Priority Questions. - Irish Financial Services Regulatory Authority.

John Perry

Question:

33 Mr. Perry asked the Tánaiste and Minister for Enterprise, Trade and Employment if, with regard to the insurance industry, she will backdate the remit of the proposed single financial regulatory authority to the date on which it was first mooted in public, in order that arbitrary hikes and excessive insurance increases can be appealed. [7149/01]

The pricing and underwriting of insurance is a matter for the companies and EU law prevents us from intervening in relation to either. The same prohibition by the EU will apply to the new regulatory body which has just been sanctioned by Government.

One of the main reasons for the establishment of the Irish Financial Services Regulatory Authority – IFSRA – is to provide better protection to the consumer across the range of financial services. IFSRA will ensure that prudential regulation of financial services operates to a high standard but with a strong consumer focus. It will provide a one stop shop for the consumer of financial services. It will have a dedicated statutory officer responsible for customer protection who will also have a role in promoting the financial education of the public. It will also have a statutory ombudsman scheme and a special consumer panel.

Insurance premiums have increased by an average of 28% in the past 12 months. Does the Minister agree there is a need to open the Irish insurance market to the full effects of EU integration? That there are only the big five insurance companies in this country means there is a cartel. The 160,000 small companies in the State pay average insurance costs of £7,000. That is, on average, considerably more than what an individual company would spend on training, research and development, design or packaging. The situation is getting out of hand. The regulator is now in position. Will the Minister consider backdating his remit to deal with the fact that the insurance companies have imposed excessive increases because they were fearful of the impact of the regulator?

The Deputy referred to an increase of 28% over the past year. There have been various increases in insurance since 1996 and the maximum total increase would be 35.8% over that period, not 28% in the past year.

I am referring to the records.

The reasons given by the industry for these increases include increased claims costs and worsening claims experience to the point where insurers are making underwriting losses and there is increasing difficulty in reinsuring business. It might also be due to the contraction in the number of insurers active in certain sections of the market together with increasing property which allows prices to drift upwards. We have an advanced economy. Wages are higher, new vehicles are being purchased and property is more valuable. These factors have led to increased costs.

The Government is taking initiatives to deal with the situation. It will proceed with the personal injuries assessment board. It is awaiting the outcome of the motor insurance advisory board report and will respond to its recommendations as quickly as possible. It would not be possible to have retrospection pertaining to the new authority. A new structure must be put in position. It will be given a wide remit, strong powers and a very high-powered staff. We are confident that when it comes into operation, with the new initiatives that Government will take pertaining to insurance, it will have an effect on the cost of insurance over a medium period.

Would the Minister agree that the only element of competition appears to be the level of brokers' commission? Why will the Minister not allow competition from Europe into Ireland and why is there a cartel of five companies with complete control of business insurance? Why should small companies pay in excess of £7,000 per annum for insurance because there is no competition?

The situation in the insurance market globally is that there is a major contraction due to acquisitions and amalgamation of companies. Companies are getting bigger and the number of companies is dropping. Last week I met international insurers to try to persuade them to operate in Ireland. The third European Union directive that implements the single market for insurance explicitly forbids member states from intervening in the matter of pricing of insurance. By implication, Governments cannot influence pricing through attempting to influence underwriting. Ireland as an exporter of insurance services has an interest in upholding this prohibition within European law. We must be very careful. There is nothing to stop any insurance company that operates within the EU from delivering cover to any member state under the directive and the delivery of services. We want competition within the companies operating here and we are working on that through the motor insurance advisory board and various other current initiatives.

Would the Minister not be concerned that companies must spend more on insurance than on research and development? That is the case at the moment as shown in a survey of 160,000 small companies within the State. These are growing small companies and the cost factor for insurance is considerably higher than in the UK or western Europe. Why is that?

We have run out of time. Please be brief.

I agree that the cost of insurance is exceedingly high in this country. The reasons are simple. We have a huge frequency of claims here. We have huge litigation with huge implications for the costs of administering those claims.

No higher than—

No, we are higher. We are second highest. Our recommendation to small businesses is that they should group into their sectors and through their organisations conduct the necessary negotiations with the various insurance companies to ensure there is competition and value for money available for the cover they require.