We have listened patiently to Labour Deputies speaking to their motion. I sympathised with Deputy Berminghan when he voiced his concern for working people who use private motor vehicles coming and going to work. In the main they are the people who will bear the brunt of this insurance increase. However, I do not share the Deputy's view that the impact is as severe as outlined and that policyholders covered by third party insurance are mainly affected. But I accept the sincerity of the Deputy and share his concern. I cannot say the same for Deputy Desmond's contribution.
Deputy Desmond gave no justification for the line of action proposed to be taken. For the establishment of a national motor insurance corporation the sole justification should be that the cost of insurance would be less to the policyholder, that the services would be improved and that the claims would be better handled. Deputy Desmond gave no such justification. Instead the Deputy concentrated most of his speech on criticism of the PMPA, of its accounts, its investment policy and, secondly, a criticism of the Minister as the supervisory authority. There was also very severe criticism of the Department and its officials and the level of expertise which, in his view, they are able to bring to bear on a premium increase or a price increase application. There was also criticism levelled at the National Prices Commission. The National Prices Commission have had the best of consultants and experts in processing claims and the position in this case was no different.
As far as I am concerned, Deputy Desmond was laying a smokescreen. I suppose in his particular situation that is his job. If you do not have the facts or a reasoned case and, if you advance a proposition which is not sustainable, then there is no other course open to you but to lay a smokescreen and introduce a great many inadequacies and a great many irrelevancies. There is no great difference between the accounts of an insurance company and those of any other trading company. An insurance company takes in its income in premiums and it pays every year, actually pays, a proportion of the claims it has received. It does not matter if these claims have arisen in the actual year or in previous years. It still has a number—an even greater number probably—of claims still outstanding and it has to make an estimate of these. Contrary to Deputy Desmond's thesis, therefore, there is a very simple equation. On the one hand, there is a premium income and, on the other, there is the payment of claims and provision for claims which remain outstanding at the end of the financial year. It is in this latter figure that there is any difference, and not all that much difference, between the accounts of an insurance company and those of any other trading company. Because these outstanding claims have to be gone into, though perhaps not settled for several years because of litigation, that an estimate has to be made each year for annual accounts so that, like the closing stocks of a shop or trading company, a figure must be put on claims outstanding. If the estimate for these claims is too low the company will show itself as having made more profit. If the estimate is too high it will show itself as having made less profit and will, indeed, conceal the real profit made or will make in the future and it will increase on paper its outgoings.
Now if the PMPA were being accused of concealing profits by over-estimation of claims, then Deputy Desmond might have some cause for complaint. But the reverse is the case as all public commentators in the welter of criticism directed at this particular company in the Press, and from many other sources over the past three or four years, have said. The Minister for Industry, Commerce and Energy and his predecessors have always had to analyse the claims provisions for this company and ensure it is not making too low an estimate for outstanding claims. There was nothing deliberate or misleading in any instance or too low an estimation by the company. It was simply that in a rising trend of inflation the claims estimator in any insurance company has had enormous difficulty in putting a figure on a death or personal injury case which may be settled as far away as five years from today. Insurance accounting at its best requires that the full cost of settling claims be put down in the books in the year in which the provision has to be made. In practice there is often a degree of upwards revision each year thereafter but the purist's theory is that the full figure must be provided for and the accounts must be shown in that given year.
The normal flexibility in this particular area is accepted at 1 to 2 per cent of excess provision for outstanding claims and, with a static portfolio, a low level of claims and a policy of quick or early settlement, as far as that is possible, the problem of long-tailed claims is reduced. With a massively growing portfolio such as the PMPA have had and with inflation running at the rate it was over the last five years and particularly with personal injury or death claims calculated relevant to the earnings of the injured party which, with inflation sometimes accounted for up to 20 years forward particularly in the case of juries making awards, the problem of estimating claims outstanding to within 1 or 2 per cent accuracy, and we are talking here of a company the size of the PMPA, could quite easily mean a loss of £1 million profit or or a profit of £1 million in trying to underwrite outstanding claims. The claims estimator has, therefore, a very onerous task in coming to a positive conclusion as to the outgoing of the company.
As to the Minister's ability to know the real situation in an insurance company's accounts. Deputy Desmond's comments are honestly quite astounding. In the first place he should be reminded that the company have their own professional accountants. They have to lodge audited accounts in accordance with proceedings, as have any other registered company, and as an insurance company they have to lodge these accounts with a detailed list of schedules including a run-off statement for the payment of claims with the Department each year. The PMPA seem to be singled out but they are not the only company. Every company has to do this. It is normal practice and has been over the years. The Department have at their disposal independent professional accountants which they can put to work on any insurance company's accounts lodged with them, and they do, and the figure for the provision of claims outstanding is a matter of normally special professional analysing whereas a statistical selection of claims is examined in detail to see whether these independent experts agree with the figures in the books of the insurance company. Companies accounts are compared and the average cost of claims is compared company by company. The Deputy opposite can be fully satisfied that, unlike the cloud cuckoo land in which Deputy Desmond seems to think, the Minister carries out his responsibility in very different fashion from the vague, inadequate and amateurish manner Deputy Desmond described yesterday evening. The examination has obviously to be through. Deputy Desmond should be reminded that in the welter of analysing the PMPA over the past years an intensive study was carried out and reported on in The Irish Times in May 1976. That independent look at the facts available reached the conclusion that, when dealing with the latest published accounts of the company for the financial year 1974, the company were indeed solvent and a UK organisation writing about the same time seemed to reach the grudging conclusion that the company were solvent by existing standards but then hurried on to point out that, in its opinion, it might not come up to the EEC pending change in regulations.
Deputy Desmond seems to join in the chorus of comment suggesting that the company must have been insolvent to seek an increase of 35 per cent. To say the least this is mischievous and misleading. There has been no question, and the Minister under his responsibilities has to ensure that there is no question of any insurance company ever operating under his authorisation being in or even tending towards a situation where they might not have assets to cover their liabilities. That is a built-in responsibility of the Minister and his officials in that section and therefore they go to great pains to ensure that no such situation develops.
Therefore it is worth while to ask Deputies opposite to show the level of responsibility that one would expect of them particularly when speaking of an Irish company of this size which have been most progressive in motor insurance and to leave behind all the talk of an insolvent situation and to face the fact that in 1978 claims will have to be paid by this and every other insurance company for which a premium may have been paid in 1975 or 1976 and that inflation will have increased the cost of the claim. Deputy Desmond did not point out that during his party's term in Government they probably went no small way towards creating that inflation which has affected the PMPA and many other organisations.
For premiums paid in 1978 provision must be made for payment of claims arising in 1979, 1980 and as experience has shown, due to legal complications, these can go into the mid-eighties. There is a vast difference—and it is with this the Minister has to deal— between providing for increased costs of claims on one hand and dealing with inadequacy of funds which, I repeat on what information is available to me, does not arise, on the other. There is also the point that free reserves over and above assets equal to liabilities must be strengthened in any growing company. Statutory Instrument 115 of 1976 enacted the first non-life directive of EEC that this margin must be at least 16 per cent of premium income as a top-up on assets over liabilities. Prudent insurers see to it that this statutory solvency margin is not only held but held in some cases two or three times over. Fluctuations in market values of assets when insurance funds are invested could sometimes result in losses which might be temporary but losses nonetheless at the close of any accounting year.
Deputy Desmond must know that a company cannot go below the level of assets plus the statutory solvency margin over liabilities even in the technical accounting sense and if they did steps would have to be taken. Therefore, it is not prudent to sail very close to the wind. The PMPA have not done so and are not now doing so. The increase granted to them is to cover costs of claims and to ensure that solvency is not weakened by an excessive loss on the underwriting account.
Deputy Desmond also adverted to the fact that on the underwriting side the company would still make a loss of close on £1 million. This is the best estimate experts can give the Minister. The company will have considerable investment income and it will be naturally expected that it or any other insurance company would dip into the profits from its investments to meet a shortfall on whatever claims may arise from motor insurance. This is only right and proper and provided solvency is not impaired, and it should not be. For this reason, on the criterion of the cost of the product—the well hallowed maxim that premium income should meet the cost of claims—the remainder should go to strengthen reserves, possibly towards dividends for share-holders, hopefully towards payment of taxation and towards the operating costs of the company. Would Deputy Desmond care to tell me what he finds wrong with this and why he talked about the Minister making the company carry on with less than the full cost of the claims in the premium increase?
On the investment side the company were again criticised severely. The House should be made aware that the spread of investment of the PMPA is broadly a mirror reflection of that of all other insurance companies. They lay out their policyholders' funds in gilt-edged investments, normally in fixed interest securities, loans and mortgages of a short-term nature, property investments. All prudent investors do likewise. Deputy Desmond seemed to think that the PMPA were doing something incorrect in doing what would be commercially desirable and required.
The Minister has regulations in force in his Department which regulate the maximum in each of a list of categories of investment which may be held by insurers. The PMPA and all other insurers will have to honour the conditions laid down for their investments. On the fundamental question of the company making these investments I find the criticisms very hard to understand. All insurers invest the policyholders' funds and, hopefully, by their expertise and prudence make gains on them, gains in the income derived from them and on the capital increase in the values. Both sources of gain to the company, while admittedly going partly to the company's free reserves and perhaps ultimately to shareholders, do, without question, strengthen the situation of an insurance company, enable it to be more competitive and grow and to quote premium rates lower than what they would otherwise be if these gains were not there.
Is it seriously suggested that the PMPA or anybody else should leave their policyholders' funds lying in short-term interest bearing investments or deposits and nothing more? The Minister as supervisory authority, must regulate the spread and nature of these investments and I assume can call for and possibly has called for an annual valuation on current market value basis of the investment of insurance companies when he thinks fit, particularly over the past three or four years when what should have been very sound investment probably have undergone devaluation. I believe the Minister in the case of the PMPA and other companies has requested such information. This should be a regular feature of insurance control. I am sure the Minister will note particularly that the details of investments by the PMPA have been questioned here and ensure that a watchful eye is kept on the diversification of insurance company funds.
Deputy Desmond and Deputies opposite do not have to be reminded that while gains from these investments are possible, losses can also easily result, sometimes short-term losses such as the drop in the values of gilt-edged investments which must return at maturity to par values if insurance companies can hold on long enough and do not have to liquify. That may be acceptable. I think the House should recall briefly the share price index which for January 1973 was 6.95 and in January 1977, 4.21. On gilt-edged in January 1973 it was 78.5 and had dropped by January 1977, when Deputy Desmond and his colleagues were in Government, to 55.
There has been a welcome recovery on both. In the interim, however, investment income has to be deployed to shore up this drop in values. The alternative is to call on shareholders to subscribe additional capital. The PMPA and many other insurers have done this, the PMPA twice in the past three years. That is to be expected particularly with a company which is growing as rapidly as that organisation. What I do not expect of any company, nor can any reasonable Deputy expect from any company, is that shareholders should be expected to chip in to make short continued losses without the prospect of making a profit. I will leave that type of an expectation and that type of an approach to business and economics to those with doctrinaire ideas who, no matter how often the results of insufficiency and non-economic investment share them in the face, still return to these tired formulae and proposals.
What, however, made me angry when listening to Deputy Desmond's contribution last night was his extra-ordinary volte face towards the end of his contribution in the House, where he said, contrary to all the elements and basis of his thesis up to that point in his speech, that “of course we all know that the PMPA are in this to make money, that they do in fact and have made money and that all these losses quoted by the Minister of State are so much wool over the Minister's eyes”. He did not use those few final words but what he said was to the same effect.
It was not a question after all that the company was doing badly or was nearer to the insolvency level than was happy or safe. The accounts, prepared by their professional staff, submitted by them to their auditors who approved them, or to the Department's officials, in Deputy Desmond's eyes, were totally irrelevant, could not be depended on and could be dismissed. Deputy Desmond was able to assure the House they made lots of profits and that all he had said up to then had been incorrect. He argued that they had made profits but realising his own inconsistency, then said with an insight apparently known only to himself, that there was a difference between the PMPA making profits and "they" or "them" making profits. What the implication of this is I do not know. He knows the levels of dividends paid to shareholders by the PMPA. They have been available in every published annual account of the company.
The motion put down by Deputy Bermingham and Deputy Desmond has not been supported or substantiated by one shared of reasoned argument. As I said at the outset, the Minister and the Minister of State are concerned at the size of this increase and expect that it, or anything like it, should not have to be repeated for this or any other company. It is part of a catching up process and of a strengthening process for a company with a growth rate such as this which has played an honourable role in taking all types of insurance virtually without restrictions, contrary to the closed shop policy of most other motor insurers for the past five years.
Happily, competition is now entering the market and a better, more healthy situation should develop. From this policyholders will gain more competitive terms and better service. The Government have an open mind on whether a national motor insurance corporation should be established. There is no doctrinaire opposition to this whatsoever. The cardinal question is whether the private enterprise, can deal with this situation efficiently.
The Minister of State mentioned yesterday that it is the intention of the Government to examine carefully the effect of the jury system on awards. The previous Minister had a report suggesting such a change in the legal procedure but he did not appear to deal with it very efficiently. The case has not been made for the radical course of action which the proposers of this motion have in mind. The absolute certainty is that the cost of claims would remain as it is, if not worse, and that motor insurance, isolated and carried on as a single class of insurance, divorced from all other classes which the expertise of the private sector has now and brings to bear on it, would become even far more costly. As the Minister of State said yesterday, if the proposal had been that the State should carry on not only motor insurance but other profitable lines of insurance as well, there would be some semblance of justification and grounds for serious consideration of the proposal. As it stands there are none. It would simply be getting the worst of all worlds. It is not always pleasant or easy to face facts and I would urge the Deputies opposite to deal solely in facts. I ask the House to reject this motion.
