Vol. 474 No. 3
20 Mr. E. O'Keeffe asked the Minister for Enterprise and Employment if he intends to launch a fresh investigation into the spiralling cost of motor insurance following the 10 per cent increase in premiums since November 1996; and his findings in relation to the bearing investment income has on insurers' underwriting targets. [3112/97]
I question the Deputy's assertion that the cost of motor insurance is spiralling.
I refer him to the reply which I gave to the House on 22 October 1996 in relation to an increase in insurance premiums by Guardian PMPA which has 30 per cent of the market. That increase was of the order of 5 per cent on average with effect from 1 November 1996 and I cited the reasons given for the increase by the company at that time. However, for the benefit of the House, I will reiterate that the insurer in question had stated that deteriorating road accident statistics during the course of 1996 will lead to an increase in the number of claims and a consequential increase in the overall cost of claims. To make adequate provision to meet this rising cost, the company decided it was necessary to generate additional premium income in the form of an increase in its premium charges. There were premium rate reductions announced by this company of between 5 per cent and 10 per cent during the course of 1995 and early 1996.
The other major insurer, the Hibernian Group, with 12 per cent market share has recently announced a 4.8 increase in premiums which, according to the company, will affect up to 60 per cent of its customers. That company has also stated that, as part of a rebalancing of its risk portfolio, it will reduce rates for some categories of mature motorists. Furthermore, it has indicated that young people as named drivers on family insurance policies will get more favourable rates under this new pricing structure. Customers who have other insurance policies with Hibernian will be offered discounts of up to 10 per cent on their motor insurance. The Hibernian Group has cited a 12 per cent rise in the number of claims arising from motor accidents as necessitating an increase in premiums and has made reference to the fact that in its experience the younger male driver continues to pose a bigger risk than those of more mature age.
With regard to accident rates, figures produced by the Garda Síochána for the 12 month period October 1995 to October 1996 indicate that, on a provisional basis, there was a 6.6 per cent increase in injuries incurred and an increase of the same order in road accident fatalities. Unfortunately, over the Christmas holiday period, the figures showed a 50 per cent increase in injuries over the corresponding period in 1995. These disappointing statistics must inevitably result in higher motor insurance costs in 1997, especially for those drivers at fault and for the categories of driver which the accident statistics indicate are a higher risk.
The Deputy has raised the question of the relationship between insurers' investment income and their underwriting targets. The issue of insurers' investment income strategy in relation to underwriting targets is a fundamental and complex question involving solvency and profitability considerations. The Deloitte and Touche report suggested that the supervisory authority might review the relevancy or the efficacy of taking into account investment income and its bearing on insurers' underwriting targets and their consequent effects on insurance costs.
The insurance annual report for 1995, the Blue Book, provides for the first time a company by company indication of attributable investment income related to specific classes of insurance. The new Blue Book information showed motor insurance business for some major underwriters to be quite profitable, with premium and investment income considerably exceeding underwriting costs. The implication was that this class of business might be considerably healthier as a class of business than Governments and supervisors had previously been led to believe. Accordingly, I requested that an examination be undertaken of the annual returns of insurance companies for the previous ten years on the basis of the new reporting formula.
While complete figures for previous years are not available from all insurers, preliminary analysis of the figures received shows that annual investment returns have been very volatile. Investment income fluctuates for a variety of reasons, such as movements in the level of claims reserves, interest rate movements and investment strategy.
The compulsory disclosure of investment income by class of business from 1995 onwards, together with the results of the Department's own examination of the last ten years, will provide greater transparency for the purpose of assessing the overall profitability of the various types of insurance and of the individual companies, especially in the context of insurance premium levels. It is my intention that this increased transparency should provide a valuable basis for the Department to evaluate the contribution of investment income, its bearing on insurers' underwriting targets and the consequent effects on insurance costs, as recommended by the Deloitte and Touche report.
The Minister of State has often spoken about young drivers and referred to them in his reply. What investment income is derived from premiums paid by young drivers and what is the cost of claims in which young drivers are involved?
According to the preliminary findings of the review referred to in the Deputy's question, the motor insurance market incurred underwriting losses, before investment income is taken into account, in all of the years from 1984 to 1995. Underwriting losses decreased steadily from 1989 to 1995, but remained high at £41 million in 1995. Investment returns are volatile and fluctuate for a variety of reasons, such as movements in the level of claims reserves, interest rate movements and investment strategy. The overall results of motor business, after allowing for investment income, showed that while substantial profits were made in some years, substantial losses were recorded in others.
The performance of individual insurers differs widely. Even in those years when investment income was at a high level, some insurers failed to earn sufficient income in their claims reserves to offset their underwriting losses. I do not have figures, not am I aware if there are any, for the impact of investment income on the specific category of young drivers to which the Deputy refers. However, the frequency of accidents, and the cost of the claims, put young male drivers in a category of their own. That is the single factor most frequently quoted by the insurance industry for the disproportionately high cost of claims.
The Minister of State must be aware of the grave dissatisfaction with the recent increases in motor premiums. What plans does he have to appoint an inspector from his Department to investigate the motor insurance industry? What are his plans to improve the position of young drivers and to implement the Ontario model, where young drivers are assessed, undertake a series of classes and are only allowed daytime driving prior to being phased into full-time driving?
The Deputy will be aware that the Deloitte and Touche report deals with a number of these matters, including the Ontario model regarding young drivers. He will also be aware that some individual insurers, such as the Hibernian Group, include something similar to that in the package they offer. If there is seen to be a response they give the benefit to the insured.
An expert group is concerned with the question of a personal injuries tribunal. It has set itself the end of February as a report date and I have no information that it does not intend to meet this date. I hope this will have an impact on the issue.
Is the Minister of State aware of the outcry regarding the cost of motor insurance and does he intend to appoint an inspector to investigate the increase in premiums? Has his Department undertaken an assessment of the kind of premium reductions that would follow the implementation of the Ontario model? Something must be done to facilitate young drivers. If they have driving problems they must be educated.
Arising from the Deloitte and Touche report I have written and spoken to my colleague, the Minister for the Environment, who is responsible for tackling the specific matter raised by the Deputy. The Minister announced a number of initiatives under the aegis of his Department, which is examining this question.
I have detailed the position regarding the general outcry at premium increases. For example, the major insurer in the country announced substantial reductions in 1995 and 1996. The increase of 5 per cent, effective from 1 November, was introduced to reflect the anticipated claims pattern arising from the deteriorating road accidents situation in 1996.
It is a matter of disquiet that accident rates have increased. Detailed figures show that, in comparison to the same period in 1995, road fatalities in the first ten months of 1996 increased by 23. These figures may not have a direct bearing on claims and their cost but the number of injuries on the roads over the same period increased by 542. This is a more telling statistic in regard to claims costs. Fatalities on the roads over the 1996 Christmas period decreased from seven to four. However, in comparison to the same period in 1995, injuries increased from 120 to 181. These statistics are supported by the Garda Síochána and are relied on by the insurers in terms of prudentially providing to meet anticipated claims. Unfortunately, nobody would have anticipated that pattern which is very disquieting.
Regarding the number of accidents and the fact that young males are in a separate category, are there statistics which prove that Irish young people are more dangerous drivers than young drivers in other EU countries? If that is case and it results in higher insurance costs, does the Department have a policy to address that issue and ensure we have safer drivers? Many insurance companies have branches in other EU countries and it would be a worthwhile exercise to see if there are more dangerous drivers in Ireland, which results in higher costs.
Statistics isolate the category of young drivers as the main offenders in this area. Further statistics isolate young male drivers as excessively at risk, while other figures show the pattern is worse in Ireland than in other European Union countries. I explained earlier to Deputy O'Keeffe that specific measures in this regard are predominantly within the remit of the Minister for the Environment and I referred to initiatives he has taken. However, ultimately, it is difficult to combat an excess of testosterone, which is a contributing factor.
Is it wearing off the Minister?
No comment.
I will plead the fifth amendment on that query. However, it is a major contributory factor.
Time is limited and I want to facilitate a number of Deputies so I ask Members to be brief.
We are looking at this issue the wrong way. The Minister mentioned the number of accidents and the sad fatality rate but the deciding factor in the increase in insurance premia is what happens when those matters to go court. If the tribunal envisaged in the Deloitte & Touche report were established, would it have any effect on the level of awards in such cases? Is the tribunal a cap by another name or could it become a cap on the level of awards?
The Government approved in principle the recommendation of Deloitte & Touche concerning the setting up of a personal injuries tribunal. An expert group is dealing with the matter at present and I do not want to be prescriptive in terms of how it will work. However, the intention is that it would make a contribution to the phenomenon we are discussing. I do not know what terms the expert group will recommend, for example, whether it should be piloted in the area of employers' liability as distinct from motor insurance.
For example, it is generally accepted by both sides of industry that the employment appeals tribunal, with which the Deputy is familiar as she previously had responsibility for it, provides a more informal, speedy and less costly system of disputes resolution in the areas which fall within its remit. Similarly in this area, where liability is not contested, the idea is that it would be a more flexible and faster mechanism to remove some of the cases from the court system entirely. It is a complex area and this is why it was considered necessary to establish an expert group to advise the Government on how it should be implemented. The intention is that it will make a contribution, remove cases from the court system and allow for a more flexible and speedy resolution.
And fewer awards.
Hopefully, it will result in less costs.
The Minister mentioned statistics on accident rates and we must accept there are a large number of cars in the country. However, what percentage of accidents would the Minister attribute to the deteriorating roads structure or a bad roads system?
I am puzzled because I understood the roads structure and road standards are manifestly improving around the country. I was also under the impression, as result of the propitious state of the economy, that the standard of cars is improving.
The Minister's car will be disimproving shortly.
It will not be that bad.
He could get a Lada.
The Minister without interruption.
The Government's imaginative scrappage scheme——
A ministerial scrappage scheme.
A Lada for a lad.
The Minister should come down the country and we will show him the roads.
It is the intention of the Minister, Deputy Bruton, and myself to hold on to our existing modes of transport.
Hang together.
As a result of the scrappage scheme, many of the cars envisaged in the Deputy's supplementary are, thankfully, no longer on the roads. The buoyant state of the economy has, admittedly, led to an unprecedented number of cars but that is one of the prices of economic success. The number of new cars last year was the largest in the history of the State.
There are more fatalities than ever.
The roads structure is dangerous.
I accept prosperity brings problems.
The time has almost elapsed. The Minister, without interruption.
I accept that dimension of the problems of prosperity is visible.
The roads are bad.
We will continue to invest in the roads network and hopefully we can do something to combat the phenomenon to which Deputy O'Keeffe referred.
