The public learned on 18 June 2001 that the major British insurance group Independent Insurance Company Limited had been put into liquidation some days earlier. The company had stopped writing new business in agreement with, or at the direction of, the insurance regulator in the UK, the Financial Services Authority. The Financial Times at the time estimated that some 10,000 Irish policyholders were affected. Since that date last year virtually every Member of this House has been in receipt of correspondence and representations concerning the implications of the Independent Insurance col lapse. The impact on business, especially small business, and thus on employment was the most serious consequence.
That was before 11 September. The full impact of 11 September is still unknown. However, it has caused arguably the most serious shock ever to the insurance industry. The combined effect of the collapse of Independent Insurance and 11 September has produced an environment of uncertainty and escalating insurance costs. These two factors have again brought focus on our domestic insurance environment and on whether there is real competition in the market place, whether exorbitant legal and professional costs can be sustained and whether legislative reforms are necessary. At least, these issues have been the focus of discussion everywhere, it seems, except in Government. This is difficult to understand in the context of pleas from individual SMEs that escalating insurance costs may threaten their viability and lead to further job losses. Business lobby groups have been highlighting this issue as being at the top of their agenda for Government action since last summer, but there has been no Government action.
The one initiative that the Tánaiste or Minister is likely to promise again tonight in replying to this debate is the personal injuries assessment board. The purpose of this initiative is to reduce the legal and other costs associated with the delivery of personal injury compensation, but this is an initiative of the Rainbow Government. In May 1997, following acceptance of the McAuley report which was established for the purpose just described, a pilot project was ready for implementation. This Government has never explained why such a personal injuries tribunal, as it was then called, never went ahead, nor why it is now being revived and considered a good idea. It seems this Government abandoned the idea on coming into office. On 13 June 2001 the Minister of State at the Department of Enterprise, Trade and Employment, Deputy Treacy, told the House: "The decision of this Government to establish a personal injuries assessment board by next year seeks to address the issue of the high cost of settling claims by achieving a reduction in the delivery cost of personal injury compensation for work-related injuries."
Over the past few years, Deputies have been besieged by irate young people who cannot obtain reasonably priced motor insurance cover. Last year, for example, the National Youth Council of Ireland produced a report, The Plunder Years, highlighting the plight of young people who in many cases are expected to pay more for insurance cover than for the vehicle being covered. More recently, motorists generally are contesting unprecedented hikes in their insurance premiums. The insurance industry is promising more of the same. What has the Government done about these issues? Apparently, it has set up the Motor Insurance Advisory Board, or MIAB, to advise the Minister. Over the same period of around three years it has also promised to introduce a penalty points system for road offences. However, this has not yet been implemented.
The public would not know about the tentative conclusions of the MIAB if an Irish Times journalist had not extricated an interim report under the Freedom of Information Act 1997. The findings of that report seemed to contradict the traditional arguments of the insurance industry, not least as they related to young drivers. The Minister of State apparently received the interim report in July 2001. Although he was questioned on several occasions in the House on the issue of young drivers, the Minister made no reference to the interim report on his desk or its shocking findings. When its findings became public the Minister lined up with the industry and derided his own board's advisory report as incomplete. The board itself seemed to indicate that the industry was being obstructive and its chairperson thought that it might become necessary to recommend an alternative and more rigorous forum for investigation in this area of public concern. The Minister kept this a well-guarded secret, but after the Freedom of Information revelation he told the House to await the complete report which, he said, would be produced before the end of 2001. For example, on 3 May 2001 he told Deputy Flanagan that he was “confident we will produce a good report before the end of the year,” and by 20 November he had evolved a new formulation when he told me that he expected to receive the final report “by the end of this year.” It is now 5 February, almost four years after he set up the advisory board, and there is still no final report.
All of this betrays procrastination, inaction and neglect on the part of Government on one of the most pressing issues of the day – access to reasonably-priced insurance cover to permit normal business to continue and the provision of affordable insurance cover for young drivers. The Labour Party motion is designed to allow the House an opportunity to debate these major issues and to oblige the Government to acknowledge that its hands-off policy is threatening serious damage to our employment prospects.
I wish to refer to a letter which I sent, in desperation, on 29 March 2001 to the Mr. Niall Crowley, the chief executive officer of the Equality Authority, on the question of young drivers because nothing was forthcoming from the Government. As we say in our motion, the Labour Party believes that the Equality Authority has the power to conduct a statutory inquiry into allegations of discriminatory practices based on age or gender, using its power to require the production of documents and attendance of witnesses. The letter stated:
As I understand the situation, as well as the Equality Authority having a general remit to police this legislation and to work towards the elimination of prohibited conduct, it may for that purpose conduct a formal inquiry.
It has powers to insist on the supply of neces sary information, the production of documents and the attendance of witnesses to give evidence under oath. Failure or refusal to comply with the orders of the Authority is a criminal offence.
I make this point in the context of the Minister repeating his mantra today that he cannot get information. He said he cannot do anything because he cannot get information, but I am putting forward a way, using a statute law, to extract the information.
The letter continued:
I also understand that such an inquiry may relate not just to a specific and individual complaint but to sectoral or industry-wide practices. Indeed, it is hard to see how such practices could effectively be investigated and eliminated except by adopting such an approach. As well as making findings and recommendations your Authority is empowered to issue legally binding 'non-discrimination notices' requiring that specific practices should cease and that specific steps be taken to ensure that discrimination does not recur.
The letter is a great deal longer in its submission to the authority, but the chief executive, Mr. Niall Crowley, came back to me to say it was indeed within the remit of the authority and it would be delighted to undertake it, but only if the Minister made the budget available. I sought that on a number of occasions, but to date nothing has happened. The Minister's plea is that it is with the MIAB. Today he came into the House at Question Time and said he could not get the information, so he could not make any decisions. There was a way of getting the information that only required some funding. It would be eminently reasonable in the context of the scale of the problem but the Minister has not done it.
A major issue arises as to why an insurer writing cross-border business in a single insurance market can evade its responsibilities to policyholders in other states of the EU. In the case of Independent Insurance, it was selling insurance cover on the Irish market for many years, initially on a direct basis and latterly through an Irish branch. The real losers following the collapse were corporate policyholders and claimants on them, such as employees with outstanding injury claims etc. As a UK authorised insurer, consumers who were personal policyholders were eligible for compensation, perhaps up to 90%, from the British Policyholders Protection Board. The Minister has made clear that the UK authorities will not compensate Irish commercial policyholders. This means that a great many small companies lost their insurance cover and were obliged to go back into the marketplace to get insurance.
Every Member of this House has examples of how expensive that has turned out to be. I know a company that had paid £220,000 for employer's liability and having lost it was obliged to pay £510,000 to be re-insured. One significant employer in an Irish context wrote to my colleague Deputy Howlin to say that his company:
is facing exceptional loses of in the region of €900,000 in the payment of additional premium and to cover claims already in the pipeline. On top of this we are also facing increases of 100% for premiums into the future. . . We expect to suffer extra costs of in excess of €2 million over the next few years as a direct result of the collapse of Independent Insurance.
He goes on to say that it will undoubtedly lead to job losses.
A well known family-run hotel employing 250 staff wrote to me to say:
We hope you can understand the shock we suffered. . . We are now in a position where claimants are suing our business. Solicitors who previously acted on behalf of Independent Insurance are seeking funds from us. . . We estimate that our business is exposed to £500,000 in claims and we have no insurance cover in respect of them. The enforcement of these claims against us may force us to sell part of our property as we are already heavily indebted to the bank.
A small company with an estimated turnover of £140,000 sent me the reply from its broker:
I am now in receipt of quotations back from the market and it is with great regret that I have to report that the best quotations we have secured are as detailed in the attached summary.
The summary shows the 1999 premium was £2,300, the 2000 premium was £3,537 and the 2001 premium was £11,450.
A small manufacturer employing 35 people wrote to my colleague Deputy Shortall saying:
Over the past 12 months we have experienced a 100% rise in our insurance costs. . . Indeed for a time at the latter end of last year we had a grave concern that we would not be able to obtain insurance at any cost.
He goes on to say that his company has the ISO 9002 quality system for ten years and makes the following remark:
Over the recent past the consolidation by the insurance industry is resulting in a reduced number of insurers which I feel is extremely serious as this effectively reduces the level of competition in the industry and increases the risk of a cartel like situation.
I could continue with examples for more time than I am allotted. I am sure my colleagues on all sides of the House will be giving further examples from their own constituency experience. Insuring against the risk of injuries to employees or customers seems to have attracted the steepest increase in premia. Small builders, steel erection companies, hauliers, restaurants and high risk manufacturing are subject to ever greater price increases than the average.
After 11 September we have seen the Government, like other member governments of the EU, bonding the aviation industry for billions. If Governments had refused to intervene the airlines simply would not get insurance cover in the marketplace. Apparently this inability to get insurance cover against terrorism risk for property and certain kinds of business has now become general. Many commentators interpret this trend as the insurance industry seeking to transfer huge exposure from the private sector to member governments. The explanation is that when insurance premiums come up for renewal the industry cannot get re-insurers to underwrite the risk. Coverage in Ireland in this area is not compulsory and there must be a prospect of some commercial properties not being insured against terrorist attack.
Insurance premia for employers, public liability and for motorists have risen dramatically over the past year or so. The insurance industry pleads 11 September, the collapse of Independent Insurance and High Court decisions that require insurers to strengthen reserves against pending claims. This trajectory of dramatic increases in costs is forecast to continue. The Small Firms Association argues that insurance costs have increased on average by 41% in 2001 and thousands of small businesses now face the prospect of greater average increases that will probably be 50% in 2002. The cumulative impact will cost jobs and some small companies will ultimately find it difficult to trade. The rate of accidents in Ireland is high, the propensity for litigation ubiquitous, the legal costs exorbitant and the awards higher than in most other jurisdictions. However, the SFA argues that despite analysis demonstrating that the accident rate has fallen, costs associated with accidents have risen. It says that total premiums paid by Irish business is over £1 billion annually and that the total insurance market is £2.8 billion, of which £600 million goes to pay the legal and administrative costs associated with claims.
In April 1997, as Minister with responsibility for commerce, I took the report of the special working group on personal injury compensation that I had established under the chairmanship of Dan McAuley. It recommended the establishment of a personal injuries tribunal, which I authorised initially on a pilot basis, which was designed to substantially reduce the number of personal injury claims being brought to court, thus reducing the legal and other costs involved in the delivering of personal injury compensation. The costs of delivery of compensation, it is argued – although contested by the Bar Library – run at 40% of the total cost of claims. That was in May 1997 and discussion on the manner of its implementation was to proceed as expeditiously as possible.
It is difficult to discern whether the new Minister stopped its implementation or simply allowed the McAuley innovation to die. The record shows that it was only after an outcry from the Opposition parties that the McAuley group was revived in September 1998. We do not know why the McAuley group became redundant in June 1997. We do not know what went on between June 1997 and September 1998, but we do know that the personal injuries tribunal was never established on a pilot or any other basis. Curiously there is no date on the second report from the McAuley group, but its non-appearance featured strongly at the Joint Committee on Enterprise and Small Business on 9 January 2001. Eventually on 27 March the clerk of the Joint Committee was advised:
Following a Government decision last week we now have the green light to proceed with the main recommendation of the group which is the establishment of a Personal Injuries Board, PIAB. An interdepartmental implementation group will be set up shortly to decide on how best to establish such a board.
Almost four years after this Government came to office, Mr. McAuley's group produced a second report whose main recommendation was, unsurprisingly, the same as its main recommendation four years earlier in April 1997 in its first report, except, as is de rigueur in circumstances where Government is striving to conceal incompetence and neglect, a new name was attached to the main recommendation, namely, the personal injuries assessment board. On 27 March 2001, we were told that an interdepartmental group would decide how to implement the board. That was precisely the position in June 1997 and, in so far as I can see, that is still the position.
This must raise questions about the political will in the Government to implement such a challenge to the existing order or, indeed, to implement any reforms in an area so important to the lives of so many people. Time and again over those four and a half wasted years the House has listened at Question Time and during Adjournment Debates to the mantra of the Minister which, in the interests of accuracy, I quote: "The pricing and underwriting of insurance is a matter for individual companies and the EU prevents us from intervening in relation to the matter of premium levels or in respect of what risks they are prepared to underwrite." This mantra has been used as a shelter for the Minister to do nothing and, confronted now with a crisis, that mantra must be exposed as bogus. It did not stop the Minister for Public Enterprise from falling into line with other members states after 11 September to ensure that airlines could get off the ground. The pity is that she did not argue a wider remit. Nor should it stop any Minister from intervening at Commission level if necessary to ensure that small business is not grounded because of inability to secure reasonable insurance cover.
In the context of this shelter for inactivity it is interesting to note the description by the chairperson of the MIAB, Ms Dorothea Dowling, of the board's remit. She said: "The brief of the Board includes establishing whether the resultant costs are effectively and equitably distributed over various categories of drivers." I am bound to inquire what is the purpose of Ms Dowling and the MIAB in so establishing since the Minister's and his Department's mantra could not be reconciled with this purpose? Of course, the Government cannot continue to refuse to intervene in the circumstances now prevailing. The Government seems unwilling to confront some of the powerful vested interests in this situation. Therefore, there are no signs of these different interests playing their part in addressing a phenomenon now out of control. The result is that the consumer will pay, the taxpayer will pay and, worst of all, some workers will pay with their jobs. A number of the social partners, including IBEC and the farmers' organisations, and not just the SFA, have publicly expressed their alarm at the trend I have spelled out. Last week on the RTE radio programme, "Morning Ireland", Mr. Gerry O'Callaghan of the Joint Managers Body highlighted that the average cost of schools' insurance had risen by between 20% and 25% in the past year.
There certainly is no EU veto to an Irish Government addressing the domestic costs environment. The Government is about to leave office and its one initiative, still not implemented, was inherited from the previous Government. I agree with the SFA that it is not possible to acquiesce in circumstances where it is claimed that non-compensation costs amount to over 42% in personal injury cases. I have great difficulty personally with the proposition that legislation to cap awards ought to be introduced. It seems that in the new worsening environment, given the political will, there are many things that could be done to end the charade that drags on in cases for so much longer than is necessary at enormous expense ultimately to the consumer.
A huge proportion of the caseload where liability is not contested could be taken out of the courts and dealt with more speedily, more efficiently and less expensively in an alternative disputes mechanism such as was envisaged by the first McAuley report in April 1997 and in the second McAuley report in March 2001. I draw attention to section 46 of the Courts and Court Officers Act, 1995, which allows the Minister for Justice to impose scales of costs in relation to particular cases. This permits, in effect, a sort of price control and it allows the prescription of "appropriate scales of solicitors' costs and counsel fees."
Without interfering with the citizen's right to access the courts or with the desirability of the court to use its discretion in a particular case, much can be done to bring reality to a process that is simply no longer sustainable. The fact remains that the man and woman in the street cannot understand the inordinate delay in settlement of cases. What are the obstacles in the way of early settlement? Would such delays be toler ated in any other walk of life? To what extent is the operation of the courts responsible? To what extent does the insurance industry deliberately contrive such long delays to get the benefit of investment income? Why does it take a year on average merely to deliver a defence? Why is there a continuing lack of transparency in the figures published by the insurance industry?
The story on the motor insurance side is no better. The Government is aware of the hugely punitive situation that applies to young drivers in particular. Latterly, the problem of escalating premium costs has begun to apply to motorists generally. Yet the pace of any tentative steps by Government is so slow that there is despair, especially among young drivers. How can the typical young person be expected to source from €4,000 to €6,000 or higher for insurance cover? Some young drivers are paying over ten times the average car insurance. For example, a 17 year old driver from my constituency is paying £3,800 to insure a 1100cc Ford Fiesta for third party fire and theft. A 22 year old driver on a full driving licence was paying £2,230 to cover a 1300cc Mazda. He had a crash and was required to pay £4,300 to renew his policy. A father and his 23 year old son on a provisional licence on a joint policy to insure a Mitsubishi Lancer are paying £98 per week or £5,096 per annum. A 20 year old driver from Tallaght on a provisional licence was quoted £6,000 to insure a new Ford Focus.
I accept that young Irish male drivers have a disproportionately bad record in terms of safety. However, there are thousands of responsible young drivers who need a car to earn a living and who are denied reasonably priced insurance. This is very unfair to young people who are responsible drivers. I accept that the insurance companies cannot predetermine who will be the responsible drivers, as compared to who will be the reckless ones. However, serious hardship is being imposed on young drivers whose parents are not in a position to bail them out. The insurance industry has not explained why its traditional explanation for the loading on young drivers has been challenged by the interim report from the MIAB. For example, that interim report states:
The most significant indication to date is that young policyholders, who pay the highest rates, produce larger surpluses of premium over claims cost than most of those aged 25 and over. This is based on the average of five years data received for the years 1993 to 1997. The classification of all drivers under 25 as a non-profitable risk for insurers is now open to question. For example, the margin of premium over claims cost was £211 for ages 22 to 24, compared to £60 for ages 46 to 55, or a 258% higher margin. On average for the five years 1993 to 1997, every age of policyholder contributed more in premium than claims cost, except for the small number of policyholders aged 17 and 18. One of the highest profit margins was 30% for policyholders aged 66 to 70.
That report goes on to state that although the authors had been furnished with gender data only to 1997, "Women also appear to be contributing more than their fair share in certain instances." The board further notes that "the majority considers to be unduly simplistic suggestions that issues relating to the cost of insurance will be resolved by reduced accident frequency." If this conclusion is reinforced in the much awaited final report, it will stand the conventional explanations on their head.
The interim report concludes:
All board members are anxious to reach decisive conclusions. This is dependent upon receipt of the data required for further analysis of premium charges and claims costs over various categories of risk. If the IIF does not provide the raw data, the majority of the board believes that it may become necessary to recommend an alternate and more rigorous forum for investigation in this area of public concern.
In deference to my colleagues, I must defer the remainder of my contribution.
