I thank the members for this opportunity to address the committee on its work in the area of insurance and, in particular, with respect to the interim report on reforms to the insurance market. I would like to set our role in context by briefly describing the mandate of the financial services regulator which is to help consumers make informed decisions on their financial affairs in a safe and fair market and to foster sound, growing and solvent financial institutions which give consumers confidence that their funds are safe.
Since our establishment on 1 May, we have been building our organisation and developing our goals. We are in the process of finalising our three year strategic plan for submission to the Minister for Finance. We will shortly publish a consultation document on how we will be funded and the role of the financial services industry in this regard.
Our statutory responsibilities arise from the amalgamation of previous regulatory functions together with a new mandate in the area of consumer protection and awareness. Our responsibilities include strengthening consumer protection. We do this by concentrating on strong, enforceable principles and rules on sales practices and the way firms deal with their customers and by creating and developing consumer information. We are developing a consumer information programme to make consumers aware of their choices and how their behaviour can positively impact on the price they pay for the services they receive in the area of financial products and monitoring the solvency of financial firms. We believe strongly in transparency, competition and choice for the consumer.
As consumer director, my major tasks are to increase awareness of available financial services and their associated costs, risks, and benefits; set out and enforce rules as to how financial firms conduct their business with consumers; monitor competition and, in general, promote consumer interests.
There are a number of significant consumer issues arising in the insurance market. It will be no surprise to members to learn that in a survey we conducted just prior to the launch of the financial services regulator, more than 70% of those surveyed stated that insurance costs were an important concern to them. In fact, almost 30% of people indicated that insurance costs were the single most important area of financial concern.
This has been highlighted further by calls to our consumer help line where about 40% of the almost 4,000 inquiries and complaints we have had to date relate to insurance matters. Within the insurance category, the inquiries and complaints relate mainly to motor insurance, that is, the cost, availability and claims. These account for about 33% of all insurance complaints; travel insurance, usually in terms of claims in this area. These account for about 10% of all insurance complaints; and house insurance, again issues relating to cost and availability, which also account for about 10% of insurance complaints.
The remainder of insurance queries are spread among a number of categories, including public liability insurance and life assurance. We have also been approached by representative groups setting out the specific difficulties for businesses in terms of the cost and availability of insurance. In this context, we fully support the Tánaiste's insurance reform programme and, indeed, the work of this committee in the area of insurance. There are a number of recommendations in the broader reform programme and in the committee's interim report which are specifically addressed to the financial services regulator and I assure the committee that we are fully committed to playing our part in the reform programme.
On the specific recommendations of the committee's Interim Report for the Financial Services Regulator, I have divided the recommendations into three broad categories. The first is solvency and regulation issues. We have already commenced a review of best practice in the area of insurance supervision. This is focusing on comparing our solvency requirements and supervisory practices with those in comparable countries with a view to making any necessary changes. We also plan to devote additional resources to the supervision of insurance companies so that more regular and comprehensive reporting and more frequent on-site inspections can be accommodated. It is important to remember that the solvency of an insurance company is the first line of defence for consumer protection.
In the solvency area, much of our work is driven by developments at European level and in this area we will be preparing for the implementation of the EU Solvency II Directive. This may lead to an increase in our current solvency requirements.
Other recommendations cover the issue of transparency and information. To address these we will take action by providing additional consumer information and by strengthening the statutory codes for selling insurance products. In terms of information, our programme includes a series of consumer guides which describe the main features, that is, the costs, risks and benefits and the do's and don'ts in regard to various products. We will commence this series with guides on mortgages and savings and investing and will publish guides on insurance in 2004.
In the next few weeks we will publish our survey on the comparable costs of motor insurance. This will increase transparency by making it easier to compare prices and will alert consumers to the benefits of shopping around. Our guides will be distributed through our website, our consumer helpline, libraries and other voluntary organisations. Our public office will be open in the first half of 2004.
A number of the recommendations relate to brokers and other more general issues. One of our first tasks on consumer protection was to identify gaps in the statutory protection provided for consumers of financial products. In three areas, including the direct selling of insurance products, there were no existing statutory requirements on the selling of these products. We have filled this gap on an interim basis by the introduction of new statutory codes. This means that consumers who deal directly with insurance companies will now be entitled to the same minimum level of protection afforded to those who deal with insurance intermediaries. The interim code sets out principles by which the insurance company must abide. They include: treating consumers fairly and honestly; acting in the consumer's best interest; informing the consumer of all relevant material information; and informing the consumer of complaints and redress mechanisms.
We also took the opportunity in the interim code to implement some of the recommendations of the Motor Insurance Advisory Board. The code includes the requirement, that where a motor insurer refuses cover such insurer is obliged to give a reason to the consumer. As the committee will be aware if a consumer is refused cover by three insurers, he or she is entitled to take a case to the Declined Cases Committee. A consumer representative was recently appointed to the committee and it is intended that he will report to the Financial Services Regulator from time to time.
Other recommendations we have implemented through the codes include the MIAB's recommendation that insurers who refuse to quote for any particular risk should state their reasons in writing upon request, and the MIAB's recommendation that the regulation should be introduced to tackle potential confusion of illusion of choice. In that regard, insurers are now required to state the identity of the insurance group of which they are part and equally brokers should provide each client with a list of the motor insurers for which they hold an appointment. Insurers are now required through the new code to desist from requiring collateral business to be placed with the company before a motor quotation is supplied and this practice that the MIAB has recommended will also be reviewed by the Competition Authority should it persist.
However, they are only interim codes and we fully recognise that the interim codes do not address all consumer protection issues. There is a pressing need for a more thorough review of all existing consumer protection codes. In 2004, we intend to undertake this review, the twin aims of which are: to put in place codes which provide the same level of protection to consumers who buy financial products regardless of the delivery channel that they choose and to introduce statutory codes which will create a level playing field for financial services, thereby fostering competition.
This review will include a period of consultation with consumer groups and the financial services industry. The review will provide an opportunity to consider some of the issues raised in the committee's interim report such as the provision of justifications of changes in premia, the charging of fees or commissions, etc.
We are also developing a consultation document on the mechanisms for delivering insurance to the consumer which will cover areas such as the way commissions are paid to brokers and the requirement of some insurance companies that brokers must achieve specified quotas.
As members will be aware, we also have a statutory role on monitoring competition which is complementary to that of the Competition Authority. We have already commenced discussions with that authority on how the two organisations will co-operate in the future. The Competition Authority is currently conducting a study of the insurance sector and we are providing any assistance they require. We look forward to seeing that study when it is complete and to playing our part on any relevant recommendations that may require our involvement.
I set out the overall function of the financial services regulator as one which helps consumers to make informed decisions in a safe and fair market and to foster sound, growing and solvent financial institutions. We will seek to achieve this by increasing the awareness of consumers of the costs, risks and benefits of their financial transactions but also by ensuring that the industry deals with their customers in a clear, honest and fair manner. When these structures are in place consumers can then use their buying power to make the market work in their favour.
