Reform of the Irish Insurance Market: Presentation

I welcome back Mr. Myles O'Reilly of O'Reilly Consultants to the discussion on reform of the insurance market. We also have representatives from two insurance companies, AXA and FBD, who will make presentations. AXA has already submitted a written presentation and we have just received the FBD submission.

As members are aware, we received 50 written submissions following our invitations to certain bodies to give us their views on this issue. This was facilitated by the notice printed in the national newspapers on the first Sunday in March inviting organisations and members of the public to make written submissions. Copies of the documentation received have been circulated to members.

This is the third committee meeting for the hearings of oral submissions for those who had 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 now or at the beginning of their contributions. Members are also reminded that if there is a possibility of there being a conflict of interest, they should make a declaration of interest either now or at the start of their contributions.

From the AXA insurance company I welcome Mr. John O'Neill, chief executive, and Mr. Pat Healy, executive director of finance and planning. They are most welcome. From FBD Insurance I welcome Mr. Philip Fitzsimons, chief executive, Mr. Adrian Taheny, development manager, and Mr. Martin Moran, underwriting manager. I invite FBD Insurance to make its contribution first, after which each committee member will have the opportunity to make contributions and to ask questions.

I draw witnesses' attention to the fact that the members of the committee have absolute privilege but that the same privilege unfortunately does not extend to visiting groups.

Mr. Philip Fitzsimons

On behalf of my colleagues, Mr. Taheny and Mr. Moran, I wish to say that FBD Insurance is pleased to have been invited to make this oral submission to the committee. I am aware that the committee has already received submissions from the IIF and a number of our fellow insurers. They, and the IIF in particular, will have given the committee a global view of the key issues the committee is addressing. Consequently, I will by and large confine my comments to an FBD perspective on the subject.

We have circulated slides and I propose to take you through them. Slide 1 shows that FBD Insurance plc is part of the FBD Holdings group. From slide 2 you will note the group also has interests in life assurance, insurance broking and in hotel and property developments. Slide 3 highlights that FBD Insurance is a direct sell company distributing insurance through a network of 50 branch offices. This brings us into close contact with, and makes us extremely accessible to our customer base. Our target markets are the farming, retail shops, pubs and SME sectors.

Slide 4 shows our market share as at December 2002. We have 8% of the overall market. As you will note we are the biggest Irish owned company in the market. Our penetration in markets outside Dublin is considerably higher as until recent years we had focused all our attention and development energies on rural Ireland. Slide 5 shows our motor-non-motor split of business is 59% motor and 41% non-motor. The next slide, looking at the non-motor sector gives a feel for our book of business. It is made up of property at 17%, liability - both public and employers' - at 23%, and miscellaneous business at 1%. Going a bit further into our book of business and the nature of business we underwrite, you will see from slide 7 that our farms - in terms of policy numbers - account for 52%, stand-alone home insurance 34%, sundry businesses 9%, shops 2% and pubs 2%. It is pretty reflective of the Irish economy and rural Ireland and SMEs.

The next slide focuses on how FBD has fared and how our results have turned out over the years in the various classes of businesses we underwrite. Slide 8 gives our underwriting results which, as we all know, are premiums, less claims and less overheads and shows that for the various classes of businesses covering the years 1998-2002, liability - the yellow line - and motor - the red line - have shown losses for all those years, they are below the zero median; property - the green line - has been in profit and the overall outcome - the blue line - shows ongoing underwriting losses during the period.

Slide 9 depicts the technical result for these classes of business, by that we mean the result after crediting investment income to the accounts. Our overall technical result - the blue line - shows a profit over the period. This profit is attributable almost entirely to our property account which has made up for the losses experienced on our liability and motor business - the yellow and red lines.

This brings us to the key issues facing FBD, issues which mirror those of the industry. In slide 10 we have noted that the key requirement for FBD and any insurer is the need to meet regulatory solvency margins and also to achieve an adequate return on capital. In an era when declining investment returns are being experienced, this puts the spotlight firmly on the cost of claims as the critical factor requiring attention.

Slide 11 summarises graphically how each €100 of premium paid to FBD is disbursed. After crediting investment income of €7 to the €100 - on the left - the total of €107 is disbursed as follows: €88 goes in claim costs, of which legal and other fees make up €18; operating expenses are €8; moneys paid to re-insurers are €4; Government levies and taxation account for €3; the amount retained for solvency is €2; and the dividend to shareholders is €2. It is clear from these figures that premium reductions will be possible only if the major cost element, that is, claims, is reduced.

How can these costs be reduced for the benefit of all parties, that is, personal and business customers, and insurers? We have highlighted in slide 12 the major role which we believe the stringent implementation of the penalty points system for speeding, and the provision of access to insurers to the national driver file, have to play. We also encourage an expansion of the range of offences that attract penalty points, and we favour increased sanctions for driving without insurance.

Slide 13 records that there has been significant progress to date, and we believe that matters are heading in the right direction. We have seen the Government's commitment to assist in changing Ireland's claims culture and claims handling procedures through a new focus and new legislation. The MIAB report and the Government's high powered committee to oversee the implementation of its 67 recommendations provide a vital road map for delivering the reforms necessary to reduce insurance premiums. The introduction of penalty points has begun to deliver to insurers and insured alike. This is evidenced, as we see from the next slide, by the reduction in car premiums which many insurance companies have already introduced. As slide 14 highlights, FBD has reduced third party car premiums by 5% compared to last year, in addition to introducing a range of options and discounts that can reduce premiums further. This 5% reduction must be considered against the background of inflation running at close to 5% this year. In real terms, we are talking about a 10% reduction vis-à-vis 2002.

The premium reductions which FBD has implemented to date have been put in place on foot of the reduced claims frequency and reduced claim costs that are emerging as a result of the improved road safety scenario. However, major progress will be seen only when other key action requirements are undertaken. They are listed on slide 15 and are as follows: the early operation of the PIAB - Personal Injuries Assessment Board; legislation to discourage and penalise exaggerated and fraudulent claims, the introduction of a book of quantum for greater certainty and consistency will be the order of the day with regard to injury claim compensation levels; a restructuring of the current inefficient and costly civil court procedures; and retaining circuit and district courts jurisdiction limits at the current levels.

There are initiatives which the insurance industry must also undertake. Slide 16 reminds us of what they are: they must implement guidelines recently agreed with business associations in relation to the investigation and handling of personal injury claims, insurers should pursue the rehabilitation of injured claimants as opposed to the current "pay up and move on" settlement approach. Indeed there is room for improved co-operation between insurers and insured on both accident prevention investigation and claims handling. FBD is playing its part in taking initiatives designed to reduce claim costs and ultimately premium costs as the next few slides show. For a number of years we have a full-time safety-risk assessment officer on board, to review risks and advise on safety measures for farmers and small businesses. FBD promotes and assists in the completion of safety statements by farmers and other business clients. FBD, in association with the National Parents Council, has promoted and funded the safety education programme for secondary schools. As of March 2003, approximately 12,000 students have been addressed.

FBD has undertaken safety education initiatives in primary schools in the Munster region in particular in association with theIrish Examiner group. Over the years, FBD has provided substantial sponsorship funding in the area of accident prevention to sundry organisations, and we have been to the forefront of such promotion in our target markets.

FBD recognises and wishes to support the invaluable role that this committee can play in advancing the agenda that can ultimately deliver economic insurance. Economic insurance means insurance at a price that delivers a return on capital sufficient to reward and maintain investment by shareholders in the industry while also delivering premiums to the general public and businesses at a level that is competitive relative to competitor countries. The template to achieve these ends has been clearly mapped, and if all interested parties work together these objectives can be achieved. I assure the committee that FBD is prepared to play its part in this mission.

I have just one or two questions before I bring in the committee members. Does Mr. Fitzsimons agree that there is a problem in the industry?

Mr. Fitzsimons

Yes, there are problems in the industry.

Is FBD prepared to help solve the problems for this committee in our inquiry?

Mr. Fitzsimons

We are prepared to assist in solving those problems.

Mr. Fitzsimons says that FBD reduced third party insurance by 5%. What was its increase in 2002?

Mr. Fitzsimons

Our average increase in motor insurance was 10%.

So the rate is basically down to the 2001 level, taking inflation into account.

Mr. Fitzsimons

In effect.

On a point of clarification, Mr. Fitzsimons talks on his slide about an underwriting result in 2002 which reveals underwriting losses on the motor insurance side of between €5 million and €10 million. On the technical result, he then pushed motor insurance into a €6 million profit. Can he please explain that to us? This figure is obviously arrived when investment income is inputted. What practice is FBD using in accountancy terms? Is it spreading this over the categories? How does an underwriting loss become a profit?

Mr. Fitzsimons

The motor account, as we saw earlier, makes up 59% of our total business. Given the nature of motor claims in particular, outstanding claims are fairly long tailed. On average, injury claims take three to four years to settle, so a lot of our technical reserves would be associated with motor insurance, and a big proportion of the investment income that we would earn on those funds set aside for payment of claims would be directly attributed to the motor account and would prove the underwritingresult.

The year 2002 appears to be the first in which this combining of premium reserves has happened. The graph for 1998 to 2002 shows that in 2002 FBD actually goes into a technical profitable result. There must be other reasons for that.

Mr. Fitzsimons

That is correct, and they are reflected——

I say this in a particular context. We have heard from lots of insurers who say that they cannot make money on motor insurance. FBD is disproving that.

Mr. Fitzsimons

If one looks at the red line on the underwriting result on page eight it shows that there was a significant improvement. It also lifted the technical result considerably. We have reported, and have commented in our press release, that there were indications towards the end of 2002 in particular that underwriting experience in motor insurance had improved. This is reflected in the improvement of that figure from €22 million to €10 million.

To what is Mr. Fitzsimons attributing that?

Mr. Fitzsimons

We would attribute it in large part to improved road safety practices and a greater awareness among the general public that something had to be done about it. There has also been, it is fair to say, an improvement in the claims culture. The work of the Government and the publication of the MIAB report put a particular focus and spotlight on the underlying problems. There is no doubt that change is taking place.

As a final supplementary, is it Mr. Fitzsimons' experience that the judges are becoming less generous in their awards and that this is a big contributory factor?

Mr. Fitzsimons

We are seeing indications of that, and it is worth remembering that many claims do not go to actual hearing and are settled prior to that. At the end of the day the ultimate test is what the award would be in a case if it went to hearing. It does set a benchmark for the settlements made on the steps of the court.

There has been a dampening down.

Mr. Fitzsimons

There has been a dampening down in our experience.

I wish to put a number of questions. First, I wish to develop the point raised by Deputy Lenihan so that I can understand the technical result sheet that was presented. How dependent is FBD on the bottom line in relation to investment income? How much of the profit it has made, as indicated in the technical results, is actually investment income augmenting underwriting loss? How has the changed stock market of recent times impacted upon that? I ask this so that we can get a full understanding of whether we are talking about a particular crisis in the insurance market or a crisis in the general markets that is impacting on the insurance industry.

In relation to the PIAB, on which Mr.Fitzsimons laid great stress in his submission, he will have an opportunity to look at the draft heads of the Bill that was circulated by the Tánaiste. It is a comprehensive set of recommendations. I ask him for his observations on that because ultimately it will be this committee, acting as a select committee, that will deal with Committee Stage of that Bill. Has he had a chance to study the Government's proposals on the establishment of the personal injuries assessment board and what are his observations for this committee?

My third question relates to Mr. Fitzsimons view - and we have heard from others - that there should be no increase in the capacity of the Circuit and District Courts in terms of their judicial competence limits. Why does he believe this is an important issue? When the courts legislation went through the Houses of the Oireachtas, it was determined for efficiency reasons that these limits should change. It has not happened because of resistance from, among others, the insurance industry.

I digress slightly, but having had personal experience of the courts in recent weeks, I know that trying to get into the High Court is chaotic. We have had submissions here from the Hoteliers Federation outlining the case of one individual, who sat where Mr. Fitzsimons is now, who said he was waiting five years to have a claim sorted because he cannot get access to the High Court. Surely, in a balanced situation, it would be a good thing if we could get more claims that are now joining inexorably long queues for the High Court dealt with in a lower court. What assessment has Mr. Fitzsimons made before making this recommendation to us?

My fourth question relates to the operation of FBD itself. Will FBD fight claims? The point being put to us by more and more people is that insurers settle even when there is no case to settle because they do not want to incur the legal fees or whatever else. As long as that attitude prevails within the insurance industry your companies will be faced with claims. People are frustrated when there is no case to answer but settlements are enforced upon them by the insurance companies and the premium payers have no rights in that area. Will you agree to explain the make-up of your premia to your clients and how you justify increases?

My last question relates to a report from the Irish Consumers' Association which conducted a fairly thorough survey. Its major finding was that there was a major variation in the price of car insurance charged to different categories of driver, based on age and gender. In response to a parliamentary question the Tánaiste indicated that, while she cannot involve herself in the insurance market, she would have concerns about a crude mechanism that might infringe the Equal Status Act and, although we all know that young drivers are disproportionately involved in accidents, the loading is out of kilter. How would you respond to the terms of the Irish Consumers' Association survey?

Mr. Fitzsimons, you have five good questions to answer.

Mr. Fitzsimons

I hope I have them all. The first related to profits and how dependent we are on investment income. Yes, we are dependent on investment income. It is reflected in the slides. Slide 8 shows the total underwriting result which is effectively pre-allocating investment income. It is a minus figure, it is under the line and is the investment income which is attributed to the business, as shown in slide 9, that brings it into profit. They are the facts of life. The Deputy mentioned also the climbing investment income and so on. It does impact on us hugely. That is why much of the emphasis, comment and focus of insurance companies is on improving the basic underlying performance. I mention as an aside that in terms of reporting accounts, they report on the basis of operating profits which calculate a long-term rate of return and are designed to eliminate some of the short-time fluctuations. There are two figures to be looked at regarding the operating profits - moneys attributed on the basis of a long-term rate of return and actual profit. The reality is that the profit before tax for most insurance companies has taken a huge hit as a result of the decline in stock markets.

On the personal injuries assessment board I wish to make a couple of observations. Apart from the fact that we have indicated we are very much in favour, at the moment it is being designed and set up to deal with employers' liability claims only. To have a real impact it should extend its remit, in the first instance, to include all personal injury claims, motor claims. We would also have some concerns in terms of the book of quantum which it is considering establishing. There is some concern that the award levels, on which it might base its book, will be based on Irish award levels which are much higher than the award levels in competitor countries. That is an issue also. We would have some concern over the costs that will be associated with the actual operation of the board and the staffing of the board. There is a huge administrative job to be done and staffing issues have to be resolved. We see it as a major undertaking. There is also the question of whether going to the PIAB should be mandatory or compulsory and the extent to which the legislation provides for that.

The third question related to the court limits. The proposal was that the limit in the Circuit Court was to be increased from €38,000 up to €100,000. The view of the claims practitioners was that upping the limits for the different courts would set higher benchmarks generally in terms of——

Where did that come from? What objective analysis was done to arrive at that conclusion?

Mr. Fitzsimons

Honestly I do not know what the objective analysis was or whether it was a subjective view. Perhaps in due course my colleagues from AXA will reply to that question.

We can ask them.

Mr. Fitzsimons

There is an expectation to move them up. Frankly, that is just a fear. The point is being disputed and debated. In terms of an objective analysis of it, I honestly do not know whether enough has been done.

The next question was about fighting claims. I can assure the committee that as a company we have changed our approach very significantly in recent times. We are going before the judges more frequently. The experience is that cases coming before judges show a tendency to have lower awards. Relatively recently, a code of practice has been agreed with IBEC whereby insurers have agreed to consult much more with the insured on an on-going basis. That is happening. Part and parcel of that is the commitment to challenge claims and not to settle. One of the fears was that economic calls would be made prior to now that it cost more to go the full distance, in the case of smaller type claims by the time legal fees were included. The industry - I have to give credit to the IAF - has said it would take part in this change and that we would all endeavour to fight claims and to up the ante on thatfront.

In terms of the breakdown of the premium, I am not 100% sure what was meant by "breakdown".

The Hoteliers Federation told us it was faced with an increase of 315%——

An increase of 351%.

Yes, a 351% increase in its premia demands during the past three years. The federation could not justify that increase and wants a breakdown, component by component, of the add-ons.

Mr. Fitzsimons

Was this for motor insurance?

Public liability and general insurance for hotels.

Mr. Fitzsimons

You are involved in that industry, so you have experience of it.

The Chairman is the most expert person to ask the question.

I too know where they are.

Mr. Fitzsimons

In relation to the level of increases the only thing insurers refer back to is their actual experience in the particular class of business. We are no different from any other company in that we track our experience by product type. We track exactly what our shop account experience is for all the shops, similarly with the pubs and hotels and price our book from that experience. There were significant increases on businesses in the past three years. I can speak only for our company and the average level of increases we applied and they would not be remotely in the order of that mentioned.

There is a market opportunity here for companies. We might discuss that at a later date.

Mr. Fitzsimons

We are not talking about anything of that order, and the figures show that. It can be seen in the growth of our employers' and public liability accounts. There are no increases of that order. Our premium income went up by approximately 30% in total last year, allowing for inflation, indexation and so on. That does not support a view that the industry increase figure was in the hundreds.

On the Consumers' Association of Ireland, in terms of pricing for the different risk categories, each company, and we are no different, undertakes detailed actuarial studies on the relative risk experiences of different age groups and so on and prices its book based on that. It is fair to say that practice is becoming much more informed and sophisticated with the passing of time. Better analytical techniques are being applied now than previously and that exercise of itself will deliver, for competitive reasons alone, more accurate pricing of the different risk categories, be they age, gender and so on.

Following on what Deputy Howlin said, you referred to the decline in the stock market. Will you tell the committee about your investment in the stock market or the procedures in that regard? Is it a commercial decision based on research or gambling?

Mr. Fitzsimons

There is a huge degree of regulation in terms of what insurance companies may invest in. There are guidelines in terms of the claims reserves that can be put into equities, property, cash and any one quoted stock. Companies tend to mix their portfolio to get a balance - so much in property, equities, gilt and cash. The amount our company would hold in equities would be relatively small compared to our total book of business. I do not mind saying that; it is in our annual report. We would have about €70 million, out of liquid investments of approximately €600 million. It is modest enough in that sense but, having said that, we would have another €300 million in Government gilts. They are subject to stock market vagaries also. In terms of investment policy, therefore, we have no choice but to invest somewhere what are really the claimants' funds. We would be working to get more than the current deposit rate and we do our best within those constraints.

I referred earlier to the fact that the accounting standards and the manner of reporting insurance companies' profits altered about two years ago. It was designed to factor in and state operating profit by predicating one's investment income, based on long-term rate of return, to take out some of those stock market fluctuations. People looking at insurance company results should read two lines - an operating profit line and, below that, short-term fluctuations and then the profit line. The idea is to take a longer-term view of business and smooth out what may be temporary stock market blips.

If you had not reinvested in property over the past three years, you would probably be the wisest of them all.

Mr. Fitzsimons

Over the past three years, the answer is probably yes. You would know, Chairman.

Absolutely. Deputy Dempsey wants to come in.

I want to ask about something Mr. Fitzsimons said when answering Deputy Howlin. Is he saying that if the upper limits of the courts are increased, proportionately the lower courts will begin to make bigger awards?

Mr. Fitzsimons

People will move up from District Court level to the Circuit Court.

Slide 11 refers to legal and other costs. What are the other costs? Medical or others plus medical?

Mr. Fitzsimons

Expert witnesses, engineers, professional and non-legals. Medicals would be a big part of that. It includes engineers, motor assessors, etc.

I am interested to learn that legal and other costs are 20% for motor property and liability insurance, and 40% for injury claims. I know legal costs are a major contributor to the problem with insurance. From an insurer's point of view, why should one be twice as expensive as the other?

Mr. Fitzsimons

In the case of injury claims the legal costs are higher for obvious reasons. They go to court, they are more disputed and our adversarial system promotes and assists that system. Property claims, on the other hand, are settled fairly quickly, particularly when only the car is damaged. Costs are not as high if there are no injuries involved. Reflected in that figure is the reality that, invariably, employers' liability claims and injury claims will involve lawyers. Public liability cases involving injury will have lawyers. A major segment of injury claims will have legal involvement and there is another plethora which will not. That is what brings down the average.

Would Mr. Fitzsimons have any comparison figures with legal costs and soft tissue damage awards in Britain, for example, a comparison that would interest me? I have heard various reports in that regard. Some say it is four times as high. Would Mr. Fitzsimons have the figures on that?

Mr. Fitzsimons

We would be more than happy to come back to the committee with our analysis of that.

It appears that the answer is to get the courts situation right. I am speaking as a lay person but, unfortunately, like the rest of us I have considerable premiums and I am involved in a business whose insurance costs doubled this year - I am a member of the CIF. I do not understand the reason for that increase. Perhaps Mr. Fitzsimons can tell me. I have said previously in this committee that in the past, when the country felt threatened by subversive organisations, we introduced special courts which did the job. If the PIAB became a special court rather than dealing with a segment of the insurance area, would Mr. Fitzsimons be of the opinion that that would solve the major problem?

Mr. Fitzsimons

It would be a huge advance towards solving it. It is as simple as that.

You would strongly recommend it.

Mr. Fitzsimons

Strongly recommend it.

To return to one of the questions asked by Deputy Howlin, and perhaps approach it in a slightly different way, there is a common thread running through the submissions we have received, particularly those from insurance companies. The reason for the high insurance costs is, first, the level of fraudulent claims and, second, the high cost of legal fees. A common thread running through the submissions we have received from business is that they highlight their grievances with insurance companies in respect of the fact that they settle claims without reference to the policy holder and, in many cases, settle claims against the wishes of the policyholders. Taking that into account, it seems in a sense that insurance companies foster a culture of fraudulent claims by refusing to pursue claims they know or strongly suspect are fraudulent. Will Mr. Fitzsimons comment on that? I also direct that question to the representative of AXA. Do the representatives agree that insurance companies give the impression to whom we might call chancers that it is worth submitting a claim because it has been established that if a claim is pitched at a certain level insurance companies will not pursue claims at that level and, therefore, they foster a culture of fraudulent claims? In effect, insurance companies shoulder much of the blame for the increase in fraudulent claims.

Mr. Fitzsimons

On the fraud issue, much work and many moves have been made in recent times particularly to address and alter the fraud culture. One of the critical elements in all this is the underpinning legislative requirements in place to tackle fraud. I was very involved in the anti-fraud committee. It was an eye-opener to discover how deficient current legislation is in terms of fighting fraud. There has been talk of insurance fraud being a specific crime and of the need for sworn affidavits. The necessary infrastructure must be put in place to tackle fraud. The industry has gone to considerable lengths in making a submission to the Department of Justice, Equality and Law Reform detailing exactly where the deficiencies are and suggesting necessary reforms. Side by side with that, the industry has taken considerable action to fight fraud. Many companies have established their own specialist fraud units, have upped the fight against fraud and the confidential fraud line that was introduced is having an effect.

As I said in reply to a question from Deputy Conor Lenihan, part of a change in the culture is that word is getting out that people will not tolerate such fraud. The paying insurance customers have had enough and they realise that the fraudster is costing them money. The Deputy also mentioned settling claims without reference to policyholders. The code of conduct agreed with IBEC and to which all companies subscribe whereby they keep their policyholders informed is vital. Some companies were doing that, although they do so to different degrees, but it certainly has heightened awareness. We certainly believe in it and want policyholders to work with us to endeavour to prevent fraudulent claims and to engage in the whole settlement exercise. That process is in train and I am hopeful about it.

From Mr. Fitzsimons's reply, I suspect that the industry would work out the economics of the process and decide that it is much cheaper to settle a claim even though it strongly suspects it is a false one. It will settle such a claim because it will cost less. However, the industry, by its very actions, is creating a bigger problem. It is ironic that if a fraudulent claim is settled in that way, the fraudster is represented by a legal professional who gets paid on the back of a fraudulent claim. Such expenses increase the legal fees about which insurance companies complain. In a sense that is a joke. Is it not the case that everybody pays lip service to the way in which this issue should be dealt, they put forward reasons this is the position and so on, but they then revert to their old ways?

Mr. Fitzsimons

I can assure the Deputy that we and our fellow insurers are fighting claims that we deem to be fraudulent even though it is costing us money. There has been a considerable sea change and, even if there is a short-term cost, insurers recognise that it is past time that this was needed and it is an investment in changing the culture. That is happening and it is yielding results. It is an investment in the interests of the insured and of insurers.

Is it true that Mr.Fitzsimons's company insists on a potential client having a property insurance policy with the company before it will give such a client a quote for motor insurance? Is that a general requirement? That requirement certainly applies in certain companies. Is it a general requirement in Mr. Fitzsimons's company or does it apply only to certain categories of persons? If it does apply, how can the company justify such a stringent policy and does it not consider it is a restrictive one?

Mr. Fitzsimons

That is not true. It is not our policy to make motor insurance conditional on having supporting business. I would be the first to say that we like to get all of everyone's insurance business.

Would Mr. Fitzsimons like specific examples?

Mr. Fitzsimons

Is the Deputy saying he has some?

Yes, I have personal ones.

Mr. Fitzsimons

There was a time when we were perceived to be exclusively an insurance company for farmers and some of what the Deputy said may hark back to that. Our policy now is open and, as the figures show, we are open to all classes of business. Mr. Taheny has reminded me that one of the MIAB recommendations was the undertaking by insurance companies that writing motor insurance would not be conditional on taking support as it were. If the Deputy has had a different experience, I would like to hear about it, but that should not be the case.

We have heard from the FBD representative for the past hour. Senator Leyden is next on the list followed by Senator Callanan. Would the two members agree to hear from the representative of AXA and then Senator Leyden could put his questions.

I wish to speak at this stage.

You wish to ask a question?

Yes. I wish to make a declaration of interest. My wife, Mary, and I have all our insurance with FBD Insurance. That is the declaration of interest I have in the company. I welcome Mr. Fitzsimons, Mr. Taheny and Mr. Moran and compliment them on the quality of their presentation.

On the reduction in premium under the points system, has the company decided to provide a pro rata reduction in premium based on the number of penalty points one might have if a customer is prepared to voluntarily provide the company with information to prove they have no points or a small number of points? There should be apro rata reduction in the motor insurance premium.

In relation to the provision of CCTV cameras in hotels and pubs, the company should consider giving a reduction in premium to those companies which have that facility. The Chairman has mentioned this point. Such a facility has proved successful in fraudulent cases.

I also note that the original shareholders in FBD Holdings have a 10% reduction in their premiums. I recommend that the company should extend this facility because if customers had a share in the company, they would have more loyalty to the company and would be concerned to ensure that there would be a reduced number of claims which would increase profits and, therefore, the dividend to the customer.

What is Mr. Fitzsimons's view on solicitors who offer to deal with cases on a no foal no fee basis? Any solicitor who encourages fraudulent cases should be held liable for the cost of such cases and should charged with being complicit and collaborating with a person who has lodged such a claim.

In relation to the law on perjury, does Mr.Fitzsimons believe that the introduction of such a law would be of assistance? Having seen the excellent report on "Prime Time", I hope RTE will show a follow-up programme on those revelations. They were shocking, to say the least, and should be followed through. With regard to named drivers, some companies believe it would be preferable if the young person was insured in their own name from the start but they would have to get a reasonable quotation to allow them to do that.

That is another shopping list of questions.

Mr. Fitzsimons

I am glad to hear that we have one customer among the members. The first question was about penalty points. We have already moved on foot of the changes in driving habits and, hopefully, the number of accidents. We give credit to the penalty points system for advancing that. With regard to customers who have no penalty points, we want to gather sufficient information and experience to see if we will be in a position to reward them. It is something we will keep under close scrutiny and that is the reason it is important we have access to this information. There is a willingness and preparedness on our part and on the part of other colleagues in the industry to reward the better risk and to penalise the poorer one. That is the essential philosophy but getting there is the difficulty.

The CCTV facility is a worthy suggestion. We will examine it to see if we can do something about it. It does help and one is certainly in a better situation. In our normal practice we would recommend CCTV cameras on business premises for the reasons the Senator mentioned. My underwriting manager would say that the rate he strikes already reflects the presence of CCTV but perhaps there should be more widespread use of them. It also helps the cultural aspect.

The courts are accepting the film footage in colour available in the new systems. I can say from personal experience that it is of enormous benefit. Your company could give an incentive to those who go to the trouble of acquiring it, particularly the new digital system which can give 16 weeks uninterrupted viewing. One of the issues the committee was addressing was the three year gap between when the accident allegedly happened and the time the person who had the property was informed. If we can get to under 16 weeks, this system will produce the evidence of where it happened, what time and so forth. It is all digitally controlled and it works well. I can discuss it with a representative of your company after this meeting if you wish.

Mr. Fitzsimons

I acknowledge that point. The 10% discount for shareholders has been a big attraction for original shareholders. There is a board meeting tomorrow and I will raise the point made by the Senator at it.

I agree with the Senator's sentiments about the no foal no fee issue. There is no downside for somebody running a case and all the costs engaged in defending it fall on the insurer. We fought a particular case to the nth degree. We fought against an award in a lower level court and that award was subsequently overturned. We won the case; it was ultimately thrown out. Our client was not negligent. However, our costs were between €300,000 and €400,000 for that case. It was only a nominal award and we should not have had to pick up the tab for a case pursued by someone who had nothing to lose. There should be a penalty somewhere in the system for somebody who runs a dodgy case or spurious claim. The costs of the case and clogging the courts should not be borne by the taxpayer in the first place or by the defending policyholder. There is scope for major change there, however it is achieved. It is something the Department of Justice, Equality and Law Reform should tackle. It is most frustrating.

We will take that up with the relevant Minister when he comes before the committee.

Mr. Fitzsimons

It is a huge issue. It is too easy and there is no downside. It is a case of flying the flag and hoping the vessel will sail.

The law on perjury is critical to the fraud issue. There has to be some criminal sanction for people who perjure themselves. One of the difficulties is that the criminal law and the civil law are not consistent on fraud and it is difficult to prove. We engaged in discussions with the Garda Commissioner on the fraud issue. A protocol has been established between the industry and the Garda in terms of early investigation. Where fraud is detected there is now direct contact with the fraud squad and there is a defined protocol. The gardaí have signed up in a big way to the battle against insurance fraud. Hitherto they did not have the resources and while resources are probably still a problem, there is a protocol, procedure and a general understanding on this matter and the industry worked closely with the Garda authorities in establishing that.

Perhaps the delegates would have some technical information which they could send to the committee to help us in our work. Can they give the committee an analysis of their settlements with regard to those cases settled by their in-house legal team, those settled by using an external solicitor and those settled through barristers on the steps of the court?

Mr. Fitzsimons will endeavour to do that. I now invite Mr. John O'Neill and Mr. Pat Healy from AXA Insurance to make their submission.

Mr. John O’Neill

Tá an áthas orm bheith anseo inniú. AXA Insurance Ireland comprises the former Guardian Royal Exchange and PMPA insurance companies. PMPA insurance company was a domestic insurer specialising in private car insurance. It became insolvent in 1982. Having been through a period of administration, it was purchased by the GRE group in 1989 and the GRE group was in turn purchased by AXA in 1999.

Today AXA is Ireland's second largest general insurer, with annual premium income of €575 million. Eighty five per cent of our business is motor insurance, both private car and commercial insurance, and 15% is home insurance. We are not active in the general insurance of small businesses, other than in motor insurance. Our trading results in Ireland have been somewhat erratic. I do not wish to reflect too much on our results in 1999 and 2000 because they were so bad. Those arose primarily out of unexpectedly high pay outs for personal injury claims that were incurred in previous years.

In 2001 and 2002, our business in Ireland had been profitable and for 2003 the current outlook is for that profitability to continue. The outlook for our policyholders in 2003 is also very positive. There is every prospect that the levels of premiums charged for motor insurance will continue to reduce, as they have been doing over the first six months of this year.

Over the past three years we have engaged, out of necessity, in road safety initiatives in a most substantive way. We have invested, when it was neither profitable nor popular, in road safety advertising which includes our support for the joint National Safety Council and Northern Ireland Department of the Environment advertising campaigns, which you will see virtually every night on the television and which have been live for the past three years. Those campaigns highlighted the dangers, particularly to young male drivers, of speed, drink driving, lack of seat-belt wearing and general carelessness on our roads.

In an attempt to improve the risk profile of younger male drivers, we introduced a technology driven Traksure initiative, which gives discounts for young male drivers of up to 40% on the premiums, for those drivers who are prepared to take on board in their car a satellite tracking device which monitors their speed and compares it with the speed of the ambient road they are using at the time.

Is this 40% discount a new initiative? I take it you are not telling everyone about this for the first time today.

Mr. O’Neill

We have been operating this scheme for over 18 months. We have over 1,000 young male drivers on this scheme.

In tandem with our efforts on road safety, we have not been strangers to the courts, nor have we been strangers to the issue of fraud and rooting out fraud. I know that, because of onerous public duties, Deputies have little time to view programmes like "Prime Time", but I am very conscious of my own appearance and of the usage of our company's video on that programme which highlight the depths to which we are prepared to go to root out fraudsters and simply not to pay where fraudulent claims are presented. We, in this industry, were the first to go after this in this way. It is with some sadness that I note it took us eight years to get a fraud case into court where, for the first time, the individual was found guilty and we actually received money back. It took eight years of very significant co-operation with An Garda Síochána, for which we are extremely grateful, and that path was a tortuous one. Later the individual convicted of fraudulent activity was visited by the CAB and further moneys were extracted. We are no strangers to fraud and we will continue to root out fraud.

We applaud the initiatives of the Tánaiste in addressing the root cause of high insurance claims. High insurance claims lead to higher premium costs. There is a very simple philosophy behind the principle of insurance, that is, the many contribute to a fund so that the few, when accidents befall them, can be compensated. It is obvious that those who do not make claims, or who only make small claims on a sporadic basis, will feel hurt and upset if their premiums rise because of the cost and extent of paying the claims for the few who do actually incur claims. However, the principle needs to be explained from time to time, that although one has not made a claim, one is still contributing to the pool which pays for the claims of those unfortunate enough to be hurt. It is not our intention, in insuring the liabilities of members of the public, that we should refuse to pay decent legitimate claims, but we will take every step in our power not to pay those claims which are not legitimate.

The initiatives of the Tánaiste are already well documented. I attended her presentations to this committee and I will not go into them now. I commend those initiatives to the committee and ask for its support in having them implemented.

We also welcome the introduction of the penalty points system. The enforcement environment which surrounded the introduction of penalty points demonstrates how we in Ireland can be extremely effective in working together on road safety initiatives. That is all I want to say about enforcement on penalty points at this time. The committee will be aware that the Irish Insurance Federation is funding a high profile advertising campaign supporting the penalty points system and of course AXA Insurance is also contributing to that funding in addition to our continuing road safety investments.

We are saddened by the upsurge in road accidents in recent months. We welcome Government commitments to have a meaningful enforcement regime put in place to ensure that the probably achievable benefits of the points system and other road safety initiatives have the desired effect of reducing the pain, hurt, suffering and economic effects of road crashes. We believe that continued investment in road safety initiatives, as outlined in the Government commissioned Bacon report, can give returns of 8:1 - where you invest €1, you collect €8.

We believe there are still significant issues to be addressed such as driver training and the simple enforcement of existing road traffic law - without any need for new legislation - and we also commend that to the committee. We respectfully ask the committee to use its influence to ensure that the Government delivers on these commitments.

AXA Ireland, as I stated at the outset, is not engaged in commercial insurance other than motor insurance, but it is fair for me to comment that we have had some experience in these markets in Ireland over the years. That experience in Ireland caused us to exit those markets because we were unable to find a successful formula which generated a return on shareholder funds, and continuing to stay in those markets could have led to us having to withdraw from our primary market of motor insurance because we simply could not afford to continue to subsidise that smaller part of our business. Regrettably we did not have sufficient size in the market to enable us to influence behaviour as we believe we have successfully done in the road safety arena.

The fundamental issue, particularly in the area of employers' liability, is accident prevention. If no accident occurs, the entire apparatus surrounding a claim disappears, including pressure on hospitals, emergency services, the Garda Síochána, doctors, nursing staff, the injured party, the family, the economy and, not least, the insured person and the insurance company. Our attention should be on accident prevention and creating an environment where there is a pride in accident prevention and where there is a genuine partnership between the employers and the employees in preventing accidents. That pride leads to the sort of sign one sees on factory floors in America: "Accident free for 1,058 days". People are proud to say that and that is the kind of pride we need to engender as it is in all our interests. Such pride and focused involvement of the relevant safety authorities, and such authorities have a very important part to play and will pay dividends to business and the economy.

I have a copy of the letter I wrote to the Chairman and each member. The history of industry shows free market competition will drive down the cost of insurance whenever claims experience improves and profitability emerges. We can see that and we hear the same today about motor insurance, which for years has been the bete noire of the industry. We must continue to work together to achieve this and I welcome the committee's support in this area.

I thank Mr. O'Neill for his impressive opening statement.

I welcome FBD and AXA. I am a farmer and I am with FBD. The advertising done by AXA to help people avoid accidents is very good and I hope it continues. My question is to FBD but both organisations can answer. What incentive is being offered to young drivers to ensure they are insured and insured on their own? I welcome AXA's 40% deal due to monitoring speed. Does FBD have anything similar in place? When insurance costs a 23-year old £800 in Scotland but €4,200 here something must be done.

Also, Mr. O'Neill mentioned public liability. Is Ireland not safe to work in? Some insurance companies have said so, more or less, but I am inclined to refute it. This is one of the safest places in Europe. Is a record of claims settled in and outside court maintained to ensure the same names do not crop up time and again in fraudulent claims?

We get two types of complaint constantly and the insurance companies could solve the problem immediately. Deputy Howlin referred to one already, the anxiety of people to learn how premiums are calculated. The insurance companies could do that immediately. Also, people should be notified well in advance of their premium for the coming year. That has not happened in the past; people find their insurance runs out before they get a quote for the coming year.

Another disturbing issue relates to a hotelier who told this committee he operated with insurance of over €250,000; I know of cabinet makers and small builders who are working with insurance of €25,000 to €50,000, which is extremely dangerous considering people have three years in which to make a claim. We may find many of these companies are insolvent because they do not know what claims they may face in three years. Consequently those companies may not have insurance cover. That three year period must be dealt with quickly. Those companies are operating in that way to reduce premiums but I know of other people who take out occupational injury insurance to reduce their premiums. Is this trend prevalent among people trying to reduce their premiums?

Mr. O’Neill

Most of those questions relate to public liability and business insurance and we are not in that business. Regarding days of notice, we and other motor insurers have agreed to adopt the recommendation of the MIAB and agreed with the Department of Enterprise, Trade and Employment, before it was transferred, to give every individual at least 21 days' notice of motor insurance premium for the coming year. I understand those requirements are being met by most insurance companies. I am not aware of any difficulties. We had to invest a little in our technology because it requires us to work slightly earlier than normal, but it is happening.

I hear what Deputy Howlin was saying on the breakdown of insurance premiums. Much of this relates to commercial insurance but on the private motor side, a lot of our business is directly with the public. We send renewals direct, for example, and for that reason we have been breaking down the premium more and more over the years. I will sound a note of caution however, as sometimes we can run the risk of giving the policyholder too much information which becomes counterproductive. I have had customers writing in to complain that there are too many breakdowns. We would break down a typical premium to as many as ten different elements, and a customer will say they do not want to know that - they only want to know how much they have to pay. They are interested in the bottom line and say they do not care how it is made up but they want to know how much their insurance will cost. There are swings and roundabouts but we are arriving at a happy medium on this.

I was working in the UK during the implementation of the Financial Services Act, under which various types of information had to be given to policyholders taking out life insurance. Our understanding was that prospective policyholders were putting the documents with all the information in the bin as it was so obfuscating. There is a thin line here. We must be clear, unambiguous and give relevant information but then we are in danger of giving too much information.

On premium payments, page 2 of Mr. O'Neill's submission states that due to the introduction of the penalty points system, the price of motor insurance premiums may not increase in 2003 and that AXA has no plans to apply any further price increase in the remainder of the year. In light of that statement and what Mr. Michael Kemp said here the other day, which was reported in The Irish Times as a statement that insurance companies may not reduce premiums and that in fact premiums may rise in some cases, what is AXA's position now?

Mr. O’Neill

We operate in a very competitive environment so we often have a differing view from those of our competitors. Our view at present is that our book of business has been performing in such a way as to enable us to reflect the improved environment for our policyholders in premium reductions already and at this stage of the year we do not see any changes that will require us to increase premiums across our book of business. There may be pockets here and there where premiums will rise but equally, there will be pockets where premiums will fall. Broadly, however, we see a benign environment continuing for our policyholders.

I hope I am not misquoting Mr. O'Neill, but did he say there would be reductions in the year ahead?

Mr. O’Neill

We can see at this time the prospect of further reductions if things continue on our book of business. As I said, we are saddened by recent road deaths and the upsurge in road accidents. The frequency has increased by 9% in the last four months, having dropped by 30% in the first four months after the introduction of the points system. We see a very disappointing curve. If there is an upsurge in the settlements the Judiciary is awarding - there has been an amelioration in those in the past few months - we will have to look at things again. If things continue in the benign way they are, we see an opportunity to reward our good performing customers with premium reductions.

Mr. O'Neill said there are 1,000 young male drivers on the Traksure scheme which measures the speeds at which they travel. Can you analyse the data to assess the premium they should pay? What, on average, do they pay relative to young male drivers in the same category who do not have the device on board?

Mr. O’Neill

The premiums for motor insurance for young drivers in Ireland is still extremely high. The opening premium could be in the region of €7,500. The 40% discount brings that down to €4,000, which is a significantly reduced premium.

Addressing Deputy Howlin's question relating to the disparity between age and gender, the equivalent premium for a female would be €2,000. There is a significant body of evidence to demonstrate that young female drivers are significantly better risks than young male drivers. Regrettably, one only has to pick up the daily newspapers, particularly on Monday morning, to discover that young male drivers consistently have single car accidents, with horrendous injuries to the people in the cars. A parent will often say that the car cost only €2,500 so why is the insurance is €7,500? The cost of a claim for a 23 year old paraplegic is currently estimated at €4.6 million. It takes many €7,500 premiums to collect for just one paraplegic. In any single vehicle accident there may be one or two injured in addition to those killed. Unfortunately, this is a staggeringly hurtful issue to address in this way. We must look at the issue in financial terms but the implications for the people involved in these accidents are too awful to contemplate.

Has an analysis been done on average speeds, even though I know you are just 18 months into the system? Presumably you use this as an initial offer, if people agree to it. Have you considered an end of period analysis of the speeds at which the 1,000 young motorists drove? In other words, have you looked at the situation before and after the device was fitted?

Mr. O’Neill

We only take young drivers who agree to take this on. We do not measure their speed before they take on the device.

What reductions have taken place one year after they have been using the device?

Mr. O’Neill

This satellite device tracks the speed of the vehicle in a particular speed zone. It is continuously monitored. We get a print-out of it, which is analysed, and shows the mean deviation from the speed limit. We can see that the average driver on the Traksure is clocking between 7% and 10% above the ambient speed limit in most cases. If they have more than three infringements in excess of 10% in a given month they get a written warning saying their participation in the scheme is in jeopardy. If they continue to infringe they are taken off the scheme and given back their money. They can then take out full price insurance if they wish.

What is the percentage of people taken off the scheme?

Mr. O’Neill

I plead commercial sensitivity to the answer to the question.

The base figure is €7,500 for a 21 year old or 18 year old male?

Mr. O’Neill

An 18 year old male.

On third party or comprehensive insurance?

Mr. O’Neill

It makes little difference.

Do they get a 40% reduction after 18 months on the tracking system?

Mr. O’Neill

They get the 40% reduction on day one. The €7,500 is the premium if they are not prepared to take a tracking device. We are one of the very few motor insurers in the country who will accept all comers. We insure people from 17 to 90 years of age. Our oldest policyholder is over 100 years of age and our youngest is a week after their 17th birthday. We take everyone. The charge for young male drivers without the tracking device is €7,500. We strongly recommend that they take the tracking device and in that event we will reduce the premium. They can earn a bonus as they proceed over the period of their insurance.

I welcome the robust presentation by Mr. O'Neill. It focused on the motor insurance element on which I want to ask a few questions. Regarding his response to my colleague on premium breakdown, all of us here who deal with Departments know that detail is sometimes designed to shadow rather than illuminate. The thicker the volume the more one knows one will have to dig deeper to find what is in it. It is important that the component parts are provided in a transparent way so that people will not ask why is there a 60% increase, for which there must be some justification or reasoning.

I want to make a number of points on motor insurance. I am intrigued by this tracking device system. My civil liberty hairs bristle at the notion that youngsters would be required to be tracked and monitored. I do not like it. Would a governor system in a car not be better? Perhaps we should consider in law that initial drivers who get a licence for the first time are restricted in the speed at which they can travel. I presume Mr. O'Neill has some sort of a tracking and monitoring unit which can tell where these individuals have been and their pattern of transport. It has significant civil liberty implications from my perspective about which I would be concerned. When people are faced with a €7,500 premium, it is not a particularly voluntary system if it means the difference between affordable insurance or no insurance. I do not expect Mr. O'Neill to justify this but he might make an observation on the matter, including whether a governor system or a national legal system could regulate in law the speed at which people could travel. My base perspective is that the enforcement of speed limits should be a matter for the Garda Síochána rather than any private company.

My third point relates to the enforcement of penalty points and the profile of accidents. The problem for the Garda is that the number of accidents which have caused public concern in recent times often occur at obscure hours of the morning. It is not the normal time when there will be regulated monitoring by the Garda. It is a very moot point to say whether enforcement of penalty points alone works. We are all in favour of enforcing the speed limits. We can clock up penalty points - and thousands of people are getting them - by setting up a speed check on the Arklow by-pass or on the 40 mile limit outside Donnybrook, but whether it of itself is a significant contributor per se to road safety is debatable.

We will have to look in a more sophisticated way at the issue of young people driving in the early hours of the morning and crashing, by and large, into trees or stationary objects as a result of their inexperience in driving. When I had responsibility in a ministerial capacity in this area I established a voluntary code of driver testing. I wondered at that stage whether I should have moved towards establishing a statutory code whereby young drivers in particular or new drivers in general who undertook a regulated programme of driver testing would be entitled to a reduction in insurance. I am interested to hear your observations on whether such a statutory provision would be of benefit.

My final question - I raised it earlier with the delegation from FBD - relates to courts' jurisdiction. What is your view on the increases proposed for the Circuit and District Courts in their functioning capacity? It has been put to me by a colleague who practises in this area that judges are not immune to public discourse and that in practice awards formerly made in punts have simply become euro awards with a de facto decrease in awards of approximately 27%. Has that been the delegation's experience?

Mr. O’Neill

I applaud what the Deputy says about civil liberties. Please take what I have to say in the manner and intent in which it is intended. With the greatest respect——

I am just as robust as Mr. O'Neill.

Mr. O’Neill

Regrettably what Mr. Healy and I do on a Thursday afternoon is look at our large claim files. Those files have, over the past couple of years, consisted in the majority of deaths and injuries arising out of the driving habits of young drivers. A reduction in the civil liberties of young male drivers is probably preferable to death or permanent disability for them and their friends.

That is the trade-off.

Mr. O’Neill

It is not a question of cost, it is about providing a safe system for young male drivers who have a natural tendency for bravado, carelessness, showing off and a lack of experience and tempering them with the feeling they are being monitored. I know that is totally against the Deputy's views on civil liberties. Without this insurance companies will not become involved with such drivers. If the public decide they do not wish to have this system we will happily stand back and accept that.

Perhaps Mr. O'Neill might address the alternatives I posed.

Mr. O’Neill

I spent the morning with a colleague talking to Americans about the further advances in the use of technology which may enable governors to be used through the use of satellite technology using the mapping and technology which have already been developed. Once again, one runs the risk of the same type of infringement of civil liberties. At the end of the day, why should anyone be able to put a march or a stop on the speed at which someone wishes to drive? There are already laws in place; we have 30 mile an hour speed limits. The figures from the National Roads Authority will demonstrate that 90% of drivers monitored in a 30 mph zone exceeded the speed limit; 84% of those monitored in a 40 mph zone also exceeded the speed limit. Does Deputy Howlin think we should simply withdraw?

There are issues in relation to governors. If we applied a governor to the 30 mph limit we could end up with absolute carnage on no better road than the Arklow by-pass if the Garda are not at the beginning or end of it. The speed at which trucks travel, on average in excess of 15% above the speed limit, will mean those young drivers governed to drive at 30 mph, 50 mph or 70 mph will be wiped out by the passing traffic because the ambient speed limits are so high. Think about it. We prevent the driver driving faster than 30 mph but the truck is two inches from his tail at 40 mph. What happens?

He passes him.

Mr. O’Neill

No, he does not, not on our roads where there are single lane highways.

I thought we were referring to the Arklow by-pass.

Mr. O’Neill

He intimidates the driver which again contributes to a huge amount of road rage. We do not have all the solutions. This is a solution that works.

On general speed limits, will you consider the introductory speed limit for drivers?

Mr. O’Neill

An introductory speed limit for trainee drivers?

Mr. O’Neill

Yes, we think there is room for that. That is what happens in Northern Ireland and Germany. Our regime of driver testing - Deputy Howlin referred to his ministerial responsibility in this area - is hugely flawed.

Are you linking the two?

Mr. O’Neill

Not necessarily. Hundreds of thousands of young drivers, and not so young drivers, have not had the opportunity of having their driving skills tests because of a lack of resources in this area. On this issue, we as an insurer have tried to improve the situation without asking anybody for cash or asking for resources to be applied. If such resources are applied, if there is an ideal situation where there is adequate driver training and testing and immediate recourse to that, where there is enforcement of the rules of the road and the speed limits, we would have a much more benign environment for drivers and we will not have to impose monitoring measures.

I think I have covered all the questions addressed to me.

What about the issue of courts jurisdiction?

Mr. O’Neill

We would be comfortable if the increase in the limits was accompanied by a book of quantum where there was some element of guidance for judges. I have spoken to a number of judges on this issue. We have spoken, in our campaign to drive down the cost of insurance, to everybody who listened to us. We have not been behind the door in saying that Ireland Inc. cannot afford the cost of insurance because it cannot afford the cost of claims. Judges have been waking up to that. There has been some evidence of an amelioration. I would not say there is a definite correlation between euro and punts but a correlation exists. There is a disturbing upward trend in recent settlements. We ran ten cases to trial in a particular court jurisdiction in the last two months and in all of them the settlements were significantly higher than we had on our estimates or had expected. We are appealing all of them. Awards are rising and that is worrying. Enforcement issues are not being addressed; the frequency issue is deteriorating and there is an upward climb in inflation on bodily injury claims. We already know there is incipient inflation of 4.7%. We are aware of medical inflation in double digits. The premiums will follow inflation because claims will follow inflation. While there is currently a benign environment we have to make sure it continues.

I welcome both delegations and their excellent presentations. I am not convinced that the increases in insurance over the past couple of years were fully justified. I am glad to hear that we are, perhaps, reaching a turning point but I am not so sure it has arrived. I welcome the introduction of the tracking system or any other system that would save lives. Why are insurance claims sometimes settled without insurers being notified?

Mr. O’Neill

We have a protocol in place to notify all insurers of claims that are notified to us and also of significant changes in the circumstances and of the settlement amounts. The protocol now in place is part of our customer charter. It is something on which we have failed in the past.

Just as I asked the FBD, does AXA also invest in stocks?

Mr. O’Neill

We have approximately €1.3 billion of investments supporting our business in Ireland. We have had a difficult and erratic performance of our business in insurance. Because of our dreadful results in 1999 and 2000, we take a very conservative view in our investments. That conservative view has paid us handsomely and has contributed in no small part to our return to profitability in 2001 and 2002. Our investments are managed professionally by AXA investment managers worldwide. We hold in the region of between 7% and 8% in equities and the balance in bonds and other guaranteed investments.

I do not share Deputy Howlin's view on civil liberties. Any system that delivers cheaper insurance to young drivers is welcome. AXA has said that it offers insurance to everybody. It is no wonder if it charges young people as much as €7,500. It can well afford to offer insurance at that rate.

Is the tracking device mentioned exclusive to AXA in Ireland or is any other company using it? Is it used outside Ireland? In regard to liability, does AXA have any statistics indicating the percentage of cases in which liability is an issue? I wish to address that question to FBD also and ask it to see how insurance operates in cases where liability is not being contested. Would this apply in many cases and could a book of quantum be used in such cases?

I hate coming back to this issue but it is the nub for us. We have identified the reasons for the high cost of insurance as fraud, high legal fees and large settlements made by the courts, etc. This is not new to Ireland in the past two or three years, yet it seems that the cost of insurance over those few years has increased enormously. These factors existed prior to that time. What is the real reason for the increase in the cost of insurance? Perhaps FBD could address those questions also.

Mr. O’Neill

I appreciate the sentiment in the opening question related to premiums. Nonetheless, it would be invidious of me not to comment on it. Our lowest premium is €300 to €325 for motor insurance. We have over 450,000 motorists insured in Ireland. They do not stay with us or insure with us because they like paying high premiums. They have access to the rest of the market. Our average premium is in the region of €900. We also insure in Northern Ireland which is a different jurisdiction. Our premiums there are now coming markedly closer to the premiums in the Republic of Ireland.

The phenomenon of high motor insurance premiums for young drivers is not new. I could not afford motor insurance when I first started work although I worked for an insurance company. It is the same all around the world. This is a matter of discussion with colleagues and is a phenomenon everywhere - in Spain, Italy, France and Germany.

There are a number of variations of the tracker. I was in discussion early this morning with an American firm which is doing pioneering work with satellite technology. It is no secret that Progressive Insurance in North America uses these tracking devices which are very useful. Not quite on the civil liberties issue, if one's car is stolen it is interesting to know where the thief has parked it and the device enables us to track and recover it. When one of our vehicles was stolen we were able to contact gardaí and pinpoint where it was and it was recovered.

There are also security uses.

Mr. O’Neill

Yes, this can be put to many uses. The satellite technology and the technology now used in motor vehicles enables one, with the right resources, to extract data. Deputy Howlin will scream on the civil liberties issue now, but we can tell at what speed the airbags were deployed and what was the position of the vehicle on the road. It is much like a black box on an aircraft.

I have no difficulty at all with that. My only difficulty, if I can explain my position, is the notion of any private company being able to monitor the personal movements of citizens. I am amazed if that strikes anybody as odd.

One does not have to have it if one does not wish.

It is not voluntary for people who cannot afford any other option. It is an issue we must address and we must balance all considerations.

Mr. O’Neill

I can address that point. The tracking and data we get are actually historic. We are not sitting in our bedrooms at night tracking where the vehicle is.

Or where one's partner is.

Mr. O’Neill

Exactly. There is technology which will tell where one's partner is but that is a different issue. In regard to the tracking devices, we get the historic data at the end of the month. We know where they have been but do not know where they are.

On the question of whether it is country specific, the use for which we are using the technology in Ireland is country specific. We have a sister company in Italy which uses a system called Autometrica. That system monitors where the vehicle is at all times and the charge for motor insurance is based on the vehicle's location, whether it is a city, a town or a major city and whether it is day or night. It is a rating system different to the model we use. It is a similar technology and we are also looking at it. There is a company in the UK, with an operation in the Republic of Ireland, which operates a pay per mile system. This is similar to the Autometrica where one has a declaration at the end of each month, monitored by satellite technology. It might say, "You paid us to do 5,000 miles per annum but only did 500 in the first quarter and are due a rebate." The tracker system is not unique to this country. There is huge development potential and many companies want to use it for various reasons. It is a very exciting development and I am conscious of the civil liberties issues.

It is even exciting listening to it being explained.

Perhaps we can have electronic tagging of the Chairman.

Please do and then people will know how hard I work. Has Deputy McHugh a further question?

I just wanted a reply to my question on liability.

Mr. O’Neill

In 20% of claims there would be a very definite dispute on liability, but if you speak to those insured and those hoteliers they will say that they will dispute liability on every single case. This is one of the issues we have to face as we move towards the PIAB. The insured will say: "He never had a claim". Nothing is a claim as far as the insured is concerned; they are all chancers. Unfortunately the person who is injured has the injury and they are alleging that injury took place as a result of the negligence of our insured. It is an issue.

The hotel with the digital CCTV camera has the advantage. There is nothing disputed and I can assure you there will be no court case.

Mr. O’Neill

That is why we support a statute of limitations of one year. We would like it reduced from three years to one year. If someone rolls in two years and 11 months after an alleged incident, can the video be produced?

We were considering a period of one month. That may not be possible in certain medical circumstances but there is no reason it should not be returned within one month.

To clarify what you said, is liability an issue in 20% of motor claim cases?

Mr. O’Neill

A genuine issue.

Can FBD give details of commercial or business insurance?

Mr. Fitzsimons

I do not have the precise percentage. I can make that information available to the committee. In our experience since we introduced full no-claims discount protection whereby a no-claims bonus can be protected, the take-up has been nearly 100%. People were busy trying to protect their no-claims bonus and that was the deciding factor as to whose fault it was. Now that they know they will not lose their no-claims bonus, they have no problem and are honest about telling the truth and admitting fault. We found it has speeded up claims settlement and we have avoided a lot of disputes.

That is good to hear.

We have heard excellent contributions from all sides. I am aware that young drivers are regarded as a high risk category. Will you confirm that actors, salespersons and politicians are also regarded as a high risk category? Regarding Mr. Healy's role in the interim personal injuries assessment board, what does he regard as its timescale and can he give us an update as to how and when it will be fully operational? I am aware that legislation is required.

The problem of uninsured drivers is important. The penalties do not fit the crime in the case of uninsured driving. There was a suggestion that the car should be seized but sometimes the car would not be worth €50. People drive rubbishy cars without insurance. Would it possible to have a special fuel tax to take that section of your responsibility away from the insurance companies and on to the State so that we would all pay, for instance, five cent per litre, to cover claims from high risk non-insured persons? It is very unfair that the insurance companies are paying through the bureau for these uninsured drivers and the rest of us are also paying for them. There should be no liability on us whatsoever.

As far as tracking devices are concerned, I am sure the Chief Whips of the Dáil and Seanad would like to have such a device to keep track of all the Members of the Oireachtas who say they are at their granny's funeral. They might instead be down the country or on a golf course.

Senator Leyden, would you have any objection?

None whatsoever. There used to be an advertisement for a car which asked: "Was that your car I saw last night?" You have given the committee some fascinating information. I am delighted to hear this system has been introduced and that it is working. It is highly effective. I agree with the Chairman about claims. If we can insist that after three months there must be at least an indication that a claim will be made, even if it is not a full claim at that stage, then the CCTV camera could be secured and held as evidence against that claim. I strongly recommend to the committee the introduction of such a device as quickly as possible.

FBD is heavily involved and can make enormous inroads and give an incentive to those people who have a major commitment with this issue.

Mr. O’Neill

I will deal with parts one, three, four and five of the questions and I will ask Mr. Healy to deal with the question related to PIAB. The answer to part one is "Yes"; the answer to part three is——

Actors, salespersons, politicians and those of ill-repute.

Members should allow Mr. O'Neill to conclude.

Mr. O’Neill

——on the uninsured cars, we think that enforcement, seizure and destruction of the vehicles will work rather than setting up another onerous system which we have to pilot and test and pay for. There is a system there already. Enforcement is the name of the game. The vehicle should be seized and immediately destroyed.

A Member

Burn it.

Mr. O’Neill

They will probably burn it for you. In answer to item four, I am amazed at the number of grannies, TDs and Senators have as shown by the number of funerals they attend.

We will look after the politics and you look after the insurance.

Mr. O’Neill

I did notice that, as an insurance man. I agree with question five on a time limit. The time limit is very important and the members have a good feel for that, so I will not comment further.

I have the privilege of serving on the board of the PIAB with Ms Dowling. The timescale of its operation is probably more in your hands in the Oireachtas than it is in our hands on the board. We are planning towards operating from 1 January 2004 if the Bill goes through the Oireachtas in that time period. There are obviously significant administrative arrangements which have to be put in place. The initial plan is to deal with employer's liability cases from the beginning. I know MsDowling intends and hopes that motor cases will come along in a relatively short timescale, hopefully during 2004. There are quite a number of hurdles to be crossed before it is effective.

There are now two companies which seem to offer incentives to young drivers. What incentives does your company offer? On employer's liability, there seems to be a perception that Ireland is not a safe place in which to work. I refute that notion and I ask for your comments.

Mr. Fitzsimons

Regarding incentives for young drivers, the competitiveness of rates is the ultimate indicator of whether sufficient incentive is being provided. From the point of view of FBD and judging by the proportion of our customers who are young drivers, then we must be competitive. We adopt a system whereby we give a no-claims bonus to people who have driving experience and have been named on a parent's policy, for instance. We regard that as an incentive. The incentive is ultimately in the price. The amount of business indicates how much incentive is being offered.

The bottom line.

Mr. Fitzsimons

Yes, it is the bottom line. We take more than our share of young drivers so I think our rates are all right and the incentive is there. The important issue is the credit we give to people who have had claims free driving experience as a named driver on a parent's policy. I am not going to get myself into any trouble. It is hard to know. Someone would want to do real research on the accident rate in the workplace in Ireland versus elsewhere. The claims culture may be increasing that figure and the frequency of claims in workplaces. Another way of putting it is that perhaps the real accident rate is not higher than elsewhere but the number of spurious claims and the nature of them gives rise to what are determined as accidents and distort the real picture.

By way of an aside, as many here probably know, we have property interests abroad including hotels. For the volume of people and the footfall in those places, the number of claims we have is minimal. It is incredible. Again it comes back to culture. When people slip and fall, they get up and move on. As I said, the culture is very different. It is astounding and affects the level of insurance hoteliers consequently have to pay. It is a different world altogether. It is hard to believe Irish people stumble more often than Spaniards or Germans, but if they do stumble they seem to ask if there is any money in it for them.

On behalf of the members of the committee I thank FBD and AXA for their attendance and co-operation as well as for their submissions.

The next meeting of the joint committee will take place at 4 p.m. on Tuesday, 8 July, at which the Construction Industry Federation and the Small Firms Association will assist us with our insurance inquiry.

The joint committee adjourned at 3.25 p.m. until 4 p.m. on Tuesday, 8 July 2003.