My contribution will not be as long as Mr. O'Mahony's. I began my insurance career 40 years ago with the Irish Life Assurance Company. I worked in Dublin, Belfast and elsewhere in the UK before returning to Ireland to set up Mike Murphy Insurance in 1974. I began with a rented office on a third floor on Dawson Street armed with a portable Olivetti typewriter, a desk, a chair, a telephone and a Thom's Directory. I had four or five part-time staff and soon had enough business to take in a partner and my wife, Jackie, to do the secretarial work. Thankfully, business has progressed. The company now has 50 staff in the centre of Dublin and its premium income is €25 million. My company is totally Irish owned and will remain so.
The services we provide are as follows. On the personal assurance side, we have a retail division. We place our business in the home market for motor and household insurance across the board with the insurers operating here. This business is sold on the telephone and in recent years on the web, and then followed up by our brokering teams. We pioneered shopping around for our customers in the 1980s. This, done manually at first and now electronically, has paid dividends because price is a determining factor in deciding who gets the business.
Our commercial business is a mixed bag, from aviation and marine to builders, manufacturing, motor fleet and the service industry. We deal with a large volume of business right across the country and almost every occupation. We place this business with insurers in Ireland, the UK and internationally at the most competitive price, depending on the nature and size of the risk.
There has been little capacity in the Irish market for the heavier type of liability risk such as aviation, marine hull and cargo business, professional indemnity, contract frustration, political and some employers' and public liability insurance. This business is placed in international markets - Lloyds of London, France, Germany, Holland and America.
Our business is placed on the basis of a mixture of both commission and fees. Our commission levels in Ireland are significantly lower than the UK level and, therefore, the equitable up-turn of a 50:50 mix is about right.
A broker's job is to secure the best possible deal for his or her client. This means searching the markets for alternative quotations for the best cover at the most competitive prices. Personally I do not believe in the hard sales approach to business. I prefer to place the various options available in the marketplace before the client and let him or her choose. Invariably, it is the lowest price that is picked. We present all our customers with a terms of business and conditions letter.
The committee asked why insurance premiums increased. There has always been a lack of capital for the heavier type risks with Irish insurers, in particular, taking the easy option and allocating most of their capital to what they perceive are the most profitable sectors of the business, namely, the areas of least risk. However, on 11 September 2001 all markets were hit hard due to limited capital. Ten or 11 Lloyd syndicates disappeared. Insurers withdrew from the riskier markets, thereby leaving a smaller pool in which to place such business. While premiums increased for everyone, employers' liability and heavier risk business, in particular, got more than their fair share of the premium increases.
The subsequent fall in equity markets also had a dramatic impact on insurers. Insurers have been telling us for years that they were losing money on underwriting and taking their profits from their investment returns made on the money set aside to settle claims. This was fine in a time of high interest rates but that time has long since gone and insurers were heavily exposed when equity markets fell after 11 September 2001. This seriously reduced the amount of moneys available to pay claims. Consequently, insurers are now seeking to make their money on underwriting profits, resulting in higher premiums.
In 1939, there were approximately 90 insurers in the Irish market. This figure fell to approximately 30 during the next 50 years. In the past ten to 15 years, due to consolidation in the marketplace, amalgamations, etc., it has fallen further to approximately 15 resulting in reduced competition and increased premiums.
The introduction of the penalty points system reduced the frequency of claims and the threat of the PIAB and the advent of Quinn Direct to the commercial market have resulted in significant reductions. There has been an average of 15% to 50% reductions year on year.
Court settlements in Ireland are much too high, standing at two to three times the EU average, while legal costs are astronomical, with a senior or junior counsel in each High Court case pushing such a defence to 40% of the total claims payment. The PIAB must be made to work because it will bring realism to the market. If insurers can save on unnecessary defence costs, this must drive claims and premiums down.
The introduction and policing of the health and safety legislation has resulted in the abolition of cowboy operators from the workplace. There is now an awareness on the part of employers and employees of the fruits of a safe system of work. In addition, the safety programmes that are in place - which were previously non-existent - will create an atmosphere where there is no place for fraudsters in the system. The anti-fraud campaign undertaken by insurers and the Government agencies is paying dividends. In turn, this will result in fewer claims and reduced premiums.
I was asked about how one might reduce insurance costs. I have already covered the PIAB, the success of which is paramount to reducing insurance costs.
Ireland is the only country in the world where one can buy a licence and drive home provided one has a qualified licensed driver as a passenger. However, there is worse to come. If one fails one's test, one is then qualified to drive alone. The enforcement of the Road Safety Act must be tightened. I am not advocating the further restriction of speed limits by the Minister. The important point relates to the re-education of driving habits due to stricter control of what is in place, which will result in improved driving skills and awareness.
We must ensure, in the interests of consumers, that the benchmark set in the book of quantum is not set at current levels, which stand at two or three times the EU average. We must be careful to set the price tag on each injury at a realistic level, otherwise customers will always pay higher insurance premiums. If all of this is achieved, we will create a level playing field and insurers will commit more capital to the market, hence increasing competition and reducing insurance costs.
I was asked about the overseas perception of us. There is a perception of the Irish market abroad to the effect that we have a compensation culture similar to that of America and that we have a high number of lawyers, which helps to support that view. This makes it difficult for insurers to price business accurately. The public perception in Ireland is that it is almost a crime if an insurance company declares a profit. Any investor or shareholder will not invest capital in a country or business if he or she is not allowed to achieve an adequate return on his or her investment. The abolition of the jury system 20 to 25 years ago was heralded as a new way forward and insurers clapped their hands because they believed it was a new horizon. However, their joy was short-lived. As awards by judges have been equally as inconsistent as those given by juries, let us ensure that the same does not happen in the case of the PIAB.
Ireland is a small country in insurance terms, with a population of only 4 million. It is one tenth the size of most European countries, with a high cost of living. We will always, therefore, have difficulty attracting new capital unless it makes sense for potential investors. We need to address a number of these issues if we are serious about attracting new investors into the market.
I welcome the IFSRA requirements because they are designed to protect consumers, who are our clients, and we have been doing so for years. There is nothing new in this. However, brokers are the catalysts for comparing prices and covers in the insurance market. The IFSRA could help consumers further by compelling direct insurers to make their rates available to brokers, thereby creating a level playing field for all. This should help reduce prices.
The point regarding the solvency of insurers is moot. I do not believe this is an issue for brokers, it is more relevant to IFSRA. A broker's job is to place business with the best insurer at the best possible price for the insurer. The solvency of insurers is really not a matter for us.
The Competition Authority's report is very good and gives an excellent insight into the industry. However, the conclusions were imbalanced and in my opinion focused unfairly on the broker market. From my 40 years of experience in dealing with all types of insurance, from an eel to an anchor, I am aware that price is the key issue. Regardless of how it is presented to the customer, he will inevitably go for the bottom line and hold the broker responsible for something he failed to see.
The secret to the success of any broker is presentation and service. If one does not present oneself and one's price in a manner acceptable to the customer, one will not succeed in reaching the next level, namely, service. The client must see what is available in the marketplace, he must be given a choice and one must ideally create the atmosphere in which he can buy. After that, the administration and after-sales service is easy.
