we have price control, or in this case premium control, and it must be realistic in facing up to the problems which the reality of costs presents, and the Minister must take decisions which are politically difficult but which are forced upon him through circumstance.
The recent increase allowed to the PMPA Insurance Company has resulted in alterations to premia for individual policyholders ranging from small reductions over the 1977 rate to those with comprehensive cover, to a 50 per cent increase for those with third party only cover. To give an example of how the increase is being applied, in the case of a 1,000 cc car, the old position of third party, fire and theft, less 60 per cent no claim bonus was £55.20. The new position, after the increase, for third party, fire and theft results in a figure of £61.40 or an increase of £6.20. The value of the car taken here in this example is £1,600. For a car of £2,000 average value and somewhat bigger size the difference after adjustments will be £10 in approximately £100 or about 10 per cent.
The company are, therefore, using every effort to bring about a satisfactory alignment of rates to the underlying reality of costs, with the minimum impact on their policyholders. They necessarily, however, have to increase third party rates sharply, but these increases are heavily offset by reductions in fire and theft rates. The full increase falls on third party insurance only. Third party has been a heavy loss maker, and it is significant that any of the new schemes introduced by the other companies concentrated their competitiveness on elements other than third party insurance.
The fact of the PMPA's case is that the increase was necessary to offset substantial underwriting losses. Even with the increase, a loss of nearly £1 million on underwriting for 1978 is expected. It is primarily the claims costs over which the company have no control which have made the increases of this magnitude necessary. In addition, it is accepted insurance practice that an insurance company must produce growth in free reserves corresponding to the growth in underwriting liabilities. This has always been the case for all companies. It has now been reinforced in Irish law by Statutory Instrument No. 115 of 1976 implementing the EEC Non-Life Directive and it is the Minister's responsibility as supervisory authority to ensure that these reserves exist and are maintained.
The PMPA engaged until recently, when they went into general insurance business in a small carefully controlled way, in motor insurance, acknowledged as the least profitable sector of insurance in recent years. This fact cannot be contested. It is the fastest growing insurance company in Ireland and in less than ten years they have captured nearly 70 per cent of the private car insurance market. This has made it all the more necessary for the company to maintain increasing free reserves. Part of the reason for the growth is the fact that the PMPA have been prepared to offer cover without major limitation at a time when other insurance companies were curtailing their motor operations and nursing safe and reduced portfolios. They had virtually closed shop and refused to compete in any open sense. The position in which the company find themselves is in one sense a very great tribute to their initiative; it can certainly not be described as monopolistic in any sense, with 19 other insurers in the market, and the concentration of the private car sector with this company can largely be said to have been thrust upon them by the attitude and policy of closing for business which the other companies adopted. In addition, as Deputies will well know, some insurers left our market altogether, throwing thousands of policyholders on to anyone who would take them, rather than carrying on in a non-profit situation. In most cases the PMPA took these on.
It is not fully accepted that this was due to the lack of profitability on the accounts of other motor insurers, rather could it be said to be a transfer of responsibility for motor insurance to a company which was new, prepared to offer insurance which, after all, was compulsory on the motorists. The PMPA were excluded from the calculations of the increases given to companies in 1975. Because they had the lowest rates of insurance, the across-the-board market increases given in recent years left them consistently in a worse relative position. The present level of increase will not mean a break-even underwriting position at the end of 1978, but with the addition of investment income the company will be in a position not only to meet the EEC solvency requirement but will have a surplus over that requirement which it is felt is consistent with the size the company have now become. In other European countries it is normal practice that companies would have an excess of two or three times the statutory solvency margin.
Referring to investment income, I said previously that this was an integral part of the insurance operation and must be balanced against underwriting losses, a drop in asset values, taxation, dividend and operating costs. This company have had a most successful investment record, without which even higher increases would be necessary. The improved underwriting position which should improve all the more in the years to come by virtue of the drop of inflation rates will make it easier for the company to attract further share capital to support further growth in the volume of business.
On the question of the costs of claims there are no simple and facile solutions as to how such costs can be kept down. Much of the increases can be attributed to the increased costs of imported spare parts and materials and to the fact that unfortunately our driving habits and standards of vehicle maintenance to say the least, leave a lot to be desired. I know reference has been made in the past to the fact that if the repair of a vehicle is "an insurance job" estimates and expectations can be exaggerated. This is a very difficult matter to substantiate, but I would indicate that it is in each driver's long-term interest to ensure that costs of claims are kept to a minimum. If these are increased beyond what is strictly necessary, it is the totality of motorists who will eventually pay in terms of the increased premium.
Much has been said over the past few weeks in relation to the legal framework within which motor insurance operates in Ireland. It is reckoned that as much as 16 per cent of claims costs go in legal expenses and it is a fact that Ireland is one of the few countries where juries decide both the culpability and the level of award. In saying that changes will have to be made in this system one must be careful to avoid infringing the rights of individuals, but it is the responsibility of the State to ensure that any unnecessary waste in the administration of justice should be avoided. It is a matter of concern to the Government that the settlement of claims should take such a long time. Furthermore, the level of awards and their unpredictability make it impossible for companies to make accurate claims provision. We must see if the jurisdiction levels of the courts are suitable at present and if it is possible to reduce the incidence of expensive legal assistance.
It is an observed fact that where legal proceedings are involved there is considerable delay in processing claims. Claims are settled on the steps of the court after years of delay and if matters do go to the court the delay in having cases heard and the fact that senior consel and solicitors are involved mean that the costs of the claim will be all the more.
In the Interim Report of the Committee of Enquiry into the Insurance Industry in 1972 many recommendations were made with regard to the legal system and I can say that these recommendations will be examined afresh and, if necessary, implementing legislation will be adopted. Also in that report, considerable airing was given to the fault versus the no-fault issue. I have no strong feelings at this time towards one or other systems but the change to a no-fault system is radical having implications well beyond that of motor insurance but it is known to exist in other countries such as New Zealand. This is another matter which we must examine in greater detail.
Having explained why the increase was necessary, both in terms of the increased cost and in the light of the Minister's supervisory function, I would indicate to the House that the Department continue to monitor the whole insurance market very closely. They have given a detailed analysis of the claim from a "cost of the product" point of view and the solvency needs of the company together with their functions within the supervisory capacity which they exercise to the National Prices Commission. It is hoped that increases of the order recently given will not have to be repeated in the future.
Turning to the question of nationalisation I would repeat my comment last week that I have nothing in principle against State ownership of motor insurance. The implication of the proposal in this motion is that the taxpayer should bear the losses which motor insurance throws up. It is also striking that the nationalisation call has not come in respect of the more profitable elements of insurance. I cannot understand how the Deputies from the Labour Party proposing this motion can so lightly consider that motor insurance operated by a State corporation would be less costly and more profitable.
I could see some merit if they had asked for a national corporation for all classes of insurance. Some classes are profitable and whatever might be said of a proposition that the State engage in all, there should not be the simple assumption that the State could reduce the cost of motor insurance without benefit of a subsidy from the over-burdened taxpayer. Is this what is asked? Is this the policy I am asked to follow? Do the proposers want a national motor insurance corporation within a no-fault system where it would be almost impossible to lay a heavier cost on those who are reckless with many accidents and claims or within the present fault system?
Let me give the House the motor experience in the United Kingdom for 1976 of some of the leading major insurers in the worldwide business. For example, the Commercial Union Company had premiums of £393 million with an underwriting loss of £22.9 million. The Guardian Royal Exchange Group had premiums of £218 million with an underwriting profit of £0.8 million. The General Accident Group had premiums of £302 million with an underwriting loss of £5.5 million.
Let us consider some of the figures that were outlined in the interim report on motor insurance—this is the committee of inquiry into the insurance industry. On page 117 of that report it referred to the combined underwriting experience of insurance companies, excluding the Lloyd syndicate, from 1951 to 1971. During that time, with the exception of two years there was not an underwriting profit in any of those years. The exceptions were in 1963 and 1964. In the other 18 years they sustained losses.
In the case of the PMPA, form 1968 to 1976 they had premiums of £40,466,475 and they had an underwriting loss of £2.6 million. We are to assume that by nationalising the industry we will change these figures. I see little ground for believing that the solution commended to us would be the panacea that the Labour Party suggested.
I consider the existing insurance industry in Ireland to be rendering a good service to the community both in terms of the policies offered and the commitment to national enterprise. Our insurance industry is at present faced with competition from the opening of our market under EEC rules to foreign insurers. I have a high regard for the integrity and professionalism of those in charge of our industry and would consider it a matter of speculation as to whether the administrative cost ratios of the insurance companies would be improved significantly. Certainly, the PMPA company have one of the lowest expense ratios. Where the cost of claims accounts for nearly 80 per cent of all costs, a drop of say 20 per cent on the expense ratio would have a minimal effect on insurance rates.
The commitment to Ireland of the life and non-life offices is evidenced by the fact that over 85 per cent of the reserves of the industry as a group are invested in Ireland. In non-life insurance, the Irish companies, including the PMPA have nearly 100 per cent localisation of assets in Ireland. This amounted to some £52 million in 1976 while the foreign based non-life companies had nearly £25 million invested here in the same year. Under the administrative rules at present in force, a localisation requirement of 50 per cent of technical reserves operates on all companies. Last year this level was 40 per cent and next year it will rise to 60 per cent. This provision has meant that as much as £7 million extra has been invested in Ireland which might otherwise have been invested elsewhere. This means that more Government securities will be purchased, and more funds will be made available directly to the private sector.
The fact that there is such a high level of investment by the insurance industry in Ireland has never been fully appreciated and obviously it is not appreciated by the proposers of this motion. In recent years when levels of return dropped considerably, the insurance industry maintained the funds in Ireland and showed a praiseworthy commitment to and involvement in the economic life of the Irish community.
I would like to deal with the point that the recent increases in PMPA rates will offset the advantages for the motorists in the withdrawal of certain levels of motor taxation. This is a generalised, ill-informed and misleading comment in that in some instances the rates of insurance with the PMPA have been reduced and in overall terms the PMPA increase will realise an extra £8 million in 1978 in premium income, whereas the tax withdrawal would have realised as much as £28 million in a full year. Even if the motor tax had not been withdrawn, the PMPA would still have had to get an increase of this size.
To say the increase is a substitute for the withdrawal of the tax is completely wrong. Furthermore, within the PMPA package, comprehensive insurance cover has now been opened up for the first time to young drivers. This is a desirable trend in that for far too long comprehensive and fire and theft rates have subsidised the third party element. This has enabled competition to be enjoined on the profitable sector but not on the third party side. Ireland has one of the lowest rates of comprehensive cover in Europe. For example, in the UK over 80 per cent of motorists are comprehensively insured while in Ireland less than 12 per cent are similarly insured.
I should like to repeat that the Government find it regrettable that an increase of this magnitude was necessary. The Minister did not make the decision lightly and is anxious that every effort to reduce the cost of claims should be availed of. It is now policy to deal with insurance companies' claims on a case by case basis. There will no longer be the approach of a global or average increase to all companies. A company's actual individual experience will determine the increase in premium it gets. This is a more equitable tailormade approach and much fairer to the policyholder and more appropriate for each company.
I expect companies to fulfil the role they are there to fulfil and to give the policyholder the compulsory insurance the law of the land requires he should have. It is believed that increases in the future will be more closely related to the annual rates of inflation and that improvements in the legal framework will not only help to reduce costs but also provide a more efficient service to motorists and third parties.
I should now like to refer to a couple of items mentioned by Deputy Bermingham. He referred to the policy of the PMPA and said in their earlier days the PMPA aimed at the safe driver market and quoted good rates as a result. Their critics then said their rates were too low. Now with 65 per cent, nearly 70 per cent, of the private motor insurance market, they must be getting a cross-section of the market— good and not so good. Their premiums must reflect this.
Secondly, since they are the principal takers of new insured that fact alone must mean they are getting a high proportion of the younger market with a higher incidence or risk. Now their critics say their rates are too high. If this is so, what are the other 19 insurance companies doing and why do other insurers leave the market? We are all familiar with the fact that, in the past number of years, three or four different Lloyds operators left the market and left thousands of drivers without insurance. As I said earlier, the PMPA picked up most of this business because they were meeting their commitments. I should like to emphasise that there are 19 other companies in the market and I should like to see them carrying a greater share of the market.
Deputy Bermingham made a number of references to the investment policies of the PMPA. Policyholders profit from the successful investment of their funds by insurers. This leads to growth and to increased competition in the longer term. The investments of the PMPA are carefully scrutinised with the aid of professional expertise to ensure that they are prudent and sound investments consistent with the need at law that assets must always exceed liabilities.
In the Department the Minister has made administrative regulations which now govern the nature and spread of these investments so that dangerous speculations or excessive concentrations would not be practised by the investment side of any insurance company. This goes beyond the PMPA. It goes right across the board to all insurance companies.
The suggestion put forward by the Labour Party that motor insurance, as such, should be nationalised surprises me to the extent that they are suggesting the Irish taxpayer should carry the burden of the continuous losses of motor insurance. That has been proved in the interim report of the motor insurance industry on the figures I quoted from 1951 to 1971 which showed losses consistently with the exception of two years when minor profits were made on underwriting.
The Labour Party should not have suggested that the motor insurance burden should be loaded onto the shoulders of the taxpayer. If the overall situation is examined, it will be found that it would be more appropriate to suggest—and I am not saying I would be in favour of it—that the other elements of insurance, the profit-making side of the business, should also have been considered in their proposal.
