I remind the House that my Government colleague, Deputy Treacy, Minister of State at the Department of Enterprise, Trade and Employment, who is currently at an OECD meeting, provided a comprehensive statement in the Seanad on 19 May on progress being made in devising policies and programmes to reduce the burden of insurance costs, including motor insurance costs, on consumers and the economy. I propose to reiterate the relevant parts of that statement to the House in response to Deputy Kirk's motion. I preface my remarks by confirming that, as far as implementation of EU legislation on insurance is concerned, Ireland has complied with all relevant legislation in that regard.
It is generally realised that liability insurance premiums, including motor insurance costs, are higher in Ireland, in gross and average terms, than in other EU countries, including the UK.
In devising effective policies and programmes to reduce the insurance cost burden, it is necessary to identify the key factors contributing to the high cost of liability and motor insurance in Ireland. Empirical research carried out by the Department of Enterprise, Trade and Employment has found that the main cost factors are a high claims propensity among the Irish public; high delivery costs of personal injury claims, including legal costs; high levels of medical inflation; and disproportionately high awards of general damages in smaller personal injury claims.
The cost of delivering compensation has a major bearing on the premium rate ultimately charged in the marketplace. At the end of the day, while good risks always attract cheaper quotations, prudent insurers must set their premium levels to match the compensation pay-out and other costs. There are also disadvantages caused by economies of scale on insurance operations in Ireland – a much smaller pool of insurance risks relative to other EU member states.
In 1995, an in-depth study of insurance costs in Ireland by Deloitte & Touche was commissioned by the Department of Enterprise, Trade and Employment to identify key factors contributing to high insurance costs, to evaluate their economic impact and to make recommendations aimed at reducing these costs. The consultants' 1996 report found that the main contributory factors in rising premium costs were the high legal costs component of small claims settlement, the faster rate of medical inflation, and the high level of general damages awards relative to special damages in smaller claims.
The report assessed the Irish motor insurance market on consumer choice and price competition. It found that there was not a uniform market price for motor insurance due to factors such as differing assessments of claims histories by insurers, strategies towards niche markets and specialisation and segmentation of the market. Within these parameters motor insurers quoted widely differing premiums for similar risks. This is characteristic of a competitive market. While mature drivers with good safety records benefit from competition between insurers in segments of the motor insurance market, the consultants' survey found that young drivers were regarded as a high risk category and certain insurers refused to quote for them.
It is abundantly clear from the empirical evidence that the primary focus of initiatives aimed at reducing the cost of motor insurance must be to reduce the frequency of accidents and the associated cost of claims. The key to reducing insurance costs for young drivers is to create appropriate conditions for improving their standards of driving and their appreciation of road safety.
Initiatives are in place to improve driving standards and safety awareness among all drivers. The Irish Insurance Federation, in conjunction with the Driving Instructors Register, has introduced a scheme of insurance premium discounts for the young driver on completion of a required number of driving lessons. The National Safety Council, in co-operation with the Garda, continues to promote anti-speeding and anti-drink driving media campaigns, including road safety education programmes for secondary school students. The Minister of State has also exhorted the Minister for the Environment and Local Government to expedite his Department's examination of a graduated licensing system for learner drivers based on the Ontario model which could have a significant impact if introduced here.
The re-establishment of the Motor Insurance Advisory Board by the Minister of State was a major initiative aimed at providing information and advice on trends in motor insurance costs and policy recommendations for addressing those costs. The expanded membership of the new board, which includes a member representing young drivers' interests, is broadly representative of all the interests concerned, including road safety education and enforcement experts.
Certain concessions to young drivers have been introduced previously by major insurers in the Irish market against the background of increasing underwriting losses in motor insurance. The 1997 annual insurance report prepared by the Department showed that motor insurance underwriting losses increased from £90 million in 1996 to £114 million in 1997. The deteriorating underwriting situation resulted in some insurers implementing increases in certain insurance categories in 1998.
In those circumstances there is clearly no soft option for reducing motor insurance premiums for young, inexperienced drivers. As a group they represent a very high risk for insurers and many insurance companies are reluctant to quote for that risk. As in any other branch of insurance risk, reductions in premiums can only be achieved by improving safety standards. In the case of young Irish motorists, the inculcation of safer driving standards in driving skills and the early acquisition of a driving licence are the keys to reducing their high accident rate which, in turn, should lead to lower premium quotations.
I thank the Deputy for the further opportunity to inform the House of the current state of progress of our efforts to effect a moderation in the burden of insurance costs on economic activity and, in particular, on small business and the motorist. The consistency of the Deputy in raising this matter must be admired.