JOINT COMMITTEE ON ENTERPRISE AND SMALL BUSINESS debate -
Tuesday, 1 Jul 2003

Vol. 1 No. 16

Reform of Irish Insurance Market: Presentation.

Chairman

I welcome both members and witnesses to the meeting. This is the second of our public hearings on the reform of certain aspects of the insurance industry. I welcome back Mr. Myles O'Reilly of O'Reilly Consultants, together with his colleagues, Mr. Joseph McGrath and Ms Aoife Teehan. I have been advised that the committee room will be available until 2.15 p.m. I propose that Quinn-Direct gives its presentation first, followed by the Irish Insurance Federation and Hibernian.

We have received more than 50 written submissions in response to a notice printed in the newspapers on the first Sunday of March last, in which we invited organisations and members of the general public to give us their views. Copies of this documentation have been circulated to members. We have now embarked on the next phase of our work, namely the hearing of oral submissions from a number of those who have already made written submissions.

Members are reminded of the parliamentary practice that they should not comment on, criticise or make charges against any person outside of the Houses, or an official by name or by such a way as to make him or her identifiable. Members who wish to make a declaration on any matter being discussed may do so at the beginning of their contributions.

Members are also reminded that if there is a possibility of a conflict of interest, they should make a declaration of interest, either now or at the start of their contributions. I repeat the declaration made at the last meeting that I have a professional interest in the issue of insurance reform as a member of the Irish Hotels Federation.

I welcome Mr. Michael Kemp, chief executive, Mr. Paul MacDonnell, regulation and planning manager and Mr. Martin Long, public relations manager of the Irish Insurance Federation; Mr. Dick O'Driscoll, managing director, Mr. Brian Huston, director and Ms Laura Booth, executive director of Hibernian; Mr. Kevin Lunney, financial services director, Mr. Trevor Shaw, commercial operations manager and Mr. Ray Foley, chief underwriter of Quinn-Direct Insurance.

I invite members to make contributions at the end of each submission. I wish to draw the witnesses' attention to the fact that committee members have absolute privilege, but that, unfortunately, the same privilege does not extend to visiting groups. While it is generally accepted that witnesses have qualified privilege, the committee is not in a position to guarantee any level of privilege to witnesses appearing before it.

I invite Quinn-Direct to make its submission.

Mr. Kevin Lunney

On behalf of Quinn-Direct and my colleagues, I thank the committee for the opportunity to make this presentation. A copy of a summary of the presentation is now being circulated to members.

We addressed the two areas that we outlined in the written submission that was requested at that time. We also examined our position in relation to the very serious issues currently at play within the insurance industry.

Quinn-Direct entered the insurance market in 1996. It is a fully Irish-owned organisation and, therefore, has a strong allegiance to the Irish market. We saw a business opportunity based on quality products and service supplied with low administration costs structured through direct selling. Our business model was based on there being no broker fees or commissions payable. It was part of the company strategy to ensure that we invested in technology and the training of personnel at all levels.

From the outset we also attempted tostreamline the claims process with proactive settlement of claims. This is probably one of the most significant issues overall and I will return to it later.

It is central to our approach in the insurance business that we offer insurance to all categories and have done so from the start. We based that offering and the pricing of the products on a measured risk and claims experience. We consult, as far as possible, with customers during the processing of claims and we investigate fraud to as detailed a level as we find possible. We also work to eliminate fraud.

From the outset we attempted to encourage young drivers, through incentive schemes to insure in their own name, as opposed to as a named driver. That was done through financial discounts in the premium structure. Loading for disabled drivers or people with medical conditions has never been part of our approach.

To date, the market has positively received our products in general. Our company has grown rapidly and, as a wholly Irish owned organisation, shows what can be done as an indigenous company. We see insurance as a partnership from the start rather than being something separate to business. Partnership with our customers is very much a key to everything that we do.

The fundamental question on which the committee is trying to make some progress is in relation to the cost of insurance and why prices here are so high. From our perspective as one of the most recent substantial entrants to the market for some time, a number of points struck us. The first of these is the claims culture, which is very much the starting point. Getting exaggerated awards from insurance companies is not necessarily seen as something of which to be ashamed. In many cases, people even feel it is something to boast about. In that regard we are probably not hugely dissimilar to other EU countries. The difficulty here is that within our structure, the legal and medical process that underpins it is inefficient and supports the prevailing culture. There is no risk to claimants or solicitors for false representation of the situation in relation to insurance claims. We feel that is a key aspect that needs to be addressed by the committee.

On page 4 of the presentation there is an example which compares the awards level here to Northern Ireland or England. A straightforward arm fracture here would probably attract an award of €15,000. In Northern Ireland, the equivalent fracture would receive in the region of €5,000. In England or Wales, where we do not currently do any business, the Judicial Studies Board indicates that it might only receive €2,500. There is a tremendous differential in the cost of awards here compared to our nearest neighbours. A lack of partnership and consultation in the claims management process has been prevalent here and we are working to address this through our structure and business processes. The insurance industry has been slow to change in the face of some of its rising costs, and slow to react to taking on and dealing with some of the issues involved. When comparing the Quinn Group operations, which include manufacturing and the hotel and leisure industry in addition to our insurance business, the reaction time for the insurance industry has been slower than might be expected.

Quinn-Direct has had a significant impact on competition in this market since its inception seven and a half years ago. In some cases we were the sole provider of products for young drivers and we were in play in that difficult market at a time when some of the established players refused to quote. We have more than done our part in ensuring that there is a real alternative in the market for Irish consumers. Our total turnover is up by 40% per annum over the past three years and we have more than 150,000 policyholders, which is approximately 10% of the Irish insurance market. Our products have seen significant take-up by Irish consumers and while the fact that we are an Irish-owned entity is an advantage this does show that we have tried very hard to build up our market share and we have been successful. We offer the products which the customers want. We have invested significantly in our facilities and training programmes and have purchased new facilities recently in Blanchardstown and in Enniskillen.

On employers and liability insurance, one of the key focus areas here today, we continue to be a catalyst for change. We have assisted businesses when others have pulled out, and we are growing that portfolio. In 2002 it increased by more than 300% over last year's figures, and it has increased also by 300% in the six months to date this year, in comparison to the equivalent period last year. That indicates that our products, and the way that we have structured them are such that we are gaining significant ground in this market at present.

On commercial insurance, the partnership programme which we have put into place in our portfolio has gained a significant reputation and can be of benefit to the industry if taken to a further degree. We have attempted to share health and safety knowledge and skills at all levels which reduces the costs. We have committed to consultation, specifically in claims management and all stages of claims processing and we attempt at all times to have proactive management in the settlement of cases through consultation with the insured.

The overall Quinn Group structure has been assisted greatly by the backing of the Quinn Group over this period. We have something to add to that and we are making a significant impact on the market overall. Some case samples can explain what the industry is up against in terms of dealing with costs. The first is a minor whiplash case which was settled out of court. In this case the insured skidded into the back of another vehicle which was turning right. The insured was clearly speeding and there were no apparent injuries at the scene but we later received a claim for whiplash from the driver of the third party vehicle. The damage to the vehicle was worth €3,000. It was a fairly serious accident in which the injury cost €8,900 and the third party legal fees were €4,300. The significant point here is the cost of the legal fees involved. The next case, also taken at random, is a serious incident. The insured was carrying three passengers and the driver had consumed alcohol prior to the accident. There were three serious injuries, including one paraplegic. The main point here is that the settlement of the injury cost our company €1.8 million, third party legal fees were €359,000 and our legal fees were €115,000. Again, the cost of the legal fees is significant. In terms of our overall business to recover the costs of that accident we would require in excess of 2,000 accident-free policies. Those are not instances that occur every day but they are the type of cases with which the company deals.

The third example is an incident which we felt was potentially fraudulent. Our insured, who was a named driver, reversed into another vehicle, at an estimated speed of five miles per hour. There was minimal damage to each vehicle. Our insured had three passengers and the other driver had four passengers. We received four whiplash claims from the occupants of the third party car and three from the insured, a total of seven claims. These claims were treated cautiously from the outset because we were confident that they were a set-up or that there was an element of exaggeration in them. We took the first case to court and an award of €20,500 was made against us which was a poor result from our perspective. That is a typical occurrence where even though we place the evidence before the court the decision goes against us. Subsequently, we settled the remaining cases, and one is still outstanding. The main point is that the case would probably cost Quinn-Direct more than €100,000 and we have very little opportunity to do much about that, given the current legal process.

Chairman

Mr. Lunney has told us that from his experience the cost of an arm fracture in the UK is €2,500; in Northern Ireland it is €5,000 and in the Republic it is €15,000. Why does he think this is the case?

Mr. Lunney

It is the case because the legal process is such that awards made in court are at that level. There are no judicial guidelines for the settlement of cases in the Republic of Ireland. An individual who is taking a case to court is confident of getting that level of award here whereas in the other jurisdictions the award will be at the lower level.

Deputy Hogan

I welcome Quinn-Direct. Mr. Lunney mentioned that his company is a relatively new player in the market and that it is prepared to do a great deal of business that others do not want to do, which causes me to worry from an underwriting point of view. Is he satisfied that, as an indigenous company, his group is in a position on a solvency basis to deal with those high risks if they occur in high numbers? Is Quinn-Direct satisfied that it is able to satsify its solvency requirements in the future? How much capital has been put into the group from sources other than insurance and what profits has the company made recently, as disclosed in its last annual report? Will Mr. Lunney indicate what kind of profitability Quinn-direct has as a company?

Mr. Lunney

We are very confident of our ability to take on risks because of the procedures and processes that we have implemented and our relationship with the Quinn Group. It has probably been one of the most successful organisations in the country over the past 30 years and our experience indicates that we know how to deal with this type of business because we have dealt with it as part of our own business and the insurance costs associated with that. On solvency we have a very strong balance sheet at present. Our solvency is one of the strongest in the Irish market and we are very happy with that level. All of our procedures, processes and solvency calculations have been reviewed by the relevant regulatory authorities and our way of doing business and settling claims gives us an opportunity to assist business significantly in this market. We are determined to do that.

On our profitability levels, Quinn-Direct incurred some losses in the early part of its set-up but, thankfully, with the full backing of the Quinn Group from the outset it has been able to move its position forward to having approximately 10% of the market. The published figures for last year showed profitability at €33.5 million.

Deputy C. Lenihan

Looking at the number of cases, I am somewhat mystified. Can I have some clearance or an indicator from Mr. Lunney as to whether he regards the case of an award of €8,974 for whiplash as being typical or average? I am curious to know if these figures are plucked out of the air or if they reflect an average settlement figure for his company for whiplash injuries? Similarly, I am puzzled as to whether the figure for arm fractures at €15,000 is an average figure or one plucked out of the air. I would have always felt that whiplash, because of its back injury implications, would carry a higher settlement figure than a straight arm fracture, as it is described in the submission.

On sanctions against false claimants, Mr. Lunney suggests that the Judiciary is far too generous with regard to awards. Is Mr. Lunney suggesting that there is a cultural problem of assessing quantum or levels of damages? Can Mr. Lunney clarify this? Is that what he is saying in effect? Is the Judiciary, due to the absence of guidelines, somewhat generous in handing down insurance awards? Is that Quinn-Direct's experience in its claims history?

On the enforcement of the law against uninsured drivers, the submission suggests that the imposition of substantial fines, including vehicle confiscation, would help deal with this problem. Does Mr. Lunney have a particular view on the criminal law sanctions? It is possible to have vehicle confiscation and the imposition of higher fines but in many cases those fines are never paid. Typically uninsured drivers do not have many assets against which one can claim. Does Mr. Lunney have a view on the uninsured driving scene? It appears to add 8% to insurance costs, which is a surprise. Should there be a higher criminal sanction in those cases?

Mr Lunney

On clarification, the examples I have given are specific examples from our portfolio. The intention was to take one run-of-the-mill case first; the second was a serious case; the third was one we felt was a fraudulent case. The figures there are actual figures paid out or estimated on our behalf.

Deputy C. Lenihan

How did they reflect in terms of the average for the company? Is an award of €8,000 the order of the day for a whiplash injury and arm fracture?

Mr Lunney

In the Republic of Ireland, the average figure for a simple whiplash would be in the region of €12,000 to €13,000. We have had a number of cases of arm fracture, and the figure quoted has been the settlement. It depends on the seriousness of that argument. In certain cases when whiplash is claimed, the claimant is comfortable to settle for a lower figure if the claim is initially slightly exaggerated. It is difficult to specifically quantify whiplash, but our average figure would be in the region of €12,000 to €13,000.

Deputy C. Lenihan

Is the figure quoted the average arm fracture payout?

Mr. Lunney

Yes, it is average. On the Judiciary and uninsured driving, all of the points mentioned would be of assistance. Uninsured driving is a serious issue. We also encourage the committee to support making uninsured driving a more serious offence. The penalty for uninsured driving offence should be increased to six penalty points. This would mean that after two convictions the individual would lose his or her licence. That would be of assistance in this matter. Other penalties, such as confiscation of the vehicle and increased fines, would also be of benefit.

Chairman

In Quinn-direct's submission, it states that the level of award and litigation costs must be reduced. What action should be taken to achieve this? It is suggested that the book of quantum would keep awards at the level at which they currently stand. Does Quinn-Direct have a viewpoint on this?

Mr Lunney

We would not be comfortable with a book of quantum which reflected the current level of awards in the State. We are of a view that the book of quantum should be produced, but it should be based more on the European figures rather than the Irish position. The Irish position, we feel, is too high.

Senator Coghlan

Will Mr. Lunney comment on his company's record on the speed of claims settlement? How does this compare with other players in the market? It is obvious from the examples he has given that he has a view on legal costs. Will he comment on the impact of legal costs?

Senator Leyden

I commend the clarity of the presentation. Is Quinn-Direct doing business in Northern Ireland? Where does the profit lie in an insurance company such as Quinn-direct? Is it in the actual premia or the investment portfolio arising from the former? What is the average premium quoted for a young driver who does not have any previous accidents or endorsements? It appears from the submission that the legal profession is responsible for the high cost of insurance in the State. I note the average figures of 33%, 23% and 25% and that is outrageous. The legal profession should be held liable for supporting a fraudulent cases. There is no gain without pain and it is time the legal profession took some pain.

Mr. Lunney

We are attempting to settle our cases as quickly as possible. However, the key aspect to this is that it is done fully in consultation with the insured. We are working extremely hard to keep cases out of the legal process, to ensure they are settled as quickly as possible. We are working to a target well in excess of 50% to keep our cases out of the legal process. We are working continuously to achieve a higher level associated with this. We believe it will bring the costs down.

We do operate in Northern Ireland on a similar direct basis to what we do in the Republic of Ireland.

Senator Coghlan

How does this record compare with other players in the market? The impact of legal costs was partly explained. I understand that Quinn-direct believes that if legal costs could be eliminated it could have the effect of bringing premiums down by 50%.

Mr. Lunney

Yes, without legal intervention. If we can keep the legal process out of the equation and have a good settlement with the individual involved, including the employer who is involved in that process from day one——

Senator Coghlan

How does Mr. Lunney believe that achieving 50% or more settlements without the legal process compare with other players in the market?

Mr. Lunney

We feel that we are higher on the basis of settling cases without intervention. We would be moving towards increasing that.

Senator Leyden

I asked about premia and their relation to investment. Where is the profit for Quinn Direct? Is it on premia or is it from the investment of the premia and the time lag of settling claims? What is the average quote for young drivers? The company is settling high fees with the legal profession. The company does not seem to be fighting tough to take down legal fees. In some cases the claim is €55,000 compared to the legal fee at €36,000.

Mr. Lunney

With regard to the profitability split between investments and underwriting, for insurance companies the profits come from a combination of both. Over recent years, the level of income which has been available from investment has been extremely low. Insurance companies have had to seek profits from other sectors of portfolios. We aim to make a return from both aspects of this. If we are in a position to settle cases a lot more quickly than we would have done in the past, which everybody feels is the right thing to do, then obviously the level of investment return that will be available will be lower. We have also to react to that.

Senator Leyden

What is the premium for young drivers?

Mr. Lunney

On young drivers, Quinn-Direct is probably one of the chief companies in the country which quotes across the board in all categories and businesses. For young drivers, one is talking about a premium of about €1,700 to €2,000.

Senator Leyden

Why are you not fighting a bit harder with the legal profession in regard to fees?

Mr. Lunney

The cases which I have given are typical examples of where, to be honest, things have gone wrong for us, where we have tried to conclude cases without using the legal process but where the third parties have pushed the process through the legal system. We feel we are being quite tough in pushing the cases. We also have examples which we can, perhaps, talk about at a later date or present to the committee. We have been quite successful in this area, but in cases which go to court, we are faced with a particular type of situation. Our objective is to avoid that by trying to keep the cases out of court. We feel we are adding something fairly significant to the industry in that regard.

Chairman

The company is certainly doing so. I thank Mr. Lunney for his submission and ask him to stay with us while the other two submissions are made. I welcome Mr. Michael Kemp, Mr. Martin Long and Mr. Paul McDonnell from the IIF. I apologise for detaining them. They have ten minutes. I am sure there will be many questions to be asked of this delegation.

Mr. Michael Kemp

I thank the chairman for the opportunity to make a presentation to the committee. I will try to keep it to a lot less than ten minutes in order to leave as much time for discussion as possible. The committee has our written submission in response to the advertisement in March, and I will not go through that in detail. I will highlight the main points in that submission and then give our views of what the priority areas are for legislation and other reforms which are needed to improve the situation, particularly for liability and motor insurance, which I think are the main concerns of the committee.

There are four main points I wish to stress. First, the liability and motor insurance markets in Ireland have consistently lost money for a number of years, leading to the significant increases in price that we have seen over the past few years, and also to a reduction in the underwriting capacity available, particularly on the commercial liability insurance sector. This is due to a number of influences, partly the local conditions under which we operate, which the previous speaker referred to, and partly some global influences.

Second and of fundamental importance, in all classes of insurance, and no less in motor and in liability, the level of premiums is driven by claims costs, which insurers must meet. If we are to seriously tackle the level of premiums which have to be charged in motor and liability, then we have to get the level of claims costs down.

Third, in order to reduce claims costs, there have to be reductions in one or more of three things: claims frequency - that is the number of claims relative to a measure of exposure; in other words we must make our roads and workplaces safer, leading to fewer accidents and claims; the cost of claims - and we have heard some examples already in relation to compensation for personal injury, and how that varies in Ireland compared to other countries. As I understand it, there are no plans as part of the existing reforms package to address this issue, although we would hope to see greater consistency in awards as a result of the planned improvements in court procedures, the establishment of the Personal Injuries Assessment Board and the database of the level of awards and settlements, which that board will maintain. While they may not reduce the overall cost of claims, these measures may help to stabilise claims costs and minimise some of the inconsistencies which we see at present.

The fourth element is the delivery cost of claims - the legal costs and the professional witness fees and report costs, to which there has also been reference.

I stress the support of the IIF for the existing reform programme, based on the recommendations of the Motor Insurance Advisory Board, which the Tánaiste launched some months ago. More than 50 out of 67 MIAB recommendations, and all of the core recommendations which have the potential to save claims costs, are directed to various arms of Government, rather than to the insurance industry. The IIF has done what it can, and has implemented virtually all of the recommendations addressed to it. I stress that these are not the core ones, and a lot remains to be done by the Department of Enterprise, Trade and Employment, the Department of Justice, Equality and Law Reform and a number of other agencies.

On what the priorities should be, what the reforms which have the most potential to improve the situation are, I believe that this committee has an opportunity to influence the content, priority, timing and speed of implementation of some of these reforms. I urge the committee to look at three areas in particular. The first is safety and law enforcement. A number of issues need to be dealt with in this area. We need early adoption of the new national road safety strategy. The last one, which was the first such national strategy, expired at the end of last year, and we still have not got a new one in place. It is proposed that there will be a new three-year strategy, and I hope it will be agreed in the next few weeks. We have lost momentum because there has been a hiatus between the end of the last strategy and the agreement of the new one.

We need full roll-out of the penalty points system supported by adequate detection and processing systems. There have been suggestions in the press that the IIF is not fully behind the penalty points system, but, in fact, we greatly support it. We are concerned that it is not being seen to be as effective as it should be, and that is due to the infrastructure and resourcing at the enforcement end. We want to see penalty points work, and we believe the system will work if it is properly resourced.

The establishment of a national road traffic corps with sufficient budgetary and operational autonomy is a key element. It is in the programme for Government, and I see from press reports that it is currently under consideration by the Minister for Justice, Equality and Law Reform and the Minister for Transport. We welcome that.

The Safety, Health and Welfare at Work Act is under review and it is important that this work is completed quickly. A general review is needed of the efficiency and effectiveness of the deployment of enforcement resources, both through the Garda in relation to road safety, and the Health and Safety Authority's inspectorate, and it is important to supplement those resources where necessary. As in other areas it is important to ensure that what is currently being used is deployed efficiently.

On other aspects of the insurance reform programme, the first priority is early passage through the Oireachtas of the Bill to establish the personal injuries assessment board. The heads of the Bill have been published, but we have not yet seen the detail. It is important that it is up and running in January 2004 as planned.

We need early publication and adoption of the legislation which would carry out a number of actions highlighted by the MIAB report. It would reform and streamline court procedures, increase deterrents to fraudulent and exaggerated claims - a very important area - oblige the court to actively manage injury compensation cases before it and encourage mediation between parties, rather than wait for a case to proceed at the slowest pace.

It is necessary also to review the system for adjudication of disputed legal costs. The previous speaker noted how legal costs can often contribute a lot of expense on top of the actual award. The current system for the taxation of costs is flawed, and needs to be reviewed.

We need increased deterrents, criminal sanctions for uninsured driving, including confiscation of uninsured vehicles, increased fines and the use of the proceeds of fines to defray part of the costs of claims against uninsured drivers which are paid through the Motor Insurer's Bureau and, ultimately, by the policyholders.

A more informed public debate is necessary on the appropriate level of compensation. In the past, the focus has tended to be on the levels of general damages, the damages for pain and suffering, compared to other countries. There is no doubt that courts in Ireland are more generous, in comparative terms, but the other element is the breakdown of how some other costs are paid. In Ireland we tend to rely on the private insurance system to pay health care costs and compensation for loss of earnings after an accident. In many other countries these are provided for through the public health care and social welfare systems. It is not just a question of the courts being more generous. There is a different border line between the public and private compensation areas, and that may need to be looked at.

We agree with some of the areas identified for reform by the chairman of the Competition Authority in his submission on encouraging effective competition. There is an overlap in terms of safety promotion, the reduction of accidents, tackling fraudulent and exaggerated claims and encouraging predictability and consistency in levels of compensation - and making the legal system work more effectively to determine compensation in personal injury cases.

The insurance industry is playing its part through the implementation of relevant MIAB recommendations addressed to us. We are also trying to improve co-operation with policyholders in the conduct of business, in particular in the investigation and handling of claims. We have agreed a new code of conduct with IBEC on defending fraudulent claims, providing advance warning of renewal terms and also consulting policyholders in relation to the defence of claims.

We welcome and support a number of the measures in the Tánaiste's reform programme and in the MIAB's recommendations, which we called for over a number of years. We are open to co-operating with any authority which will make a serious attempt to address the causes of the high cost environment in which we have to operate because, ultimately, it is not in our interest, that of our policyholders or the national economic interest for the levels of premium to be as high as they are or the availability of cover to be as restricted as it is, particularly in the liability insurance area.

Chairman

Mr. Kemp will agree that insurance costs have risen sharply over rercent years. We all agree that insurance costs represent a substantial portion of overheads to small businesses. That area is the prime objective of this committee. I put it to Mr. Kemp, as the chief executive of the IIF, that a solution must be found and we want him to work with us in this process to find that solution. We can all play a part in finding a solution. It has got to be found because as we all witnessed yesterday, whether it was in Meath, Westmeath or Cork, almost 400 more jobs were lost. We have got to play our part and act responsibly. There is no point in people coming in here to make their case and telling us how wonderful they are and the great contribution they are making. This problem has got to be addressed. There is a fault in the system somewhere and I would like to think that all three delegations present today, representing their various organisations or companies, will work hand-in-hand with this committee to find a solution to the problem we have been given the responsibility to address. We have to deal with it effectively and urgently.

Deputy Hogan

I welcome the group to the meeting. Will Mr. Kemp tell us who the IIF represents?

Mr. Kemp

I did not bother covering that because it was in our submission.

Deputy Hogan

Some people might not know.

Mr. Kemp

We are the trade association representing insurance companies established in Ireland. We have both life and non-life companies in membership. The other two witnesses today are members of our organisation. Our members would cover 90% of companies plus of the motor and liability insurance markets in particular.

Deputy Hogan

The organisation exclusively looks after insurers in the Irish market?

Mr. Kemp

Yes.

Deputy Hogan

We hear a great deal about reforming the insurance market here. The IIF represents the insurance companies exclusive to the Irish market, but how does that reconcile with statements that we need more competition in the market place when the only way we can get that is to encourage companies from outside the jurisdiction to trade with us ? Does the IIF not have a conflict of interest in that respect?

Mr. Kemp

Not really. There is not necessarily a lack of competition but there is a relatively small number of providers of liability and motor insurance in certain niches of the market. The reasons for that are clear in that the markets are notoriously volatile, relatively small in international terms and they have not been providing a profit for companies and their shareholders over the long-term. That is why there are not more companies active in the Irish market. There are no significant barriers, structural or otherwise, to entry. We have a single market in Europe and there are literally hundreds of European insurers who are authorised to write business here but choose not to. Our members do not have a problem with facing increased competition but the conditions currently do not encourage extra competitors into the market.

Deputy Hogan

We regularly hear about the noble aspirations of companies who wish to trade here. One can bring a horse to water but it cannot be made drink if it does not want to. Even though the EU Single Market was established for the purpose of giving consumers a wide range of consumer benefits, there is no benefit in this major area of activity. I realise the usual statements about the high cost of litigation and awards and the unfriendly nature of the Irish market will be made but are there any barriers in the Single Market mechanisms that this committee could examine with a view to reducing or eliminating them to allow more competition from companies outside this jurisdiction?

Mr. Kemp

I do not believe that there are a significant number of barriers. Each of the national markets is entitled to maintain any provisions in its national legislation which contribute to the general good. That is a loosely defined term but there is some jurisprudence in the European Court and there are some restrictions on how that can be applied by member states. This market has been open but there has been an historical association with the United Kingdom and many of the British insurers have been here for literally hundreds of years. The market has been open in the past and no new barriers have been erected compared to other continental markets. The Competition Authority, on foot of one of the recommendations of MIAB, is examining this issue and I am sure it will come to a conclusion as to whether artificial barriers exist. From my point of view, there are no significant structural, regulatory or other barriers to new companies setting up business in Ireland.

Deputy Hogan

Transparency is a major cause of complaint against insurance companies in that people do not see behind the figures. I understand the commercial reasons for not allowing publication of commercial operational details which might give an advantage to competitors but could a mechanism be put in place that would allow greater transparency on the part of insurance companies to justify their actions in increasing or not reducing premia, as the case may be? Would Mr. Kemp have any system in mind that would justify that?

Mr. Kemp

Again, some of the MIAB recommendations addressed the level of detail included in company statutory returns and what is and should be published by the supervisory authority. I know the new IFSRA insurance supervision department will examine those recommendations. I expect the Blue Book, for example, traditionally published by the Department of Enterprise, Trade and Employment, will be reviewed and I suspect there will be more detail at account level of companies' individual figures and of the market figures in the future. Individual cases, obviously, are a matter for negotiation between the insurer and the client. On commercial business, there is usually an intermediary involved and the intermediary's duty to the client is to make sure he or she gets the best deal available. Obviously, he or she considers what else is available in the market and will get whatever information is needed for the purposes of calculating a premium and its relationship to claims experience from any of the insurers quoting.

Deputy Hogan

I am conscious that the insurance federation has put forward constructive proposals on changing the rules, particularly in respect of the courts and judicial procedures. That was tried previously, however, in respect of the two counsel rule and the abolition of juries and we were promised that there would be a reduction in premia arising from the changes proposed at that time. Why should we now be convinced that if these recommendations are implemented, insurance companies will be able to pass on savings to the consumer because the industry does not have a great record of passing on savings in the past?

Mr. Kemp

In relation to the abolition of juries and the two senior counsel rule in particular, there was an expectation in the past that savings would be realised but, unfortunately, that did not happen in practice. In fact, there were no savings to pass on. What we said then and what we say again is that as and when savings arise, they will be passed on. We saw that in another context recently with motor insurance rates arising from the initial success, at any rate, of the penalty points system. The market reacts very quickly to changes in its cost base and savings do get passed on. We would have some confidence that the MIAB, and some of the reforms promised by the Department of Justice, Equality and Law Reform, will increase consistency in awards and should help to reduce the delivery costs of compensation in personal injuries claims. I would be hopeful that in the medium term significant savings will arise.

Deputy Hogan

In other words, no guarantee can be given that whatever is proposed will actually work. We have to take Mr. Kemp's word on this. He said that the recommendations he is making might work in the future but nobody can give a guarantee.

The Tánaiste has indicated that if her action plan is implemented, even arising from her announcement last October, we could expect a 31% reduction in premia in 18 months. She said that is the IIF's figure, not hers, but I do not know who is telling the truth in that regard. There will be some outrage by consumers arising from what Mr. Kemp stated over the past 24 hours. Arising from the unfortunate motor vehicle accidents over the weekend, Mr. Kemp is calling into question the notion of passing on a reduction in premia as a result of the introduction of the penalty points system.

There would be some anger if there was a rowing back of any potential benefits from the introduction of penalty points and the encouragement of more care on the roads. Notwithstanding the number of accidents in May and June, which I hope was a blip, people who are taking care on the roads would like to see the benefits of that as a confidence building measure.

Is the young driver market profitable? With the level of increase in motor insurance over the past two years, it must be a profitable business because few cases end up in very expensive awards being paid out. It is only a small number, relatively speaking, of very high awards which hit the headlines . Are vast profits being made by insurance companies in the young driver market because of the premia being charged?

Chairman

I am sure we all appreciate the efforts made by everybody, including the Minister for Transport, Deputy Brennan, which resulted in 67 lives being saved in the first six months of this year. Nothing should deviate from that good work and there should be recognition of it by the industry in the cost of future premiums. This committee is most anxious that people who are more careful and responsible on the roads be rewarded. I do not know any part of our country where traffic has not slowed down compared to what was the case before the introduction of the penalty points system. I agree with Mr. Kemp's earlier reference to the three-pronged attack and asking this committee to add its weight to his suggestion to the relevant Departments to increase the penalty points even more if necessary. One cannot equate the price of a life to any penalty points system but the industry will have to reward the actions of the Government and the Minister for what was been achieved over the past six months at least.

Mr. Kemp

A number of points have been raised. On predicting how savings will be realised, none of us can see the future clearly. We can make a judgment call based on our best estimate of the likely effect of proposed measures, bearing in mind that a number of the issues we have been discussing are contained in the Tánaiste's reform package, which is supported by the MIAB. It is not only the insurance industry which is saying that these measures are likely to reduce the cost of claims. Others share that view. We believe these measures are most likely to have an effect, but nobody can be sure what will happen in the future.

The 31% figure was an estimate based on an assumption about measures being put in place immediately and working to their full effect. It was prepared at the request of the Department of Enterprise, Trade and Employment, which chaired the implementation group. Already, several measures have been turned down such as the removal of the 2% levy on insurance premiums and the removal of the discriminatory hospital charges on victims of road traffic accidents, which immediately brings into question the 31% but it was our best estimate at the time of the maximum potential. It depends, however, on how quickly measures are put in place and, as I said in my presentation, we are still waiting for two of the important Bills which, hopefully, will give effect to some of these measures.

As far as I am aware, the young driver market is not as profitable as the rest of the business. There is no scope for undue profits to be made in any sector of the market. That can be seen from the statistics in the supplementary MIAB report, which will be published some time later in the year.

On the points issue, as I stressed earlier, I will not claim that I have been misquoted but I would like to put it in context.

Chairman

Correct the record?

Mr. Kemp

On what has been in the newspapers over recent days, it is not a specific reaction to the horrendous increase in road deaths at the weekend. It is more a general comment on the trend since penalty points were introduced. We believe strongly in penalty points and we were pleased to see the effect the system had earlier on, which has fed through into reductions in rates by a number of companies. The point we make is that it is important that that improvement is sustained and, looking at the fatality figures from March to date, we hope that it is a blip but we are concerned that it may not be such. We stress again the importance of sustained enforcement. To back that up, the consultant retained by the Department of Transport to report on the first national road safety strategy commented unfavourably on both the actual and the perceived chance of being caught speeding or drunk driving here compared to other countries, which suggests there is a significant opportunity to increase the level of enforcement and make it more effective. That will guarantee that penalty points, backed up by enforcement, will have the desired effect and that will lead to a sustained reduction in costs overall.

Deputy Callanan

I welcome the three groups to the meeting. To follow up the penalty points discussion, of the IIF's members, how many reward those who have not received any penalty points, and who are they? The IIF has recommended that young drivers should take out their own insurance as soon as possible rather than being a named driver but it does not offer much incentive to do that. In Scotland, for example, insurance for a 23 year-old costs £800 as opposed to €4,200 here. What incentive does the IIF offer to encourage young people to insure themselves? On the fraudulent claims aspect, why do insurance companies settle without contacting the client, which happens on some occasions? Some employers have installed cameras and introduced measures to make things easier. Is the IIF offering a major incentive in that regard, which should be the case?

On the idea of a person claiming within three years, what does Mr. Kemp believe is a reasonable length of time in which a claimant should make a claim, be it fraudulent or otherwise? I agree with Mr. Kemp that a claims culture exists but solicitors and everybody else have to work together to resolve that problem, as he stated.

Chairman

What is the reason for the three years? Why can it not be a month, as the Deputy suggested?

Mr. Kemp

There is some merit in that suggestion and I understand it is under active consideration as part of the Department of Justice, Equality and Law Reform legislation, which was referred to earlier. At the very least it is likely there will be a requirement to notify the potential defendant of the claim within a shorter period, even if the statutory period for commencement of litigation——

Chairman

Mr. Kemp was in favour of substantially reducing the length of time.

Mr. Kemp

It would not be unreasonable to reduce the three year period to two years, or even one year. Obviously there are occasions where there is a gradually developing cause or the potential plaintiff is not aware of the latent injuries, for which there are special provisions, but in respect of straightforward accidents there is no particular reason it should be three years.

Chairman

Fraudulent claims?

Mr. Kemp

Insurers do not willingly settle claims they can prove are fraudulent or exaggerated but they do have to take account of the risks of litigation and some of the vagaries among the different courts and judges throughout the country. In the past, there has been a failure on the part of a number of insurers to maintain adequate communication and contact with policyholders, particularly employers in employer liability cases. That is one of the issues we addressed in our code of conduct with IBEC, which has just been put in place. All our members are undertaking to consult more closely and to take account of any information the employer can give them or any views they have on settlement before proceeding to settlement. That aspect will be addressed and there will be a better two-way flow of information as part of the investigation and settlement process of claims.

On incentives for security or surveillance measures, it is a matter for individual companies as to how they approach that. Certain risk improvement measures are a requirement in order to get cover or a discount on cover and it will vary from insurer to insurer as to what they think is most relevant and what is required. I agree, in principle, that there should be incentives to encourage the employer to improve the risk and improve security.

Deputy Callanan

The points?

Mr. Kemp

Companies have taken different views on this. As the committee will be aware, we had discussions with the Minister for Transport as to whether we could collectively do something. There were competition issues involved. One company of which I am aware is providing a specific discount for people without penalty points. Other companies have taken the view that they can spread the benefit of the reduction in frequency over their entire portfolio and there have been across the board reductions in rates. It has been left to individual companies.

Deputy Callanan

There is only one company?

Mr. Kemp

There is only one of which I am aware.

Deputy Wilkinson

I welcome the delegations and their presentations. I have not heard much yet that tells me why insurance premiums have risen as they have over the past three years. For example, a friend who is a builder with two machines and employing six people, came to me last night with the following problem. His insurance premium was €12,000 last year and €42,000 this year. I have heard nothing today to explain why that happened.

On the settlement of claims, why do insurance companies not always consult a business before a settlement is made? Could the insured be given a veto or could the veto be subject to arbitration?

Mr. Kemp

On the settlement of claims, it is invariably a policy condition that the conduct of the defence of the claim is in the hands of the insurer. That does not mean that they should not consult with the policyholder but the insurer's claims handling staff and advisers are supposedly the experts in this, and, therefore, they must maintain the control of the defence of the claim and, ultimately, decide whether to settle and on what terms.

As I stated in answer to the previous question, in the past there has been inadequate attention paid to the policyholders' views and an inadequate communications process, and that is something we have been seeking to rectify with our members and with IBEC in the code of practice. It will improve and companies are much more ready to listen to and learn from the views of their policyholders in looking at cases.

Deputy Wilkinson

Should the insured be given a veto or could a veto be subject to arbitration?

Mr. Kemp

In that context, it is not possible to give a veto, but it should be a collaborative effort and there will be more consultation in future between insurers and employers.

Deputy C. Lenihan

Two issues arise forcefully from Mr. Kemp's presentation. One is this figure of 31%. We accept they have worries about the levy and the hospital charges, but what revised hard figure for reductions can he and the industry commit to if this package is put in place? We have been waiting a rather long time for a return from their side in this regard. What figure is reasonable to expect, if everything Mr. Kemp has advocated occurs, obviously with the distinct exception of the levy on the hospital charges issue which he raised? Apparently the rest of it is a reasonably agreed agenda in terms of legislation. What level of return is Mr. Kemp prepared to make in that regard?

The other issue related to that which I wish to raise is the evidence to date of the bonus achieved by motorists with claim-free records. What bonuses do such drivers receive? If one moves from one company to another, one loses the no claims bonus. Why is this practice still in operation? I have evidence from people who have experienced this. Why has this not changed and what rewards will there be in the future?

My final question relates to Mr. Kemp's assertion that both motor and liability insurance are unprofitable. The committee has heard that Quinn-direct is getting into the business and doing very well, albeit in a very aggressive way. Fair dues to it. It seems to have racked up customers at a huge rate over the past seven years. Perhaps Quinn-direct is not a member of the association and Mr. Kemp might clarify that.

Chairman

I do not think it is.

Deputy C. Lenihan

Why is it that what Quinn-direct said is totally at odds with what Mr. Kemp is saying? Quinn-direct said that it is harvesting customers successfully, both in motor and liability, and Mr. Kemp is saying that it is a loss-making business; all companies are getting out of it and nobody wants to get involved in it.

Chairman

Mr. Kemp, do you wish to respond to Deputy Lenihan's points?

Mr. Kemp

On the 31% prediction of savings, I cannot give the Deputy any firm figure because when we put that estimate together it was based on a number of assumptions, principally that all of the recommendations in the MIAB report would be implemented. I am not sorry we put that estimate together because they were the best figures we could do. A number of specialists in the industry had an input into that and we were happy to stand over the figure, and I still am. It is based on the assumption that all of the measures have been implemented, that they are all fully effective to the maximum of their potential and that they are all fully in place. For instance, the PIAB, it is proposed, will only deal with employers' liability claims in the first phase of its existence and, therefore, it will have absolutely no effect on the cost of motor insurance claims. It depends on how soon it is extended and how effective it is in realising the potential savings it could realise. It is purely speculation. It is informed speculation but not more than that.

On claims-free records and no claims discounts, as far as I am aware no claims discounts are freely transferable between insurers. In fact regulations have been in place since last year regarding the format of renewal notices and the automatic issue of proof of bonus, which make it even easier to transfer from one company to another. On foot of one of the recommendations of the MIAB, we have also extended that across the market to recognition of foreign driving experience. Anybody with a bonus earned in any other EU member state will get credit for it when they transfer to an Irish motor insurer for an Irish car.

On the profitability or unprofitability of business, what I am giving the committee are market figures - obviously there are variations between companies - and I am talking specifically about motor and liability insurance, whereas different companies have different mixes in their portfolio between those classes of business and between those classes and other classes. Traditionally liability insurance proportionate to the size of the premium income is the most unprofitable. Property insurance has tended to be more profitable and motor insurance is somewhere in between. Generally it has always made an underwriting loss as long as I have been in the business. The year 2002 saw an improvement in both areas but there was still a significant loss in liability insurance. There will obviously be variations between companies but it depends on how successful they are and the mix of their business.

Chairman

Is there a definite period of time within which notice must be given or must we legislate for that?

Mr. Kemp

Under the motor insurance renewal regulations now in place there is a requirement to issue the renewal terms 15 working days in advance of the renewal date.

Chairman

That is three weeks.

Mr. Kemp

Yes. As part of the voluntary guidelines we have agreed with IBEC, we are also undertaking to do that for other classes of business provided the necessary information is available to the insurer to set the terms. Often, particularly with liability insurance, one is looking for information about the turnover or wage-roll or whatever in order to set the premium.

Chairman

There are three more members offering. I am pleased to inform the members and the gathering that we have extended the meeting beyond 2 o'clock.

Senator Leyden

Is the Irish Insurance Federation a cartel? Would it assist the industry if acting as a cartel was made illegal and abolished? I am relieved that my own insurance company, FBD, is not a member of the IIF according to this list.

Mr. Kemp

We are most definitely not a cartel. We are a trade association, a representative body like IBEC or any other trade body. We have no influence on our members regarding the premiums they set or any of the essential elements of their business. They are entirely free to manage their business whatever way they wish and we do not seek to interfere with them in any way, nor would we be allowed to if we tried - I am confident of that.

Senator Leyden

Is it not an old boys' club?

Mr. Kemp

FBD is a member, by the way.

Senator Leyden

It is not on this list. Is it a form of an old boys' club?

Mr. Kemp

No. We are a professional trade association.

Senator Coghlan

Mr. Kemp seemed keen in his opening remarks on the personal injuries assessment board, which has not been set up and to which he briefly referred, to state that it will be limited in its scope. When it is in place how does he see it helping as opposed to how he or the industry might like it to help? In what percentage of cases, in his estimation, is liability the issue?

How many of the PIAB cases will be appealed in the courts? Can the book of quantum be made mandatory for the courts? If the book of quantum came up with lower awards which the Judiciary applied, would that lead to a reduction in insurance costs?

Mr. Kemp

They are difficult questions. How will the PIAB help? First, it will establish a comprehensive database of case settlements - its own adjudications, settlements in the courts and settlements reached through negotiation. That will help as it will introduce an element of consistency lacking in the current system. It will enable parties to settle cases earlier and thus avoid additional costs. The principal purpose of the PIAB is to streamline the process of adjudicating on cases and do away with the current waste in the litigation process, such as duplication of costs with the production of medical reports and the use of large legal teams, all of which are very expensive. I understand this will be a purely paper-based system, with limited costs being incurred. The potential benefits, as I see them, are twofold, with direct reductions in delivery costs for compensation and greater consistency in award levels, which will encourage earlier settlements and cut costs in negotiated cases.

The proportion that will be appealed is impossible to say. I understand it is not technically an appeals process. There will be a pre-existing obligation to refer cases to the PIAB, which will be a precondition for starting litigation, so it is not an appeal as such. It will apply in the first instance only to employers liability cases, though the intention, if it is successful, is to extend it fairly quickly to motor and public liability cases. It will only apply to settlement-only cases, as has been said.

At present there is a tendency for liability to be raised as a tactical issue in defence. I suspect that will decline in the future because the experience is that most cases produce a liability. If the PIAB route proves cheaper there will be an incentive for defendants and their insurers not to plead liability at the outset. However, it is impossible to say what proportion will go to the PIAB or what will go to appeal in advance of seeing how it works.

Regarding the book of quantum being mandatory, it will be a reference database. Its influence will depend on how accurate it is. We would like to see some form of very influential, if not mandatory, book of quantum which the courts would refer to. I hope this becomes that kind of instrument. Perhaps it would be better to have judicial guidelines which the Judiciary would be involved in establishing, but if this has the effect of setting levels and increasing consistency it does not matter what form it takes.

Chairman

If that would lead to a reduction in insurance costs surely you would favour that?

Mr. Kemp

Absolutely. We are in favour of consistency and anything that reduces costs but I understand it is not the intention to set levels within the PIAB which are lower than the averages currently given by the courts as that would create all sorts of other difficulties for the PIAB. I do not anticipate savings in the short-term but there should be a more consistent level.

Senator Coghlan

Is there any date in prospect for the establishment of the PIAB?

Mr. Kemp

I understand the heads of the legislation have been published, been presented to Government and will be put forward in draft form very soon. The Bill is to be enacted in the autumn session and the PIAB should be up and running by 1 January.

Senator Hanafin

I welcome the three groups and I agree with the chairman on our responsibilities in this area. We have heard emotive submissions from people about how many hours they have worked to build up their businesses and how they are now fearful for those businesses. How come, since 2000, the price of policies has gone up by 200 to 300%? Our claims have not gone up 200-300%. We know that.

What companies are behind those trading here, AXA or whoever? What companies own the main players in this marketplace? What has been the exposure of those companies to the events of 11 September 2001 and reinsurance? Does this explain why Quinn-direct can involve itself in seemingly high risk insurance - because it is not involved in reinsurance? The main reason for our higher premiums may refer to reinsurance abroad.

Chairman

A very good question.

Mr. Kemp

Regarding the rate of increase since 2000, my figures indicate the total volume of premium in liability insurance increased by about 26% in 2001 and 45% in 2002. Although there are cases where there have been higher increases it is not the average. Members should bear in mind that that also reflects general economic growth, wages and turnover, inflation, etc. The net average impact on rates is considerably lower than those examples.

Regarding the ultimate owners of companies active in Ireland, there is a variety - some companies are indigenous, while others are owned and trading under the parent's name, AXA and Allianz are prime examples. Some are European owned and there are one or two American companies but for the most part the companies are global multinationals.

Exposure to the events of 9/11 is not a major issue in motor insurance costs because a relatively small proportion of the motor book is reinsured. There has been a significant impact on property insurance, as typically 20% of the gross premium is paid out in reinsurance. Most companies have seen a doubling or more in their insurance premiums. Liability is somewhere in between, around 12.5% to 13%. There has been an impact, though that is not as great as the impact of some local factors.

Chairman

I thank Mr. Kemp for his presentation. I am sorry for Dick O'Driscoll and his colleagues, who have been so patient. I invite them to make their submission and they are most welcome.

Mr. Dick O’Driscoll

On behalf of my Hibernian colleagues and myself I welcome the opportunity to speak to the committee. Everyone in the room should have our presentation pack of slides and text. I am accompanied by Mr. Brian Huston and Ms Laura Booth, director and executive manager respectively of Hibernian. During the presentation I will expand on those factors which impact on insurance costs for business in Ireland and identify those actions which are most likely to improve the environment for the commercial insurance sector. However, I begin by focusing on two key messages which should be uppermost in our minds in considering insurance costs in Ireland.

First, Ireland is not a safe place to drive in or to work in. Second, reduced costs will result in reduced premiums. Neither of those statements will come as a surprise to those present. However, seeking solutions to insurance costs without addressing the fundamentals can give rise to false expectations among customers. We need to take all the medicine required to reform our marketplace and reduce insurance costs, which we in Hibernian are committed to doing. Hibernian has already made a submission to this committee which focused on the factors driving the cost of insurance in Ireland and the problems peculiar to the insurance market here. That submission also focused on the solutions which we in Hibernian believe would drive down the costs of insurance if fully implemented.

In today's presentation, rather than revisiting the content of the earlier submission, I have decided to look at some of the issues in a wider context. First, let us consider the issue in an international context. We have been talking here today about the Irish marketplace which obviously is our primary focus. However, let us remember that insurance is not just an issue in the Irish market. The North American, European and UK markets are all suffering liability insurance cost increases somewhat in line with that in Ireland.

Liability business, by its nature, depends on a strong reinsurance market, which has just been alluded to. That reinsurance market supports the primary insurer. A good example of this would be the emergency of disease claims like asbestosis many years after the payment of premiums. In real terms, the premiums that are paid 20, 30 or 40 years ago are just not capable of supporting the sort of claims that emerge like asbestosis. Therefore, the need for reinsurance is paramount.

In international markets, which have been less volatile than Ireland, where claims frequencies are lower and awards have been more stable, reinsurance capacity for the liability sector has been in short supply. Against that background, we should not be surprised that there have been difficulties locally in Ireland. One can understand the difficulty liability insurers find in sourcing appropriate reinsurance capacity to enable them to write business in Ireland. Our marketplace has a strong claims culture and a compensation system which we all agree leads to high costs. These features around a strong compensation system are that it encourages the development of fraudulent claims and reduces the attractiveness of this marketplace to insurance and reinsurance capital alike. At Hibernian we have sought in recent years to better understand how the market in Ireland compares to those international marketplaces, both in terms of the drivers of the cost of insurance and the absolute costs and compensation levels experienced in those other markets.

We have felt for some time that it would be of benefit to all participants in the insurance debate if some independent comparative analysis of the Irish non-life insurance market was conducted against international marketplaces. As a large player in the market here, we engaged an international consulting firm, Tillinghast Towers-Perrin, to conduct on our behalf research against these benchmarks. The markets of particular comparative interest to us in Hibernian were identified as the UK, Spain and New Zealand, with additional markets of comparative interest to include Canada, Denmark, Finland, Israel, South Africa, California, Massachusetts and Victoria in Australia. We passed on in recent weeks a copy of the report and research to the Tánaiste, Deputy Harney, and to the chairman of the Competition Authority, Dr. John Fingleton. At today's session, we will supply a copy of the report to the chairman.

The research conducted has identified many factors which impact on the cost of insurance in Ireland. For example, personal injury awards in Ireland are more than ten times higher than those in the UK. Motor offence detection rates in Ireland are low by international standards. Spending in Ireland on occupational health and safety is about half the level of the UK. We have a poor safety record both on the roads and in the workplace compared with other European countries. I say that acknowledging that there has been an improvement in some sectors in recent years. These points may seem unsurprising to members of this committee, but as long as statistics like these prevail, it is almost inevitable that we will end up paying higher insurance premiums than our neighbours in Europe. We believe that the research we have commissioned and has been conducted on our behalf provided opportunities to identify areas of action most likely to directly impact premium levels in the short to medium term.

The fact that we have had the MIAB study and report, the PIAB proposals, and the introduction of penalty points, together with the Competition Authority and DETE joint study, is proof positive that insurance is on the agenda of the Oireachtas, which we accept fully. In Hibernian we welcome all of these initiatives because we believe that every one of the initiatives potentially provides vital ingredients for the bigger picture solution. In Hibernian we have implemented every recommendation of the MIAB within our control.

Our core strategy as a business has been to innovate, to provide solutions and opportunities for customers to participate in risk reduction measures, thereby reducing the insurance costs. The way we have set about doing that is different in various sectors of the market but it includes products like Riskasyst, a commercial insurance product, Internet based, which allows interactive risk management reduction programmes by the customer. Customers who avail of this facility, which we have provided free of charge, can take a 10% reduction on their commercial premiums. On foot of the feedback that we have had from customers about their wish to participate in carrying some of the risk themselves, we have introduced a 15% premium discount for commercial insurances where customers are prepared to carry the first €5,000 of claims themselves.

In the inexperienced driver market, which has already been alluded to here today, we have introduced a training and assessment programme known as Ignition which provides inexperienced drivers with discounts of up to 50%. We have set about providing risk management support for individual industry categories and we have worked with the Small Firms Association to educate their members and customers. We have produced a guide for these customers which assists them in the management of their insurance costs. As an insurer in the motor market, we have promised to reduce motor insurance premiums for penalty point-free customers by 10% from next November. Despite the fact that there has been a deterioration in recent months in the killed and seriously injured statistics on the roads, we believe we are still on track to deliver that reduction because we believe the commitment to the penalty points system is central to the long-term success in reducing premiums in Ireland.

We have introduced a customer claims charter which seeks to keep the commercial customer involved in the claims settlement process from the outset. We have established in Hibernian a claims fraud unit which is focused on reducing the opportunity for fraud and the tendency in Ireland to exaggerate claims. We have worked, not alone with the Small Firms Association but with various trade organisations to seek solutions unique to their members to improve the culture of risk management in their businesses and to reward them for better work practices.

For Hibernian, this committee is uniquely placed to reinforce the actions required to improve the environment for the insurance customer. Enforcement remains at the top of the opportunity hierarchy. Enforcement on the prevention side through the continuing roll-out and implementation of the penalty point system, together with the supporting IT infrastructure required to make this system effective, is imperative. Enforcement on the litigation side through the introduction of sworn affidavits as proposed will reduce claims fraud and exaggeration. I believe expediting the implementation of PIAB, and the book of quantum already referred to for the Irish market place, is a long-term solution to escalating insurance costs. We recommend the acceleration of court reform and the implementation of outstanding MIAB recommendations.

I encourage everyone present to reconsider my opening remarks that Ireland is not a safe place in which to drive or work. To reduce premiums we must reduce costs. The way to achieve this is to make our environment a safer one in which to work and drive.

Chairman

I thank Mr. O'Driscoll for his comprehensive report and submission, which was possibly the best of the 50 received. People who know Hibernian can say they were well treated over the years. I have been a customer of Hibernian for many years.

Deputy Hogan

I welcome Mr. O'Driscoll and his team. I congratulate him on his recent appointment and wish him well in the future. I was interested in his key message that Ireland is not a safe place in which to drive or work. This has become more noticeable over recent years with the increasing level of premia being charged to customers in the liability and motor sectors. When did it become unsafe? This seems to have happened suddenly from the point of view of customers.

Mr. O'Driscoll mentioned various means and categories of rates used to attract customers. I understand there are four or five different ways of attracting business. What is the difference in the premia charged to the various categories and why is it necessary to have five different rates? Why is there not one rate to allow everyone benefit from lower rates? Are brokers unnecessary and does the escalated interest in Internet selling bother them? Do they contribute to higher premia? I realise that Hibernian is a market leader and that it sells one in three products in the general insurance market in Ireland. Would that leave the company open to accusations of predatory pricing in that market?

Mr. O’Driscoll

First, I will deal with the question as to when it became unsafe to drive or work here. Our track record for Ireland in European league tables on the motor side indicates that we have performed at the bottom of most leagues over the long haul. On work-place insurance, we have seen some minor improvement in recent years, as we have in relative scale on the motor side in Europe. However, the reality is that against all of the benchmarks we have identified through research work we have commissioned Ireland is still in the bottom quartile. None of the improvements we have seen have significantly shifted that position.

On the multi-channel distribution to which the Deputy referred, Hibernian does provide its personal insurance products through many channels. Those channels are direct, intermediary based and financial institution based. As a distributor of personal lines products, it has been our policy over a number of years to ensure that wherever our customers choose to shop, Hibernian will have a choice there for that customer. How the price of the product is differentiated between different channels has to do with the different costs of distribution in those channels. The base cost of risk, or the risk product itself, is costed on the same price for each channel. The only differences in costs are derived by different costs of distribution.

In terms of the benefit to be derived from advice through a broker, we are very clear that we believe that the broker should be the primary source of advice for all commercial insurance customers. We believe that in some cases on the personalised side the customer decides to shop direct. We have provided the facility for the customer to do that. We avoid situations where complex advice is required, particularly in the case of commercial insurance. We avoid doing anything, by and large, other than directing the customer via the broker for such advice.

Deputy Hogan

I am perplexed that Hibernian needs any brokers to do business in regard to personal lines. Almost everybody has access to technology and the Internet based system. If this will result in a cheaper product for the customer companies should be honest and say that customers do not need brokers. Brokers should be told that customers will be directed, through advertising, to the Internet based system, for household or motor insurance.

A brokers' association complained recently about production targets. Companies sometimes require that a broker does a certain amount of business with them before they will give them the full line of products? Is that right or does this happen? What impact does it have on the choice of products available to each broker?

Mr. O’Driscoll

Hibernian has no production targets for any of its general insurance brokers. That is not, nor has it been our policy. I am aware of the comments made in the context of some other insurers but I am not aware of how those targets are set or how real they are.

In regard to a choice for personal lines buyers, it is our view that some personal lines buyers want the advice of a professional broker before they make a choice, even on something as simple as a motor or home insurance product. We believe there will always be a market for that advice.

Deputy Hogan

Mr. O'Driscoll did not comment on whether Hibernian could be accused of predatory pricing in the market. I am aware of a recent occurrence where a mistake was made in the company, and others followed, and it was corrected within 24 hours. A number of smaller companies in the market might be watching what Hibernian does. They watch the market leader in order to remain competitive - this is not unique to the insurance business. Can we have a comment on whether Hibernian could be accused of predatory pricing?

What is the impact of the reinsurance companies? Since Hibernian became a multi-national European based company it takes its orders from the analysts in London. Why can Hibernian not convince the analysts to take more of the Irish insurance market? The London office treats Ireland as a separate independent location and Hibernian is obliged to make a profit in this jurisdiction even though a different population and different factors are at play here. Has Mr. O'Driscoll any idea as to how we could get over this issue or is this something with which we have to live? Will the Republic of Ireland continue to be treated as a separate independent location for insurance products and will international based companies never understand that Ireland can be a profitable location in conjunction with the British Isles?

Mr. O’Driscoll

I am not aware that Hibernian has done anything I would perceive as predatory in terms of pricing. In all matters related to pricing we apply what we consider to be sophisticated and customer-focused techniques. All of our price moves are led by the commitments we have made to the customers we serve, on the basis of the performance of the market here. The suggestion of predatory pricing may relate to the 10% reduction in premia on foot of penalty points. We have decided that penalty points are central to the future success of road safety in Ireland and that we should be seen, as a large player in the market, to make a positive commitment to do that. In our terms, 10% represents in excess of €30 million from our bottom line. We believe it is a huge commitment from our perspective to the long-term success of penalty points.

On the parent approach to us as a company in the market here, it is not possible as long as the situation in Ireland remains as volatile as it has been for anybody external to this market to equate the pricing or product strategies from other markets with those that they would employ locally in Ireland. If the performance of this market from a return on capital perspective or indeed on a stability of awards basis, became more easily comparable with Europe or the UK, I am sure that people would welcome the opportunity to treat the customer base in Ireland on the same basis. The reality is that the differences are stark.

Chairman

It is stated on page three of the submission that the litigation costs associated with finalising claims in Ireland are substantially higher than in many other countries. What is Hibernian's solution for reducing the cost of claims?

Mr. O’Driscoll

We believe that the reforms in the system suggested and primarily led by the PIAB, and the fact that claimants will have to make a sworn affidavit up front will shift the goal posts and provide an opportunity for us to reduce the costs and the tendency to exaggerate or create fraudulent claims. That is the single strongest platform on which the reduction in costs should be focused.

Chairman

Does Mr. O'Driscoll agree that the Government is addressing that issue at present? In the very near future, many of these recommendations will be taken on board and incorporated in legislation.

Deputy C. Lenihan

On page 18 of the submission there is reference to, in effect, privatising the enforcement of the penalty points system. As a public representative I have had people asking me why so many gardaí are tied up in the enforcement of this system. How would it operate, in your opinion? Does Hibernian mean private operators being responsible for the speed testing and operating the cameras?

Mr. O’Driscoll

Our experience is that those countries that have implemented penalty points have found that unless enforcement levels are maintained consistently, the benefits of penalty points will fritter away fairly quickly. To get the penetration that would be required to ensure that enforcement levels are maintained using appropriate technology such as static and mobile cameras, we feel positively about the fact that it could be either a public private partnership or it could be outsourced in some fashion to ensure that enforcement levels are achieved and then maintained.

Deputy C. Lenihan

Are you saying that the current system is not being enforced at the appropriate level or the Garda has not got the resources to do so?

Mr. O’Driscoll

All the research points to the fact that the chance of getting caught for speeding or drink driving is lower in Ireland than it is in other countries.

Senator Hanafin

I thank the insurance industry. In my case - it affects one when it comes home - I have had two claims in two years. The first was a theft at a store I owned and the second was a small fire which caused a lot of smoke damage. I was insured with Hibernian and it was handled very well and very efficiently. It is important to remember the good and important role played by the insurance industry.

In light of the introduction of the PIAB, the streamlining of court procedures, enforcement of road and work safety methods, tackling fraudulent claims and proper legal settlement amounts, what kind of reductions can you see being passed on to the consumer? How can you allay our fears that the profits of the insurance companies will increase but the benefits may not be passed on?

Mr. O’Driscoll

We have already begun to see the translation to the customer of the benefits of increased enforcement through the introduction of penalty points. The other features referred to by the Senator will, I believe, translate over a period. We are regulated as an industry. How we provide for our claims is reviewed independent of us. The profitability of our industry - the true picture - emerges over time. I am very confident that if the work practices that we are trying to encourage are improved and risk management practices and enforcement practices introduced, there will be a change. In the case of our company, it is 12 months since there has been any change or any new increases in motor insurance premiums. Inflation has been at 5% over that period and Hibernian is undertaking to reduce motor premiums by 10% this year, that already is a 15% reduction. A stable claims environment would continue to ensure that there will be no further increases. There is a scale of benefit that would translate to the customer if we can continue to achieve increased enforcement through penalty points and reductions in deaths and serious injuries.

As Mr. Kemp said earlier, it is impossible to predict what the value translation process will be but I believe the measures are there to ensure that we are transparently identifying the same.

Deputy Callanan

The submission mentions that the Ignition training programme gives a premium discount of up to 50% and I welcome that. Is there a cost to the client for this programme? Must the client insure with your company when he signs up to this programme? Should there be more road safety training aimed at secondary and third-level students?

Mr. O’Driscoll

The Ignition initiative is a Hibernian programme. The cost of the Ignition training programme for an individual is €225 and that is borne by Hibernian, not by the insured. The only case in which an insured bears any costs is where they book on to the programme and they do not attend it. We believe that it provides an opportunity for that customer to learn more about the sort of defensive driving techniques that can assist on top of the training they have had for the driving test. After 18 months of the programme the early evidence shows that the performance of customers who have been through this process has been better than a test group of people who have not been through the same training process.

Hibernian is the sponsor of two programmes of road safety and general environmental safety in both primary and at transition level. We sponsored for ten years a programme at transition level which we believe will hugely increase the awareness of transition students of road safety issues. This programme needs to be reinforced by ensuring that it has a high profile on the curriculum.

Deputy T. Dempsey

I am sorry I could not be here earlier because I am involved with another committee. I am interested in what Mr. O'Driscoll was saying about education. I had proposed something similar to the parliamentary party. The theory section of the driving test could even be part of a civics programme for first year students in second level schools.

I have been involved in the GAA and I am involved in business. There are two things about which I am not clear. Will Mr. O'Driscoll give an indication of the company's profit margins for the last trading year as compared to the previous year? Have they increased? I read that Hibernian's profits rose by 30%. While I am not begrudging, I just want to know whether the insurers are losing as much as the premium payers in this. Mr. Kemp may have already addressed this issue. How do profit margins for insurers here compare with those in Britain? I am concerned that so few companies want to set us business in Ireland. Perhaps this is not a healthy place to trade, just as it is not a safe place to drive.

Mr. O’Driscoll

I will take the second point first. Why are the insurers not attracted to the local market here? I have attempted to deal with that in terms of the history of the instability of the market and the unattractiveness of the results it has generated. In terms of the profitability of Hibernian General Insurance in the market, the latest figures available are the 2002 figures where we had a trading profit of €54 million from a premium base of almost €1 billion. That would represent an increase, I think, in the order of 25% over the previous year, but I cannot be certain of the number here and can resubmit it.

Deputy T. Dempsey

How does €54 million on €1 billion compare with a similar operation in Britain?

Mr. O’Driscoll

Historically the market in Ireland has been less profitable than it has been in the UK. At a point in the cycle it may be more or less depending on where the cycle is in the UK.

Chairman

Would it be more loyal?

Mr. O’Driscoll

It would not necessarily be more loyal. It is important for members to understand that upwards of 20% of all motor insurance customers change their motor insurer in any one year.

Deputy Hogan

That is quite high.

Mr. O’Driscoll

Whatever about any concern people might have about competitiveness, there are very few sectors where 20% of customers are leaving every year to go to a different supplier.

Deputy Nolan

I compliment Mr. O'Driscoll on his comprehensive presentation today. What percentage of premium must drivers pay to cover the claims made through the Motor Insurers Bureau of Ireland relating to uninsured drivers?

Has any company looked at the principle that the higher the premium the more people will be forced into driving without insurance? We had very high income tax rates 25 years ago and when the Government started to reduce those rates people were brought out of the black economy and back into the legitimate economy. Would the same happen in motor insurance if the industry started to reduce its premiums for first-time drivers in particular? We should try to get them into the system rather than leave them out given that their claims have to be paid for through the Motor Insurers Bureau of Ireland.

Mr. O’Driscoll

The first question asked how much of a levy is being charged to the individual policyholder.

There are varying views in the industry, but they range between €70 and €100 per policyholder, which is the real cost of the levy on the market. On the higher premiums driving more people out of the market, there is no doubt that there is a higher prevalence of no insurance in the highest risk sectors - the people who are paying the highest premiums. How much can be done about that when the perceived penalties are small is questionable. For example, if a person faced with a premium of €3,500 decides it is a better risk to get caught and pay a fine of €1,000 or €500 when the value of their vehicle is very low anyhow, it is very difficult to militate for that in how we manage the market.

How we have dealt with it in Hibernian is to introduce the Ignition inexperienced driver programme which specifically makes commitments to people around their participation and continued responsible behaviour within the programme. It supports them as inexperienced drivers from the start. However, what we expect of people who participate is that they use a vehicle of 1.4 litres or less and that they participate within the rules of the scheme, but they are insured in their own names. For people who would use a vehicle exclusively for work, for example, we have offered specific discounts around issues like curfew from 11 p.m. to 6 a.m. If they say they do not want to use their car during the highest risk periods, we will offer further discounts for that.

Chairman

I thank the three groups for their presentations and I thank the members for their attendance. The meeting was very informative. The next meeting is scheduled for 9.30 a.m. tomorrow when Mr. Seán Dorgan will appear before us in connection with the IDA annual report for 2002. On Thursday at 1 p.m., AXA and FBD will make oral presentations and respond to questions and statements by members.

As I said when I opened these hearings, we may need one or more of the groups to return before we complete our inquiry. Our intention is to publish our initial report sometime by the end of July or early August. In December we will prepare the final report to be laid before both Houses of the Oireachtas. At that stage we may need some of the people who were here today to return. We want to solve this problem together and what we have heard here today has been most helpful.

The joint committee adjourned at 2.17 p.m. until 9.30 a.m. on Wednesday, 2 July 2003.