Dáil Éireann debate -
Wednesday, 27 Feb 2002

Vol. 549 No. 4

Adjournment Debate. - Insurance Costs.

Mr. Wall

I thank the Chair for allowing me to raise this important matter and the Minister of State for attending.

A constituent of mine has approached me in the past 24 hours with regard to renewal notices he received relating to his insurance for a small boutique shop and office. In 2001 the cost of public liability insurance, employer's liability insurance and insurance of premises and contents was €667, a reasonable cost for the type of holding involved. Unfortunately, the renewal notice he received yesterday demanded a premium of €13,355, an increase of 2,000%. That means that where this constituent comes from two small businesses are going to close because no one could absorb that sort of cost. The two occupants of the premises cannot do so, nor can the owner. That state of affairs is reflected right across the commercial and business sector.

Insurance companies are recouping their losses arising from the events of 11 September which they are using as the excuse to facilitate financial gain. The amazing thing is that they have reduced the liability they may incur by removing from the grounds for claiming, among others, an act of terrorism. By reducing their risk they have increased their profit margin, as a result of which businesses are going to go to the wall.

Small rural community centres which run social events such as Christmas parties, especially for senior citizens, will not be able to function effectively or facilitate old and young in the community because they have to feed avaricious demands for expensive public liability insurance. In the case of my local hall, which serves 300, the cost of insurance has increased by 33%.

What is happening in the insurance industry is unbelievable and the House is failing to address the issue. I ask the Minister of State if we are going to allow insurance companies to close down the small businesses that are the heart and soul of our villages, while damaging their infrastructure by closing community halls. This is a very serious matter and I ask the Minister of State to tell me what the Government and the Houses of the Oireachtas can do about it.

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

I am very aware of the difficulties being experienced by businesses arising from the cost and availability of insurance. There are a number of reasons, both international and domestic, for the increases to which the Deputy refers.

Insurance, globally and domestically, is a cyclical business. It has been generally agreed that after a number of years of technical losses the insurance industry, in Ireland and elsewhere, was entering a phase of its cycle in which prices would increase, even before the unfortunate events of 17 June and 11 September last. It is estimated that current losses resulting from the 11 September attacks in the USA are in excess of $115 billion. That has had a serious impact on the global insurance industry. Most of the losses will be borne by the same reinsurers with which Irish insurance companies hope to reinsure their future large losses. These companies are reducing their exposure to future losses, hence the reduction in availability of insurance, especially for relatively large risks, and the increased cost.

Domestic factors include the cost of settling claims, which are increasing because of increasing prosperity. Recent court decisions may necessitate further increases to claims reserves. The Government's policy is based on three principles. We want to encourage as much competition in the market as possible, if necessary by removing or minimising those barriers to entry that are within our control. The only remaining barrier to entry was the cap on commissions, which I removed in 1999. Any EU insurer is now free to write insurance on the Irish market and any Irish citizen is free to seek insurance cover from any insurer authorised by a member state. We wish to recognise that the price of insurance is driven by the high cost of claims settlements and to address claims settlement costs, on the one hand, by reducing the incidence and severity of accidents and, on the other, by seeking to reduce the cost of the delivery of personal injury compensation, now running at as much as 40% of the cost of claims. Last year that cost exceeded £800 million.

The strengthening of the Health and Safety Authority, together with measures taken by partnership practices in the workplace, has led to a reduction in workplace accidents. An IBEC survey, published in March 2001, shows that the number of accidents in the workplace fell by as much as 21% between 1999 and 2001, at the same time the numbers at work increased considerably. In 1987 there were 770,000 at work. Today there are 1.8 million. Research into the difference between the high price of insurance in Ireland and the much lower price of insurance in other EU member states linked the high cost of insurance to the high cost of settling personal injury claims here. The cost of delivery of compensation, almost entirely made up of legal costs, now runs at approximately 40% of the value of claims. In cases relating to amounts up to €15,000, the cost of delivery may equal the amount of compensation. That is serious.

In March 2001 the Government approved the establishment of the Personal Injuries Assessment Board. It is intended that the PIAB will reduce delivery costs in personal injury cases by reducing the number that enter the legal system to achieve settlement. Since the insurance industry estimates that it pays out €800 million per year in legal fees alone, the savings that may be achieved by the PIAB could be considerable. The interdepartmental implementation group has made good progress in its examination of operational issues and the possible legal implications surrounding the establishment of the Personal Injuries Assessment Board. I expect to receive the group's report in the next month or so.

The figures Deputy Wall has given are startling. The huge increases are phenomenal and I will take a personal interest in finding out if there is any way to alleviate the problem. If the Deputy wishes to pass on the details of the cases mentioned, I would be only too delighted to take the matter up with the Irish Insurance Federation.