I am glad to have the opportunity in Private Members' time to address this important issue. The report of the Motor Insurance Advisory Board was published in April of this year. The findings of that report brought widespread focus on the insurance sector and the prohibitive cost of insurance faced by business, consumers and young drivers in particular. Such was the level of public concern at the MIAB report that insurance costs became an election issue last May. There were a number of single-issue candidates who ran election campaigns based on reforming the insurance market in Ireland. When candidates run on a particular platform, it involves a serious issue.
Since May, I have heard alarming stories of small and large businesses facing closure or rationalisation as a result of rising employers or public liability insurance costs. Every month, each of us gains first-hand experience of, and exposure to, higher insurance costs, typically in the form of higher motor or house insurance premiums.
We need only look at the figures. Household insurance was up 35% in one year, motor insurance was up 18% in 2001 alone, businesses have experienced a staggering 71% increase in their insurance costs and 20% of companies have reduced their workforce as a result of higher insurance costs. This is a major national concern that requires urgent Government action. It is particularly an issue for young people, companies in the construction sector, the hotel industry and the haulage sector, to mention just a few areas.
Despite the public outcry about insurance costs, this is the first time this House has had a substantive debate on the issue of insurance and the report that was published in May. It is regrettable that this is the case in view of the difficulties experienced by many people. The problem has resulted in job creation in many companies. There have been many studies by consultants and promises of action but few hard measures to tackle the high cost of insurance.
The Tánaiste has rightly been recognised as an active and diligent Minister for Enterprise, Trade and Employment. Over the past five years, she has introduced many reforms across all sectors of her brief. The Tánaiste has been seen as reforming, challenging and keen to ensure that the interests of the consumer do not play second fiddle to vested interests content with cartels. Regrettably, on this issue she may have lost some of her reforming spark. She seems content to address the concerns of the MIAB at the speed of a slow bicycle race. Since the report was published, we have seen the introduction of flawed regulations, the establishment of further consultative studies and an unfortunate mix of prevarication and delay. On 18 June 2002, the Minister for Enterprise, Trade and Employment told the House that tackling the insurance crisis was her "political priority". The full implementation of the recommendations of the MIAB report, at the earliest possible opportunity, was identified as a key measure to tackle the crisis.
The purpose of this motion is to recognise the crisis in the provision of insurance cover in Ireland and, importantly, to debate the inadequate measures taken by the Government to address the key causes of the difficulties. We need to examine the background to the problems in the insurance sector. The effects of inflated insurance premiums are affecting every sector of Irish life. Motorists are being unfairly discriminated against on the grounds of gender or age. Young people do not have safe and controlled places in which to play, such as skateboard parks, as such facilities cannot be insured. Small companies are making employees redundant, as they cannot afford to pay exorbitant insurance costs while retaining a full complement of staff. Service providers are working without insurance, placing themselves and their employees at risk in many cases. Other businesses are including a surcharge for the expense of their insurance bills when quoting for projects. Banks are now insisting, in many cases, on evidence of insurance cover before giving clearance for overdrafts.
In an ISME survey released last month, 46% of respondents said they were less optimistic about business prospects than 12 months ago. This is an increase of 40% on the response to the same question in the spring of this year. The sales order books of 45% of respondents to the survey are below normal levels for the time of year. One of the reasons given for this is that they are cutting back and reducing costs.
According to another business organisation, IBEC, personal injury compensation now costs more than €2 billion annually. The organisation found in a recent survey that the profitability of 91% of companies had been affected by an increase in insurance premiums. A major impact was recorded in 48% of these cases. The employer and public liability premiums of IBEC's members have doubled, at least, since 2000. The cost of such insurance accounts for more than 5% of the payrolls of small and medium sized enterprises and for about 3% of the payrolls of larger companies. Alarmingly, 60% of companies stated that they had experienced difficulties in obtaining an insurance quotation. The Small Firms Association recently identified insurance costs as one of the major causes of difficulties among small firms. Such costs represent one of the major increases in payroll costs and thereby lead to job losses.
In their pre-budget submissions, the social partners, including the CIF, the Irish Hotels Federation and the Irish Road Haulage Association, will make the case for decisive and early Government action on the issue of reducing the cost of insurance. In an economic downturn, small businesses can help to add buoyancy to the economy. The success of the Irish economy in recent years is partly due to the strength and support of the small business sector. If insurance costs are causing major problems for small businesses, there will be a reduction in their activity. The subsequent reduction in other costs will ultimately lead to a reduction in those companies' labour forces. Small businesses cannot survive with the constraint of high insurance.
Government inaction is at best allowing to continue, and at worse perpetuating, inefficient insurance practices such as excessive legal fees and a dishonest claims culture which is rife in Irish society and which should be tackled. A number of key areas requiring Government action are identified in the MIAB report. There are inefficient practices and a lack of competition in the insurance sector. A number of reinsurers have pulled out of the Irish market in recent years. Seventeen companies were licensed to deal with non-life insurance business some years ago, but now there are only five. This is worrying and will lead to a lack of competition in the marketplace. Companies are allowed to charge what they wish for many sectors of the insurance business. Excessive fees are being charged by professionals in many industries, such as the legal, medical and engineering sectors, and this has to be tackled. The high awards offered by the Judiciary will have to be examined. Society's attitude of accepting or turning a blind eye to fraudulent or exaggerated claims will have to be challenged through new legislation. We will have to make it less attractive for people to risk making unfair claims.
The business sector does not have confidence in the Government's ability to tackle this issue. This results, in part, from the attitude of the former Minister of State at the Department of Enterprise, Trade and Employment, Deputy Noel Treacy, at the time of the collapse of the Independent Insurance Company last April. A total of €23 million is still owed to Irish businesses that ended up with no insurance, through no fault of their own. Deputy Treacy asked the hotel and construction sectors to provide him with details of the extent of the problems caused by the collapse of Independent Insurance. He promised that their concerns would be brought to Government and suggested that assistance might be considered. Unfortunately, however, nothing has happened.
I know from my contacts with the CIF that it went to a great deal of trouble to put together a dossier to help the Minister of State to bring proposals to Cabinet to resolve this issue which has caused a great deal of hardship to small and medium sized firms. I ask the Minister for Enterprise, Trade and Employment to follow up this issue and to prevent a further loss of confidence in the ability of the Government to deal with insurance problems. The Government did not seek to negotiate a settlement following the collapse of an insurance group that had entered the Irish market from the United Kingdom. Independent Insurance had a UK licence and had received a great deal of business that would otherwise have been done by Irish companies. It pulled out of the Irish market without considering the problems of companies who had to forego insurance in the short-term.
The economy will be the first major casualty of the insurance crisis if action is not taken. This problem has been on the horizon for a number of years, but is reaching crisis proportions this year. It is not as if we were not aware of the extent of the problem before Dorothea Dowling's report. The inability of many small firms to pay their insurance costs, or in some cases to receive an insurance quotation, will result in problems in competitiveness on a global scale. This is no longer about a pending crisis, as the crisis is already here. Indigenous businesses will not be able to compete on a European or global stage if the playing field is not level. There has been a reduction in direct labour costs to businesses in recent years, following changes in the tax code, but there has been a massive increase in indirect costs, particularly in insurance, energy and telecommunications.
In the ISME survey I mentioned earlier, insurance costs were the primary concern of 34% of businesses. This highlights the seriousness of the issue and casts doubt on the future prosperity of such businesses. About one in five ISME members has had to let go people. If we translate that, on a conservative basis, to the national level, it can be estimated that between 50,000 and 60,000 jobs could be in trouble because of the crisis in the insurance sector.
Small businesses like Noel Barry Joinery in Cloyne, County Cork, are being hardest hit at present. Mr. Barry searched desperately for insurance for six weeks after discovering that the syndicate that had previously insured his firm had left the Irish market. The company's premium last year was £13,000 and while an unaffordable increase was feared, Mr. Barry had not anticipated non-availability of insurance cover. The company was shocked to find that many insurance companies practically laughed and refused to consider quoting for its business. Only days before the company was due to close its doors, rather than operate without insurance, the Barrys managed to secure insurance for a premium of €35,000. This represented a massive increase on the previous year's figure. Noel and his wife had to decide which two of their four employees to make unemployed, as they could not afford to pay both their insurance premium and the wages of their staff.
One could question why Noel Barry Joinery had such trouble securing insurance. One might imagine that the company had a string of claims against it, or a questionable safety record. Noel Barry Joinery has never had a claim against it. These problems are particularly difficult for the Barrys as they had only recently invested in a state of the art workshop that could facilitate more than ten craftsmen, but which now has only three people working in it. Every week, the company has to raise an extra €525 to cover the cost of insurance, before beginning to consider wages, rent, machinery and other costs. Every new customer is made aware of this additional tax on the Barry's business, and every quotation that is sent out by Noel Barry Joinery has a 10% surcharge to cover insurance costs.
Small companies such as this no longer have the luxury of competitiveness. Today they are only interested in keeping the doors open. Every week there are reports of companies shutting their doors since they can no longer operate within the constraints placed on them by significant insurance costs.
The Tánaiste will be aware of the formation of the Alliance for Insurance Reform, a business group which has been established for the purpose of lobbying on business insurance costs. It reported that in the past month two engineering firms in Cork had put more than 20 employees on protective notice because they could not obtain insurance. They will not go public with this problem. Other examples include a Kildare businessman who builds custom made kitchens and was about to sign a contract for delivery of 168 kitchens for a housing development in Cork but was instead forced to lay off his three employees. His insurance company also exited the market without notice and it was too big a risk to continue with an uninsured project.
A small specialist garden furniture producer in Carlow was offered a contract that would require taking on four more employees, but the project was awarded to a company in another country because Irish producers are considered too high a risk to secure insurance. There is a small country business in the west comprising a forecourt and garage with a tool hire division. The latter provided 40% of the business income and this year no insurance provider would quote the company for this part of the business as it was considered too high a risk.
Jobs are being lost to other countries. One County Monaghan knitwear manufacturer followed a worrying trend when it transferred three quarters of its operation to eastern Europe two years ago. Every job lost becomes an additional burden on the State and every business which closes lessens the resilience of the economy on the global trading stage.
This problem is not only confined to businesses. Inflated insurance costs have further far reaching effects on the quality of life of our people. Children have fewer opportunities to socialise in safe, controlled environments. A skateboarding park in Dublin and an equestrian centre in County Kerry both closed recently because insurance was not available. Westport House in County Mayo and a holiday village in Omeath, County Louth, may not open for the 2003 season. The latter complex has both leisure and hospitality facilities, but insurance cover increased from €62,000 plus €2,500 excess last year to €273,000 plus €6,000 excess this year, an increase of 440%. It is likely the leisure facilities, the most expensive part of the complex, will not be available next year. These are examples from everyday life that all of us come across on a regular basis and demonstrate the urgency required to address the matter.
On Friday, 20 September, the Tánaiste informed the national conference of the Insurance Institute of Ireland that the personal injuries assessment board would be established on an interim basis, pending the introduction of legislation required to put it on a statutory footing. I am surprised this has not been included in the Government's legislative programme for this session despite the Tánaiste's comment that it is a priority. However, she indicated she would bring proposals to Cabinet in the near future. It must be ensured in regard to the PIAB that another expensive layer of costs will not be passed on to policyholders by insurance companies. The PIAB must make a meaningful and real difference to the cost of processing claims, otherwise it should not be established.
The Tánaiste promised to reduce insurance costs, but her colleague, Deputy O'Donoghue, introduced new court limits that might have an adverse effect on insurance costs when he was Minister for Justice, Equality and Law Reform. She also promised us measures to tackle the lack of competition in the insurance sector, but she has had political responsibility for this matter for the past five years. She did not gain responsibility overnight. She has also had responsibility for the approval of mergers and acquisitions since 1997, of which there have been many in the insurance sector.
The MIAB report noted that in 1996 four companies accounted for 50% of the motor insurance market while in 1999 three companies accounted for at least 67% of the market. Did the Tánaiste approve mergers between insurance companies? Did she refer such mergers to the Competition Authority? If the deals were subject to EU approval, did she make concerns known to the Union's competition directorate before such deals were approved? It is important that these questions are answered, particularly in the light of her Department's involvement in a study of competitiveness in the insurance market in conjunction with the Competition Authority.
With due respect to the personnel involved, I am deeply uneasy that the Department has a role in a study of competition in the insurance market. The Competition Authority was established independently and resourced to carry out such studies. Accordingly, the Department should not have a role. It has been suggested that from time to time the Department has suffered regulatory capture by the insurance sector and has taken its eye off the consumer's interest in performing its regulatory duties. I am sure I will be informed differently later. It is perhaps a case of poacher turned gamekeeper, but, increasingly, reinsurers are pulling out of the market while licensed insurance companies which have set up in Ireland with the help of the IDA and the benefit of tax breaks in the IFSC are refusing to trade and compete for business.
What is most alarming about the MIAB report and the Government's reaction to its damning findings is that the current position might suit everybody except policyholders who are expected to fund the existing mess. Many of them earn extremely low incomes and need a car to keep their jobs. Many do not have the money to spare to fund the current inequitable and inefficient system. They believe the insurance sector is rotten and their welfare is the last factor taken into consideration by these large multinational companies. This is the primary complaint of policyholders who have witnessed insurance companies settle iffy claims in the past without consultation. Claimants who have an accident should be involved in the insurer's decision to settle or compromise proceedings arising from it.
The finding in the MIAB report that attracted most attention when it was published was the conclusion that the claims cost of motor insurers in Ireland was among the highest in Europe and that they reported more than 11 times the post-tax profit of their UK counterparts between 1983 and 1999. This finding has conveniently been forgotten and the insurance industry and its representative bodies are happy to move to other issues that may suit their agenda. However, this issue must be tackled and there must be more transparency in regard to the claims cost of insurance companies and the claims reserve declared by them.
A number of years ago the insurance industry lobbied successfully for the abolition of juries in personal injury trials and the removal of the two counsel rule. We were all assured that if these measures were taken, premia would be reduced, but the legal fees remained the same, possibly because the sole senior counsel doubled his or her fee. Within a short number of years, however, the industry was crying out for additional measures which it promised would reduce insurance costs. Insurance broker fees were even reduced by 50% in 1989 on the basis that insurance premia would reduce. I did not question this at the time because I had a vested interest, but I question that measure now.
We need more than lip service to reducing the cost of insurance from these companies. If the Government and Oireachtas of the day are prepared to take measures to reduce insurance costs, we are entitled to ask insurance companies what they are prepared to do to reduce premia. An action plan with a timeframe for implementation is needed and insurance companies must play their part if the Government and the Oireachtas are prepared to do likewise in terms of health and safety, road safety and reducing the legal and professional fees associated with insurance premia.
The legal profession must take a fair share of responsibility for the current crisis. I am disappointed, but not surprised, that the Law Society is unable or unwilling to engage with the MIAB, content instead to sit on the sidelines trying to sabotage the findings of its report. There is no doubt many lawyers have earned considerable sums as a result of a claims culture that has depended more on a weighty tome entitled, The Golden Pages, rather than a distinguished legal text. Policyholders have sometimes been encouraged to take spurious claims that insurance companies were all too ready to settle while ordinary consumers paid for this marriage of convenience between the legal profession and the insurance sector. A self-regulated profession, in tandem with a poorly regulated insurance sector, is squeezing the ordinary policy holder. To many, civil litigation is run for the convenience of lawyers with scant regard for the interests of the public. It is created around a web of mysterious costumes, phrases and fee structures designed to remove the system from the everyday experiences of the people who pay most for its excesses and inequities. The Tánaiste and Minister for Enterprise, Trade and Employment and the Minister for Justice, Equality and Law Reform should tackle this vested interest and establish a system of civil litigation that pays more attention to the needs of the 21st century rather than the anachronisms of the 18th and 19th centuries.
This will be the true test of the Government's reforming zeal. It is important that the Government response to the insurance crisis is co-ordinated, effective and focused. To give consumers any confidence in her ability to address this crisis, the Minister must publish a specific timetable for the implementation of the outstanding elements of the MIAB report, detailing when each recommendation will be implemented and by whom; expedite the study she has initiated into competition in the insurance sector; remove her Department from that study and make it solely an issue for the Competition Authority; introduce jointly with the Minister for Justice, Equality and Law Reform a programme aimed at reducing legal costs in Ireland; and encourage the Minister for Justice, Equality and Law Reform and the Attorney General to introduce urgent reforms to the system of civil litigation.
The insurance crisis would benefit from examination by an Oireachtas committee. All may not be as it appears and the insurance industry, the legal profession and the Department all need to clarify their positions on this question, explain how this situation arose and help resolve all those issues for the benefit of the consumer. A committee is an appropriate means of investigating this matter and could model its work on the DIRT inquiry. In many respects the MIAB report would act as a book of evidence and be the basis on which we could get answers to difficult questions from key players. There is a public demand for such an initiative. Dáil Éireann should be seen to act swiftly.
I hope the Tánaiste and Minister for Enterprise, Trade and Employment will introduce these measures as a matter of urgency. She will have the full support of the Fine Gael Party in doing so. By supporting our motion, and taking the steps we have outlined, the Minister can demonstrate her commitment to tackling this crisis. There is no time for any further wishy-washy actions and commitments. I hope the Minister will do this without any further delay or confusion, that she will redeem herself and her Department at this late stage, and get the shine back on her reforming zeal.