I share the Deputy's concerns regarding possible increases in motor insurance costs particularly during a sustained period of low inflation in the economy and the fact that non-life insurance business is, in general, a profitable pursuit. I recently met both the Irish Insurance Federation and the market leader. While it is true the industry has suffered underwriting losses for many years and traditionally, insurers will aim for underwriting break-even, this target is seldom if ever achieved by most insurance companies. Exceptionally, both Guardian PMPA and Hibernian insurance company recorded underwriting profits in the Insurance Annual Report for 1995.
The Deloitte & Touche report on insurance costs suggested that the Supervisory Authority might review the relevancy of investment income in the context of insurance premium levels and underwriting targets set by the insurance industry.The Deloitte & Touche report found that, in aiming for underwriting break-even, insurers may be setting premium levels without taking into account their overall profitability when investment returns are taken into account. In making this conclusion Deloitte & Touche referred to the 1982 MacLiam report into the cost and methods of providing motor insurance which addressed, inter alia, the treatment of investment income by insurers in their accounts and by the supervisory authority in its examination of these accounts. The MacLiam report was critical of the rule of thumb adopted by the National Prices Commission at that time that underwriting break-even should be the main criterion in establishing premium rates. The report argued very cogently that investment income was as much a part of an insurance company's income as its premium income and that it was unsound practice, in principle, to separate the results of a company's underwriting account from the results of its investment activities.
The recommendation in that report, that investment income should be taken into account, should be examined, and I have asked my Department to undertake this examination. In this regard it is noteworthy that the Annual Insurance Report for 1995 shows motor insurance business for some companies, who are major underwriters, to be profitable with premium and investment income considerably exceeding underwriting losses. This outcome would suggest that this class of business may be considerably healthier as a class of business than Government and the Insurance Supervisory Authority had previously been led to believe.
The level of investment income varies from company to company, reflecting differences in investment strategy, mix of business and market share, with some smaller insurers failing to earn sufficient income on their claims reserves to offset their underwriting losses. Nevertheless, the preliminary indications are that, overall, the motor insurance industry is showing a surplus of investment income over underwriting loss over the ten year period.
With regard to the more immediate issue of further increases in motor insurance premia in the course of 1997, I recently met representatives of the Irish Insurance Federation and Guardian/ PMPA, who underwrite the largest share of the Irish motor market and who issued the statement on possible further increase in premia alluded to by the Deputy. On foot of these discussions I understand the insurers claims experience has improved somewhat in respect of the first quarter of this year. As a result, that company has now assured the Minister that no further general increases in motor insurance premium rates are envisaged provided the improving trend continues.I hope other insurers will also take account of developments in their assessment of premium rate levels in the coming months. While recognising that insurers may need to make adjustments in claims provisioning to reflect increases in frequency and cost of claims, likewise any favourable developments in relation to reduced claims frequency and in returns on investment of premium income should be taken into account in the ongoing assessment of premium rates.