Dáil Éireann debate -
Thursday, 24 Feb 2000

Vol. 515 No. 2

Adjournment Debate. - Insurance Premia.

Dr. Upton

I welcome the opportunity to raise this matter on the Adjournment. It is imperative that the issue of price disparity which exists in home insurance premia is addressed. As it stands, the consumer is being doubly ripped off. On the one hand, potential homeowners are being forced to pay exorbitant prices for homes and, despite what the Government says, there appears to be no stabilisation in house prices. Eventually when those lucky enough to purchase a home are given their keys, they encounter the second rip off when they seek insurance cover for their home.

It is often said that one of the most stressful times of one's life is the ordeal of purchasing a house. Going to the bank manager to secure a mortgage, finding enough money to place a deposit and attending solicitors to sort out the house purchase, as well as paying the solicitors for their service, are some of the stresses of home purchasing. After the exhaustive process of purchasing, the matter of insurance cover is generally dealt with through the mortgage lending agency. The consumer seldom asks questions and accepts the insurance package put before them.

However, a new survey which has yet to be published but which has been seen by the Irish Independent may make the consumer think twice. In a survey commissioned by the Automobile Association and carried out by the consultants Covanberg, great price disparities were highlighted in the home insurance market. So glaring was this disparity that the consumer could end up paying an extra £3,280 in insurance costs during the lifetime of their 25 year mortgage.

It appears that mortgage lending agencies effectively have a monopoly over the home insurance market. After purchasing a home, the consumer may feel morally or legal obliged to accept insurance cover with their lending agency. They fail to shop around and may end up getting the most expensive, but least comprehensive, deal on the market. While I accept that consumer inertia has partly contributed to this cosy monopoly for lending agencies, a lack of awareness about the right of the consumer to shop around is also a factor.

Another point raised by the AA survey was the fact that some insurance policies are out dated and fail to recognise rising building costs associated with the booming housing market. It appears that some insurance providers have failed to increase insurance sufficiently to cover the cost of rebuilding a house in the event of fire, for example. Many policy holders are covered for house rebuilding costs which are now seriously outdated. Building costs have soared in recent years due to the demands in the construction industry. The construction industry can now name a price and the consumer must take it or leave it. It is, therefore, vital that all insurance providers give realistic cover to consumers which would genuinely cover the cost of rebuilding in the event of a fire. Equally, consumers should examine their insurance policy to ascertain whether it is comprehensive enough to meet current market cost of rebuilding.

Home insurance will always remain a necessity in modern life but that necessity should not be exploited by those providers who have a head start in the market because of their involvement in mortgage provision. It is essential that consumers are made aware of the choices they have in the market, that the insurance they are sold is comprehensive and that the massive disparities which exist do not continue. I hope the Minister will undertake to investigate the home insurance market. As I said at the outset, the consumers are the big losers in our housing boom and they do not deserve to be ripped off on the double.

Minister of State at the Department of Enterprise, Trade and Employment (Mr. Treacy)

The Deputy is presumably concerned about rating differences on the basis of area. I am sure that she would agree that differences in the price of insurance charged by different companies – a sign of a competitive market – are to be welcomed, especially from the point of the consumer. Indeed, we are fortunate that up to now we have had a competitive market for insurance.

While some forms of insurance are expensive by European standards, notably motor and employers' liability, we have established that this is due to the relatively high personal injury compensation awards made here and the higher delivery costs of compensation, rather than lack of competition. Unlike motor and liability insurance, house contents insurance is generally cheaper in Ireland than in Britain.

Recent mergers in Britain and Europe will have the effect, at least in the short-term, of reducing the number of players in the Irish market. We will need to look further afield for new competitors in the Irish market. However, as the single market becomes more of a reality, we should see more European companies becoming active in the Irish market. The final transition to the euro should make Europe, including Ireland, more attractive to US insurers thus increasing potential competition in the market.

The decision by the Minister for Finance to reduce corporation tax significantly over the last few years and, more particularly, to agree with Europe that from 2003 it will be at the standard rate of 12.5%. That will level the playing field and create a major incentive for all companies, indigenous and international, to be able to deliver options to consumers. That is not to mention the potential of the Internet. To foster competition from these sources, I will be conscious of the need to maintain a good balance in regulation so as not to put in place any unnecessary barriers to entry to the Irish market.

House insurance falls into parts. One part, buildings insurance, covers the cost of rebuilding the house in the event of, for example, a fire. I am informed that the risk rating for this type of insurance does not vary greatly, but the cost of rebuilding does vary. I understand the building costs in Dublin are higher than in Cork or Galway. Recent publicity has clarified that cost of rebuilding and not the market value of the house is what should be insured.

The most important rating factor in respect of contents insurance is the risk of theft. Experience shows that houses in some areas are at greater risk than houses in other areas and premiums will vary accordingly. Insurance companies also take into account related factors in determining the level of premium. The most common example is whether the property is occupied during the day. On the positive side, policyholders who have a burglar alarm, and especially one connected to a central monitoring system, will benefit from discounts. Some insurance companies may provide discounts for householders involved in neighbourhood watch schemes. If householders believe they are paying excessive premiums, they should shop around and seek quotes from a number of insurers bearing in mind that there is genuine competition in the market.

As the Deputy is aware, my primary statutory duty in relation to insurance is to protect the policyholder by enforcing solvency requirements so that insurers are always in a position to pay claims. Broadly, this requires that insurers price insurance so that it covers claims experience. Differentiating theft risk by area is a long standing practice. We accept that the risk of theft and, therefore, the price of contents insurance will be higher in Dublin than in a rural area. While I accept fully that there is always room for debate about how detailed insurance underwriting should become – after all, insurance is about the pooling of all risks – I am not convinced that we need to inquire into long standing practices in risk rating in the case of contents insurance.

I should also point out that, under EU law, our Department of Enterprise, Trade and Employment, as the supervisory authority, is not in a position to intervene with companies operating in the Irish market in relation to policy terms or pricing of insurance. Such a provision is necessary to permit the functioning of the Single Market in insurance on the basis that an insurer authorised in one member state may market its products in any member state. Under an EU directive they have freedom to establish and to provide services and we cannot interfere with that. I trust this information puts this issue in context for the Deputy and other Members of the House.