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JOINT COMMITTEE ON ENTERPRISE AND SMALL BUSINESS debate -
Wednesday, 27 Apr 2005

Insurance Market Reform: Presentations.

I welcome the representatives of Allianz Ireland, Hibernian General Insurance and Quinn Direct Insurance, who are here to assist the joint committee in its examination of the reform of the insurance market. I also welcome the representatives of IBEC and O'Reilly Consultants. The representatives of Allianz Ireland are Mr. Brendan Murphy, group chief executive; Mr. Sean Maher, director of underwriting, and Mr. Damien O'Neill, associate director. The representatives of Hibernian General Insurance are Mr. Dick O'Driscoll, managing director; Mr. Brendan Huston, director, and Ms Laura Booth, executive manager. The representatives of Quinn Direct Insurance are Mr. Kevin Lunney, managing director, and Mr. John O'Driscoll, commercial manager. The representatives of IBEC are Mr. Tony Briscoe, assistant director, and Mr. Brendan Butler, enterprise director.

I remind witnesses that while members of the joint committee have absolute privilege, the same privilege does not extend to witnesses appearing before the committee. Members are reminded of the long-standing parliamentary to the effect that they should not comment on or make charges against a person inside or outside the House or an official by name or in such a way as to make him or her identifiable. We will call representatives from each of the group represented to make a presentation, following which we will have a question and answer session.

Mr. Brendan Murphy

I will start with a business profile of Allianz, given on page 3 of my presentation. We can see from the pie charts that motor insurance dominates the insurance business in general, with a figure of 47% in 2002 and 43% in 2003. We can also see that the figures for the liability and property sectors increased in 2003. Allianz has a lower proportion of the motor insurance business but more of the property and liability insurance business. This reflects our profile as being geared more towards the commercial side of the business rather than the personal side. The market premium for 2003 was €4.5 billion, of which Allianz's premium was approximately €600 million.

Page 4 contains the profit and loss account of Allianz since 2001. It includes gross written premiums, pre-tax profits or losses and, most importantly to us, the average return on capital over five and ten years. The cost of capital over four years has run between 8% and 9%. Our requirement is to secure a return above the cost of capital.

The joint committee asked us for our views on a number of issues. These include the reform of the market, the PIAB, the Civil Liability and Courts Act 2004, the recommendations of the joint committee and the Competition Authority, penalties and incentives offered to young drivers in recommendation No. 45, as well as the level of profits and income in 2004 and premium changes since April 2004.

There have been several positive initiatives on the reform of the market but it is still early days. There has been a vigorous anti-fraud campaign which has been reasonably successful to date. There have also been workplace safety initiatives and investment by our larger clients in risk management, guided by our own risk control specialists. We have invested heavily in driver training programmes for clients with large motor fleets. Allianz sees road safety and the education and training of drivers as crucial issues. While there is more to be done, we welcome the fact that updated health and safety legislation is before the Dáil.

With regard to property, the proposed figure for flood alleviation is inadequate. It comes to €450 million over 15 years but nearly €50 million has been spent in Kilkenny alone. While there are no individual new players in the market, there are several additional tranches of capital from London and Gibraltar.

Allianz has been dealing with employer's liability cases since 1 June 2004 and public liability and motor cases since 22 July 2004. The book of quantum is now in use by solicitors, barristers and the courts. Therefore, it is being used in negotiating claims.

The PIAB has had 827,000 hits on its website and dealt with 15,000 telephone calls, while around 6,000 claim cases have been lodged, almost half of which are motor claims. There has been a small number of awards made by the PIAB. There has also been a High Court challenge on dealing with solicitors. This represents a "settling in" phase. The Civil Liability and Courts Act 2004 was enacted in July 2004 and implemented on a phased basis. It was only fully implemented in March 2005. It may have a much more significant impact than the PIAB.

While the PIAB is operational, to date there have been very few decisions. The Civil Liability and Courts Act 2004 has only just been fully implemented and it may take one year or longer before a clear pattern is discernible. Vigilance and support from all market participants are required to ensure success. We ask the joint committee to continue its good work in this regard.

It is not possible to express all of our recommendations in such a short presentation. However, Allianz supports the Irish Insurers' Federation's position. I refer members to the IIF's response to the joint committee on 6 October 2004 and its clarification on 19 April 2005. We support efficiency and reform that has as its objective reasonable premiums, full compensation for those with genuine losses and rewards for shareholders' capital. Allianz specifically supports a focus on efficient delivery of insurance products and services, risk control and the elimination of fraudulent and exaggerated claims.

The joint committee requested our view on recommendation No. 45 in its report. Allianz's business profile is focused more on commercial risks. Working in partnership with our main clients, we provide driver training which involves classroom work on hazard identification and safe driving techniques. In addition, advanced driving instructors accompany our insured drivers on road trips to monitor and advise on driving behaviour. On a cautionary note, Allianz would be concerned if recommendation No. 45 became a substitute for investment in driver training and road safety measures enforcement.

Regarding our views on the recommendations of the Competition Authority, Allianz has not raised issues with regard to the authority's report. Most of the recommendations were addressed to IFSRA, while some of the issues are being developed into consultation papers. We respond to such consultation papers through the IIF or directly with IFSRA. The joint committee will be aware that the Competition Authority report has confirmed the insurance industry is cyclical in nature and in the price-declining phase.

Regarding the level of profits and income in 2004 and premium changes since April 2004, medium-term return on capital is our key measure. The cost of capital is currently 8.1%, while our target return is 15%. The five and ten-year returns at the end of 2002 were 0.6% and 6.6%, respectively, which was totally inadequate. The five and ten-year returns at the end of 2004 were 16.9% and 17.2%, respectively. Therefore, we were achieving our medium-term return target in 2004.

Insurance premiums are a response to the cost of claims and are set before the cost of claims is known. Rating is continuously monitored. Allianz bases its premiums on past claims history and its assessment of future exposure. We take account of relevant environmental and legislative developments.

Allianz pursues stability for clients and shareholders and has been operating in Ireland for more than 100 years. Rates are down substantially at this time, which reductions are against a backdrop of increasing values at risk. Reform, enforcement and control of claims are the key.

Page 19 of our presentation shows the reductions in premiums by category as reported to the joint committee some 12 months ago and the additional reduction since that date for the period March 2004 to March 2005. Motor commercial rates were down 25% and have decreased by another 20%; private motor rates were down 25% and have decreased by another 21%; commercial liability rates were down 16% and have decreased by another 16%; commercial property rates were down 23% and have decreased by another 14%; and home insurance rates were down 5% and have decreased by another 10%.

There have been substantial reductions while values at risk increase. There have been significant increases in the numbers of insured risks such as vehicles, houses and businesses, as well as increases in the values at risk such as sums insured, liability exposures and profits. GDP was up 5.8% in 2004. Some 154,000 new cars were registered in 2004, an increase of 6.1%. Approximately 80,000 new housing units were completed in 2004, compared to 160,000 in the United Kingdom. There has been substantial commercial development. We have all seen tower cranes in our cities and towns. Rebuilding costs are up 4.2%, while employment is up 3.1%.

The total market premium volume increased by 85% in the period 1999 to 2003. While the consolidated figures for 2004 have not yet been published, it appears the market premium declined in 2004. Adjusting for economic growth from 2000 to 2004, effective premium strength is thought to be similar to 1999 to 2000 levels.

What is meant by effective premium strength?

Mr. Murphy

There is a combination of rate and economic activity in terms of movements in premium. We are suggesting the removal of inflation to return the figure to where it was. That is a powerful figure. Effectively, the rating decreases as opposed to the volume.

Would that represent a return to the figures of 1999?

Mr. Murphy

Yes. It is important to understand this a cyclical business. Insurance events are like seasons in that they come around but the intensity varies from year to year. Allianz must take account of past performance of the business, both in its own account and other available data. We have regard to the current environment and those issues that indicate if performance is in equilibrium tending to improve or disimprove, namely, the trend of the business. Finally, an experienced view is taken of what may happen in the future, particularly with regard to long-tail business.

I draw members' attention to pages 23 and 24 of our presentation and apologise for the complexity of the slide. We have attempted to put on one page all of the issues we take into account when managing our business. On the bottom of page 23 we show the returns over five and ten years and the cost of capital as well as our target return. I do not intend to go through the page in detail, as it might be too depressing. However, members might want to touch on some of the issues at their leisure. One can see the level of progress when comparing pages 23 and 24. However, as some of this has not yet been delivered, we must keep at it.

We had profitable business in 2003 and 2004. The penalty points system introduced in 2002 had a positive and initial impact. The last major weather event was in 2002. There was a moderate recurrence in 2004 and again in January 2005.

The strong focus on risk management in recent years has contributed to claims reductions in that large commercial operations have invested in risk management. This has shown benefits. We also have an effective anti-fraud campaign.

Debate has translated into action with the implementation of the PIAB and the Civil Liability and Courts Act, which reflects the good work of the joint committee. Prior to this, there was always a debate about how we might reform. However, action has now been taken and we are seeing the benefits in terms of premium rate reductions which are very significant.

There is more capacity in the market. Prices are in sharp decline and back to 1999 and 2000 levels. While there is no definitive trend in claims, there is a potential pipeline issue. There was publicity about the number of writs issued immediately before the establishment of the PIAB but we have not seen them come through. Have they evaporated or will they come through? That is an issue for us.

Third party claims values which were stable are tending to move up again. This represents a slight movement in trend but something on which we must keep a close eye. The value of property claims reflects inflation in property prices. There is a high level of confidence as a result of the PIAB and the Civil Liability and Courts Act and this has led to price reductions. In other words, we have taken account of their impact in our prices.

As far as health and safety legislation before the Dáil is concerned, there is an indication that insurers' focus on risk management is being relaxed. In other words, as premiums have come down, commercial insurers are not as inclined to invest in risk management. This serves as a useful reminder to us that the potential for major loss remains.

Last year was the worst year on record for global catastrophes. The fact that Ireland escaped does not mean it will not happen again and it is a timely reminder to us. At home there were floods in Cork, Clonmel and Wexford.

This is a great way to start the day.

Mr. Murphy

I would not be doing my job properly if I did not bring the matter to the joint committee's attention.

We are mindful of that.

Mr. Murphy

The effect of the penalty points system has reached a plateau and expectations of endless price reductions are setting the scene for future instability. Exposures are increasing with a growing economy and weather events are certain to recur, with the only question being their timing. There has been a disappointing level of action on flood defences, long and increasing delays with driver testing, concern with poor road safety measures enforcement and a lack of adequate resources and investment in safety programmes. As the PIAB may face further challenges, we must be able to rely on a sustained input by legislators to resolve outstanding issues. Current market rates assume the delivery of outstanding initiatives which have been priced into them. In addition, the current market rates may constitute an exit point for transient capital which might move out of the market with destabilising consequences.

Overall, the good news is that we are getting a reasonable return on capital. I hope this will help to sustain the capital in the market in the coming years. Taking past, current and future outlooks together, we conclude that reforms will take years to mature. While progress has been made, the possible pitfalls are plentiful. We have a collective responsibility to achieve the ultimate goal — stability in a naturally cyclical marketplace. Recent erratic cuts in rates may bring their own challenges as the cycle develops. Given the many reform initiatives under way, we have the potential to make a smooth landing. However, this is not a sure thing.

I thank Mr. Murphy. We are working to a tight timeframe and although I am not rushing anyone, members must be in the Chamber for the Order of Business at approximately 11.20 a.m. I welcome Mr. O'Driscoll from Hibernian General Insurance.

Mr. Dick O’Driscoll

I hope members are in possession of my presentation, which is based on a response to the request we received from the clerk to the joint committee and on an updated version of the presentations we made to the joint committee previously.

I assume everyone has a copy.

Mr. O’Driscoll

We will focus on the success of reforms in the market, our own experience, Hibernian's solutions, and the remaining market opportunities and finish with a summary. I have the same team with me today as has attended these presentations since we first appeared before the joint committee two years ago. We have provided written submissions and independently commissioned data from Tillinghast reports for the joint committee. This is our fourth presentation to it. We will try to follow our previous statements and presentations with consistency.

I will start with the success of the market reforms. In the past two years significant progress has been achieved in the market's condition from the perspectives of consumers, legislators and insurers. It is important not to skate over this success, as we have made significant strides, although more needs to be done. It is necessary to maintain the political momentum galvanised two and a half years ago by the crisis in the market, which I will discuss later. Undoubtedly, the market is currently more attractive, even though the prevailing prices are the same as they were in 1999 or 2000. The reforms have made the market more attractive. Although the additional capacity in the market may not have been provided by big names from other markets, there is undoubtedly greater choice available to the customer today than two years ago, which is one of the objectives of reform.

I will talk about the PIAB, the Civil Liability and Courts Act and other emerging supports for reform. The PIAB and the Civil Liability and Courts Act have become realities rather than promises in the year since we last appeared before the joint committee. I will dwell on the Garda traffic corps, a drum on which Hibernian has been beating for a long time. We need to continue to beat that drum hard. We are aware of and welcome the commitment to it but have not seen the evidence.

In terms of new entrants, there is greater choice available to both personal and commercial customers than there was either one or two years ago. The cyclical nature of the market is something about which we need to be cautious. The additional capacity attracted to a market like Ireland needs to be consistent and available in bad times as well as good. For example, two and a half years ago, when we first discussed insurance matters before the joint committee, we referred to people's inability to get quotes, as their insurers had left the market because of difficulties. We need to be cautious about this in the future.

I will now turn to the PIAB and the Civil Liability and Courts Act. Hibernian has been a supporter of the concept of the PIAB from the outset and has tried to champion the concept at every available opportunity. Although it has been in operation for approximately one year, there is a long way to go before it is bedded in. It is a change that is absolutely fundamental to the market, and it would be unfair to judge its success or failure at this early stage. We have seen a small number of adjudications and need to see many more. We encourage the PIAB to do its utmost to increase the volume of cases going through the system to allow a pattern and stability to emerge. However, we continue to support it and continue to believe it is the correct solution for uncontested claims.

As regards the Civil Liability and Courts Act, much has been made of the move to a sworn affidavit and the change in the Statute of Limitations. We continue to support this. Although the Act has only been in force for a short period, some of the decreases in frequency and volume of liability claims were driven by the fact that this reform was in the pipeline. The act of signalling that it would happen, with its implementation, had the effect of reducing liability claims. Undoubtedly, this has been beneficial.

The joint committee has asked us to comment on its second interim report, issued in July 2004. We welcome the report, as we did when it was issued. We welcomed the majority of its recommendations, particularly on the issue of a traffic corps. Half of the insurance market is for motor insurance. We read about the carnage on our roads in the newspapers daily. We are aware that without high levels of enforcement and a dedicated traffic corps, this will not change. We support the extension of the penalty points system with appropriate systems to ensure it runs smoothly and is automated. We also support the abolition of the 2% Government levy on premiums.

One particular recommendation that arises from studies by the Competition Authority and the joint committee's recommendations is the idea that renewal information should be sent to customers earlier. While we support greater choice for customers and providing them with time to shop around, I caution against something that would put information into their hands too far in advance for one simple reason. If one insists that the customer has the information two months before renewal, it means that normally it will be produced three months before renewal to allow for normal distribution. If it is produced three months before renewal, one quarter of the normal claims in a year will occur between the date of renewal preparation and the actual renewal date. If that is the case, the onus will be on the customer to inform the insurer about changes in circumstances if there is a claim. My concern is that an increasing number of customers could get into difficulty because they have not declared all the relevant information around their renewal. We encourage anything that enables the customer to shop more effectively but we should be careful in the way we implement it.

We generally welcome the findings of the Competition Authority's final report in March 2005. I will make two points for the benefit of the committee. One is the recognition of the cyclical nature of the industry. It is a considerable struggle for us to come to the committee to explain the losses and profits, as against the price increases and decreases in the business. The Competition Authority's study recognised that it is a cyclical industry across the globe. It is not an Irish phenomenon and we will not change this situation in Ireland. We can only manage it as best we can locally. Two years ago, when things were very difficult, there was a considerable amount of loose talk about collusion cartels and price fixing in the industry. It was particularly important for me that the Competition Authority's study found no evidence of collusion cartels or price fixing.

A number of issues highlighted in the Competition Authority's study require further discussion. The idea of compulsory data sharing may appear, in principle, to make it easier for new entrants to the market. I would caution that entrance to the market should come on the basis that entrants will provide sustainable service. Companies that invest very heavily in proprietary data to support their customers and business should not feel that all of this data will be shared with newcomers on the basis that newcomers do not have to make any such investment. The recommendations regarding renewals information in the Competition Authority's study need to be carefully considered. One of the recommendations was that the renewal information should go from both the intermediary and the insurer to the customer. Implementing this recommendation would merely increase costs and a better way can surely be found. The second issue relates to the longer notice periods for liability renewals, which I have already addressed.

The committee asked us to update the position on Hibernian General Insurance's experience of profits and income in 2004. Our premium income in 2004 was €835 million, which was approximately €100 million lower than it was in 2003. Our profit before tax was €223 million in 2004 and our return on premium over five years up to the end of 2004 was 10.5%, which again meets the return on capital targets of our shareholder. It is the first full year for which Hibernian General Insurance has been able to say that.

I have included a graph on motor premiums to get the committee to focus on the actual change in motor premiums from 2000 to 2004. When we spoke with the committee this time last year, one of the challenges facing us all was to accept the direction in which motor premiums were going. It takes a long time for changes in premium to feed through to the full experience because everyone is insuring once a year rather than once a week. I suggested to the committee on the last occasion we made a presentation that perhaps an independent body, such as the IFSRA index on motor insurance, should be the basis for a price comparison. Maybe the same is true of all insurances and some independent way exists for the committee to be able to monitor increases and decreases rather than relying on testimony from interest groups.

Regarding the solutions and how Hibernian General Insurance sees the future, there were a number of recommendations in the Oireachtas Joint Committee on Enterprise and Small Business report, which focused on technology, such as cruise control and tracking mechanisms. Hibernian General Insurance's solution for inexperienced drivers has been its ignition product, which is an educational product that has been running for approximately three years. We have 37,000 candidates who have participated in that programme and we have invested €10.3 million in that training. It has proved to be a remarkably successful initiative for us and we believe it has proved to be a very successful initiative for customers who have participated. The course is free and has enabled us to enter the inexperienced driver market in a disciplined way and provide more choice for customers in this area. Due to the backlog in tests, we decided in late 2004 to introduce the same type of programme for provisional driving licence holders because committee members will have heard organisations such as Macra na Feirme talk about the fact that people who are waiting for tests for one to two years are paying loaded premiums when they are capable of passing a test. We have invited customers who believe they have the necessary experience to go through a provisional ignition programme and we remove their provisional licence loading if they pass that programme, even though they have not yet sat the driving test.

Regarding penalty points, the committee will be aware that we supported them from their introduction in November 2003. The discounts that have gone to our penalty point-free customers in the interim amount to €37 million. We continue to support the need to roll out penalty points with supporting technology. I again allude to the golden period of six months after the introduction of penalty points when Ireland had the lowest number of deaths and serious injuries of any country in Europe. We can reach this target again if we have the right enforcement.

We talked in our previous presentations about our risk assist product, which attempts to engage customers on the commercial side in management of risk and reduction of risk in their business. It has proved to be quite challenging for us. We have 740 companies registered as risk assist users who are receiving discounts as a result. The reality of our experience is that as prices have decreased in the commercial sector, customers tend to be less interested in risk management and are happier to take the lower premiums. We strongly support the reinforcement of support for health and safety legislation.

Regarding the opportunities that remain, maintaining political momentum is critical. For example, we were concerned at the lack of political response to the court finding on the jurisdiction of the PIAB. We feel it is essential that the initiatives and reforms supported by organisations including this committee continue to receive broad political support. Enforcement is critical for road safety and the long-term effects of such things as a Statute of Limitations and the swearing of affidavits through court reform are extremely important and require continuing support. We would sound a note of caution against any increase in court jurisdictions because they would be inflationary for claims and we would advise the committee to be very cautious if any such recommendations come forward. In summary, we seek to encourage wider customer participation in our risk assist product, which has proved to be successful for our customers and us. We recognise that reform has taken place; a mere year ago, it was in the pipeline. The two reports and the upcoming report of this committee have made an important contribution in that regard. The court reform and the establishment of the PIAB have been equally important. We stress the need to continue the political support for these initiatives and we acknowledge the considerable improvement in the insurance infrastructure in this market.

I thank Mr. O'Driscoll for his very informative submission. Mr. Kevin Lunney from Quinn Direct will now make a presentation.

Mr. Kevin Lunney

We welcome the opportunity to make a further submission to the committee and I thank the Chair and the members for inviting us to make the submission. Our submission follows previous submissions in July and November of 2003 and in April 2004. In our submission, we tried to follow the remit the committee has given us. We will give our views on the recent reform of the market, comment on the recommendations of the Competition Authority and this committee, update the committee on premium reductions since our last submission and discuss our profit levels for 2004.

In overall position, Quinn Direct experienced a 33% annual growth in 2004. The growth in the Republic of Ireland was 25%, which is set out in greater detail on page 11 of our submission. This growth has been driven by the fact that we continue to be the most competitive insurer in the market. Our growth remains strong in all lines of business in 2005. We are continuing to grow our portfolio and increase our market share in Ireland as well as targeting motor and commercial insurance sales in the United Kingdom. We have focused constantly on the commercial insurance market in Ireland in the past three to four years and concentrated on improving our operational efficiency as our volume grows.

Since we last met the joint committee in April 2004, there have been significant premium reductions in all lines of business, including 11.1% in private motor rates, an average of 14.4% in commercial motor rates, 17.1% in commercial liability rates and 12% in property rates. As is evident from these reductions and our market share growth, we will continue to row in behind the Government's reform programme for the industry. We anticipate further reductions, subject to completion of the various parts of the programme yet to be enacted.

Market conditions have improved in the past two years. Claims costs and, as a consequence, prices have fallen. This is principally driven by increasing public awareness of the negative aspects of claims fraud and exaggeration. The public debate has been driven by the joint committee and other fora. The benefits of recent legislative measures such as the Civil Liability and Courts Act 2004 are as yet unrealised and unquantifiable in real terms.

Our perspective is that the Personal Injuries Assessment Board has been slower to make awards than originally anticipated. I will draw the joint committee's attention to a further point in respect of how the PIAB's interaction with recent legislation in connection with changes to the Statute of Limitations could lead to conflict. We see major inconsistencies in the overall level of personal injury awards made in court. In many respects we remain dependent on the judge on the day. Compensation awards are still significantly out of line with European levels and with our experience in the United Kingdom. We are concerned by the book of quantum's potential to exacerbate the problem because it has been devised using historical information from the Irish arena and may institutionalise an awards level that is too high.

We welcome the recent Competition Authority report and the report of the joint committee, two important documents in the reform of the market. Rather than concentrating on the recommendations with which we agree — the majority — there are a number of areas to which I wish to draw attention, although I do not mean to be negative. The first has been mentioned — the increase in the renewal notice period for liability insurance to eight weeks. Our experience suggests this may create difficulties because circumstances can change in an eight-week period. In many cases businesses are run by busy people. Those seeking liability insurance will not concentrate on monitoring renewal notice periods eight weeks in advance.

Recommendations B.1 to B.7 of the Competition Authority's report centre primarily on the conflicts of interests between brokers, insurance companies and customers. We reaffirm our consistent position as stated on several occasions that the payment of commission by insurers to brokers to a certain percentage is not in the consumer's best interests. With respect to the joint committee and the Competition Authority, there may be a skirting around the issue. The only way to make progress is through a fee-based structure whereby a fee is paid by the client for services rendered.

The joint committee's second interim report, in concentrating specifically on recommendation 45 in chapter 2, states insurance companies should provide significant incentives and penalties to persuade young drivers aged 17 to 25 years to use governor or cruiser control limits in cars. We have given this some consideration and are concerned that it is not a practical solution and, in many cases, would be unenforceable by the insurer. For example, most policies cover more than one driver, typically a parent and a child. If a 17 year old had an incentive to use a governor device, who would be restricted and held liable when a claim was made and the governor had been removed? This would be extremely difficult for anyone to police. The enforcement of speed limits must be achieved through increased policing.

We welcome the changes made in the Civil Liability and Courts Act 2004 but it is still early days. The procedural changes have not been in force long enough to assess the impact from a claims perspective. We endorse the aspects of the Act that will have a significant long-term positive effect on the insurance market such as the furnishing of affidavits, the treatment of untaxed income and the measures relating to fraud and exaggeration.

The reduction in the limitation period for personal injuries from three years to two is an important feature of the legislation but I will draw the attention of the joint committee to how the PIAB interacts with it. As we understand it, the clock stops ticking as soon as an application is made to the PIAB and does not start ticking again until at least six months after the date on which the PIAB makes an award. The PIAB has given itself up to nine months to make an award. If an accident occurs today and the claimant waits the two years allowed under the Statute of Limitations to submit an application to the PIAB, nine months later an award will be made by the board. If this is rejected, six months later — three years and three months from the date of the accident — the personal injuries summons will finally issue. This is an issue the joint committee should examine.

The joint committee has asked us to concentrate on price comparisons and we have done so in a number of ways. On page 7 of our submission we outline that we have taken the average premium attained in our motor insurance business in week 15 in the past three years, 2003 to 2005. The mix of business can change during these periods. Having more younger drivers in a particular week will have an effect but this method gives an indication of where we are going. For motor insurance, the average premium in 2003 was €1,441, which fell to €1,037 in week 15 of 2005. For commercial vehicle insurance, the figure moved from €2,303 in 2003 to €1,361 in 2005. Significant reductions have been sustained.

Specific examples of individual drivers are given on page 8. We have been a leader in driving down prices when it comes to young drivers. In December 2002 we were charging a 19 year old male with a full licence €3,000 for third-party fire and theft coverage. This price had been reduced by 44.7% to €1,659 in March this year. I will not go through individual details but the examples given suggest significant sustained reductions period on period in Quinn Direct Insurance premiums.

Has Mr. Lunney returned to the 1999 figures?

Mr. Lunney

I do not have specific information but we are back to the 1999 figures.

On the issue of employer's and public liability insurance, there are examples similar to those we used in previous submissions but I will not go through them individually unless the joint committee asks me to. In 2002 we were charging a figure of €28,300 for an engineering factory in County Offaly. By March this year this had been reduced by 27% to €20,677.

Mr. Lunney does not need to go through the various examples given.

Mr. Lunney

Regarding the joint committee's request for an explanation of the company's overall financial position, the gross value of written premiums increased from €256 million in 2002 to €355 million in 2003 and €473 million in 2004. Underwriting margins have moved in line with these figures, giving us a figure of €95 million for 2004. In addition, we had investment income of €58 million and a figure in respect of tax of €18 million, giving us a post-tax profit figure of €134 million approximately.

We point to our operational efficiency. We have removed more costs than any of our competitors. There is significant evidence to support this in our cost margins. In recent years we have concentrated on our claims management efficiency and a reduction in legal costs. We have succeeded in removing unnecessary legal costs. In that respect, we have led the market. Investment income is a key contributor to our profit figure, as is moderation of our claims experience.

The market share of Quinn Direct Insurance Limited has continued to grow. We have done this by remaining the most competitive insurer in the market. In 2001 we had a motor insurance market share of 9%, which grew to 13% in 2004. In the case of liability insurance we moved from a figure of 2% in 2001 to 14.3% in 2004. We stress that we have done this by achieving and retaining the position of being the most competitive insurer in the market. We have continued to gain market share, which has been achieved by focusing on low costs and a drive for efficiency.

We strive for a strong, transparent after sales service. Almost 90% of our customers renew their policy with us each year. We provide leadership in the industry by removing unnecessary costs from the claims management process and delivering cost savings to the customer and third parties. We have created competition and driven prices down. We will continue to work in this market, to increase our presence in all markets and to have our head office in Ireland. We have created 3,000 jobs, gained over 300,000 customers and almost 14% of the market in nine years. We have proven our ability to be the most competitive and a leader in the market. We are focused on achieving further growth in all market segments in the year ahead.

Mr. Brendan Butler

The three presentations have provided positive indications, particularly the establishment of the Personal Injuries Assessment Board, PIAB, and the Civil Liability and Courts Act 2004. There has been reference to the increased availability of insurance products and the cost base of insurance. From the perspective of the Irish Business and Employers' Confederation, IBEC, we have to separate motor insurance from employer's liability and public liability insurance. From a business perspective, the cost of employer's liability and public liability insurance is a key component. Our concern is that there is a danger of complacency. People feel the job has been done and no problems remain.

The economy has high wages and high costs. Traditionally, wages accounted for a high proportion of the cost base in a company. However, non-wage costs now account for almost half the cost of running a business in Ireland. Our most recent evidence puts the figure at 49%.

We take issue with the comments on the reduction of premia. Our evidence suggests that in 2002 and 2003 insurance costs increased by 50% and 30%, respectively.

Will Mr. Butler clarify what has increased?

Mr. Butler

Employer's and public liability insurance.

Did both increase?

Mr. Butler

Yes. These are average figures for the overall cost of insurance for a business.

Are they taken from a survey conducted by IBEC?

Mr. Butler

Yes. IBEC asked its members the total cost of insurance and the percentage increase.

Will IBEC make the survey available to the joint committee?

Mr. Butler

Yes. In 2002 the increase was52%; in 2003, 27.8%; and in 2004, 3.8%. This survey provides a snapshot, although there are volume issues that should be taken into account. However, there is no evidence that costs are falling to the extent mentioned.

The reform agenda has been led by the joint committee and the direct efforts of the Tánaiste, the Minister for Justice, Equality and Law Reform and the Minister for Transport. However, we do not see the same ministerial commitment that we saw three years ago. This causes concern. The PIAB should be given the opportunity to run its business in the way it sees fit. There is clear evidence of attempts to undermine the basis upon which it operates. That is very damaging.

In what way is this happening?

Mr. Butler

It is clear to many close to the industry that legal representation at the PIAB is being challenged. One of the main reasons the PIAB was established was to reduce the cost of handling claims, including legal costs. If that is challenged and legal fees are charged, the PIAB will be undermined.

Can people be stopped from going to court?

Mr. Butler

IBEC cannot stop people from doing so. The PIAB should be allowed the opportunity to establish itself. Its credibility will be established. This may rule out the need to take action through the courts.

We will devote a full day to assisting the PIAB. We look forward to its presentation. We fully appreciate the difficulties it may be experiencing.

Mr. Butler

We would certainly support that.

Mr. Tony Briscoe

I deal directly with industry, enterprise and employers daily. While many would say things have improved considerably, it has not reached the levels it was at five years ago. The level of improvement is open to debate, as revealed in the survey to which Mr. Butler referred. We conducted the survey in response to a request from the joint committee.

It was commissioned to assist us.

Mr. Briscoe

Yes, it was to assist the joint committee and provide it with further information.

Although it is too early to speculate, IBEC has confidence in the measures now in place such as the PIAB and the Civil Liability and Courts Act. One benefit is that insurance cover is more readily available. This is important for business. IBEC acknowledges the work of the joint committee and the comprehensive nature of its report and supports its laudable recommendations

Under the Courts and Court Officers Act 2002, there is a facility available to increase the jurisdiction of the District Court and the Circuit Court. We have grave reservations about the introduction of new limits because the way in which many businesses now structure their insurance cover has greatly changed. Many committee members have contacts in the business community and will be aware that many businesses do not have conventional insurance products but a mix with a deductible or an excess arrangement whereby they carry an element of risk and have cover for catastrophic situations. As 90% of cases are heard in the Circuit Court, if the limit was increased from €38,000 to €100,000, the reality is that the expectation would be that the figure would reach the maximum of €100,000 in each case.

That is Mr. Briscoe's advice to the joint committee.

Mr. Briscoe

That is one concern. Another relates to the possible impact on technical reserves, based on the estimated value of claims not settled. We have indicated others in the newspapers but I will not labour the point as the joint committee can examine them and return to us if it wishes.

Mr. Briscoe

When we responded to the joint committee previously, we did not take a view as to whether the figure of 2% could be abolished or ring-fenced, as using the money to support measures in the industry such as safety initiatives might be appropriate. Currently the figure stands at approximately €88 million, a not insignificant sum when one considers that the budget of the Health and Safety Authority, HSA, is approximately €60 million. Therefore, if it is not abolished, it could be used in another fashion, although I appreciate the HSA covers more than employer's liability and public liability insurance issues.

Committee members are aware that hospital charges, on which we comment in our report, directly affect motor insurance rather than employer's liability and public liability insurance premiums. However, we are concerned that this issue also has an impact on businesses, as they own motor vehicles. This difference in treatment of hospital charges under the current legislation concerns us. While we have not carried out in-depth analysis of court decisions, it seems they cause confusion because they are uncertain as to whether it is reasonable or appropriate to apply a disproportionate charge for an accident victim as compared to a victim where there is no insurable or compensation eventuality. We caution the joint committee on the implications in the case of two driver accidents. The Chairman has noted this in his report. If an automatic payment was made to the hospital in such circumstances, it may affect the no claims bonus of one party, even if he or she had no liability.

We welcome the comparison of the quantum of damages with that in other jurisdictions. This should be acted upon, as some hold the view that compensation levels are too high in this country. One of the problems is that there is confusion about the way general and special damages are awarded. Special damages are related to quantifiable loss.

We wish to mention recommendation No. 36. A number of our members have made the point that there are varying safety standards. I am involved in occupational health and safety issues and give advice to member companies. I am also a fellow of the Institute of Occupational Safety and Health. While I am aware of the safety implications, there may be better analogical systems in operation. We are concerned that specifying standards might give justification for declining insurance cover to individual companies or increasing premiums. Some enterprises may have what they consider far more appropriate and better systems for dealing with this.

Recommendation No. 23, which was reiterated in the joint committee's last report, refers to the IBEC-Irish Insurance Federation communications guidelines for policyholders. The Motor Insurance Assessment Board suggested this initially and we entered into an arrangement with the Irish Insurance Federation. The committee's report was issued in the system's early days when it was difficult to make a call. We were surprised it suggested it should be given regulatory status. We are not negative or averse to that suggestion but from a business perspective that agreement is working well. We have had no negative experiences.

I will be brief but another matter——

I want to give members half an hour for questions, although I appreciate Mr. Briscoe's contribution is important.

Mr. Briscoe

The question of legal costs and taxation is also mentioned in the joint committee's report. As taxation represents a small proportion of legal costs, when examining such costs, we must examine more than just taxation.

I thank the joint committee for inviting us and wish it well in its work. I reiterate what Mr. Butler said regarding its continued involvement in this matter which should be treated as a significant issue, given its cyclical nature in a policy context.

I know there was a newspaper article this morning on political commitment, particularly the commitment of the joint committee, to the insurance industry. I assure everyone that the committee is not going away and will redouble its efforts in its third interim report. We consider ourselves extremely well briefed. The experience of the past two years will stand us in good stead and nothing will come in the way of what must be done to make Ireland a safer place from the insurer's point of view and to ensure consumers get value for money on a par with that in the United Kingdom by the end of the Government's term.

On page 16 of the Allianz submission Mr. Murphy states that the cost of capital is 8.1%. How is this figure reached and how does it break down?

The joint committee travelled to New York to research the issue of a road traffic corps and to examine how it should be best addressed here. Mr. O'Driscoll from Hibernian expressed strong views on which I ask him to elaborate.

Mr Lunney from Quinn Direct has made a strong case that compensation awards are still extremely high. I am anxious to hear more on the issue. We will take on board the comments of IBEC on the Personal Injuries Assessment Board.

On profitability, a reduction in premiums and what the industry has stated this morning, I cannot say I find this on a daily basis. However, I agree with some of the comments made by IBEC. If one's premiums are due once a year, perhaps the good news will come in the latter part of this year. Is the figure of 8.1% reducing?

Mr. Murphy

It is. The Chairman may remember that I stated the cost of capital in the period 2001-04 ran between 8% and 9%. It was approximately 9% in the earlier period, dropping to approximately 8.1%. The cost of money has also dropped in euro terms in the interim period. This is the risk adjusted cost of capital, which reflects the business we write in Ireland. It does not reflect the additional risks in the Irish market compared to others.

Mr. Lunney, is the cost of capital the same for Quinn Direct?

Mr. Lunney

As a large organisation, the Quinn Group has capital at its disposal from its various businesses but I do not have an analysis.

I ask Mr. Lunney to forward the information to the joint committee.

Mr. O’Driscoll

On the cost of capital, the requirement of our shareholders is for a 15% return on capital. This is not dissimilar to the figure reported by Allianz, namely, between 8% and 9%.

Does Mr. O'Driscoll view the issues of a dedicated traffic corps and the enforcement of the penalty points system as important?

Mr. O’Driscoll

Our views have been consistent. Noting the experience of the Chairman and the joint committee in New York, we need to return to the situation that prevailed in the six months after the introduction of the penalty points system. We know what can be achieved. We are aware that in the jurisdictions mentioned there are full-time dedicated traffic corps, high levels of enforcement and the lowest road death and serious injury rates.

Is Mr. O'Driscoll referring to New York and Melbourne?

Mr. O’Driscoll

I am talking about Australia, which is the best example, and Victoria, in particular. However, we must be careful. The technology that can be deployed to support a dedicated traffic corps is also very important. We have a track record of challenging the technology deployed. It is very important, therefore, that the appropriate legislation is drafted in order that there will be no challenges to technology such as mobile cameras. The prize is still attainable. However, we have reverted to poor levels of enforcement and the danger is that some of the good work done to date will be undone. We exhort the Government to immediately establish a dedicated traffic corps of significant size with the appropriate technology and supporting penalty point systems.

When the joint committee visited New York, it found that an added bonus of a dedicated traffic corps was a drop in crime because criminals also had to get from point A to point B and routes were policed. The committee must investigate the Australian experience further.

I ask Mr. Lunney to address the issue of compensation awards.

Mr. Lunney

Our experience is that compensation awards remain high compared with European levels. Our recent entry into the UK market suggests that awards for standard or whiplash injuries are one third of the level expected here.

One third of the Irish level in the United Kingdom.

Mr. Lunney

Yes.

At some of the gatherings, particularly two years ago, there was friction between the two sides in this debate. It is important that we recognise the convergence of views and the progress made. The best indicator for me is that the representations I have received indicate that matters have improved. However, I was displeased to hear on the radio this morning that IBEC had stated there was no political commitment to the insurance industry. Considering that insurance is preoccupying this committee, to the exclusion of other important issues, it is disheartening to hear such a statement being made because it is not true. We all need encouragement when we are getting things right. The spectrum is extraordinarily broad and I do not want to compartmentalise it too much but there is still much work to be done collectively. All of the presentations were extremely focused and useful, both to the committee and the general public.

I am interested in Allianz as a large player in the home insurance market. Is it possible to examine in a structured way the mechanisms used to protect against flooding? The only comment Mr. Murphy made was in connection with the level of State investment in flood amelioration or prevention measures, which is important, but is there also a role for the market? Should the industry not tell developers that they will not be insured if they develop on flood plains? Planners also have a major responsibility in this regard. Rational decisions must be made to prevent flooding.

There is no point in trying to build barriers because flood waters will find a way through them. My experience in County Wexford clearly indicates this is the case. We solved a problem in the southern part of the county but then had unprecedented floods in the northern part for the first time. We must, therefore, adopt a different approach. As well as building higher barriers, we must also discuss the issue of planning and development and the fact that developers must acknowledge that flood plains are a necessity.

It appears the market is more competitive, an issue on which I accept the findings of the Competition Authority. However, Mr. O'Driscoll has stated there are difficulties related to data sharing to facilitate new entrants to the market. I ask him to elaborate on the specifics and to explain the damage that might be caused to his company by, for example, a predator accessing data but not making a commitment. If data sharing resulted in more competition in the market, the joint committee would welcome it. One of the downsides of the reform package is that significant new players have not entered the market, although there is greater availability of capital to existing players from external sources.

Mr. Lunney raised an issue that I would like the other two representatives to address, namely, the percentage commission paid to insurance brokers. There was a compelling case made on that issue. I would welcome an elaboration on the practice followed by Allianz and Hibernian. Do the representatives accept the general point that a standard percentage commission payment is not in the interests of the consumer?

I draw attention to the fact that a new health and safety Bill has reached the final stages in the Dáil. It was hoped to conclude the debate last night but that did not happen because of time constraints. I am interested in the response of IBEC. I am conscious that when we are imposing onerous responsibilities on businesses, even small ones, we should try to get the balance right between ensuring the best standards of safety and not crushing entrepreneurship with an unacceptable regulatory system. One amendment to the Bill that was not accepted would have required a safety audit to be undertaken by an external safety auditor on behalf of a household that employed an au pair.

Mr. Murphy

On the question of flooding, I agree with Deputy Howlin, particularly when it comes to planning. One will hear people say in rural Ireland a developer is building houses in a field that has always flooded. The support of politicians is crucial.

Would there be merit in providing for an insurance or insurability audit in the planning process?

Mr. Murphy

It is not necessarily a question of insurability, although I would be in favour of providing for a brief environmental impact assessment. I am aware that such an assessment has a much broader scope but questions such as whether an area has been subject to flooding could be asked. Our broad position is one of educating our policyholders on what to do. We encourage people to access our website, which deals with weather related issues. We advise people when travelling during the winter to leave a light turned on in the attic and the heat set at a low level, among other actions, to avoid that situation. A wider issue of planning in terms of flooding involves concreting over former agricultural land, which allows water to run more quickly into rivers and often causes downstream problems. This issue has not been properly addressed.

Mr. O’Driscoll

To avoid any confusion on the issue of data sharing, I should point out thatHibernian fulfilled all the current return requirements that form the data for the Blue Book, through which any potential entrant may conduct analysis of the market. We have concerns for the future on the boundaries of these requirements, specifically in the context of Allianz. For example, Hibernian invested heavily in flood mapping technology to improve its ability to insure risks traditionally viewed as uninsurable. After investing a large sum in this technology, we will be happy to share our experience without cost with the Office of Public Works. However, I am not sure that I wish to share the results of the technology investment with an overseas insurer who might decide to insure property for one year in Ireland before disappearing. It is important to us how boundaries are set around shared data. We need to invest on behalf of our customers and shareholders in a manner that allows the potential for competitive advantage in the future. I have no difficulty with customers having access to wider choice. However, if we reach the point where we provide sufficient data to allow somebody to look at this market in a different manner, the arising capacity should not be highly transient. A customer who has been told after transferring to a different insurer that his or her policy cannot be renewed the following year should not be left high and dry, as has often happened in Ireland.

Or low and wet.

Mr. O’Driscoll

Data collection is about looking back. However, looking forward rather than basing our decisions on historical events will be important in driving capacity in the future. For example, Hibernian did not have a young or inexperienced driver market three or four years ago. In entering this market we did not rely on historical market data but instead designed a new training approach for inexperienced drivers, which relied on our ability to invest in training rather than look backwards. Looking backwards at numbers is not the only way to enter a new market.

IBEC made a statement that not enough was being done.

——by the broad category of politicians.

Mr. Butler

Let me briefly respond.

I hope the members here today are not implicated in this accusation. Was the report in this morning's newspaper accurate?

Mr. Butler

Yesterday, IBEC issued a statement.

It was not on IBEC's website, which I visited this morning.

Mr. Butler

We try to highlight the importance of the insurance issue. IBEC is a lobby group that feels that significant political influence has been exerted on this issue in the past. When this issue was last highlighted two or three years ago we were in regular contact with Ministers, the Tánaiste and others wishing to hear from business representatives. IBEC devised a campaign, led to some extent by this committee. Our concerns arose because we have not had as much contact on this issue over the past 12 to 18 months. Our press statement pointed to the need for a senior Minister to continue driving this agenda.

The matter has been a priority for this committee since November 2002. We will attempt to address IBEC's concerns. However, the bottom line is that three Ministers assist this committee. We have not found IBEC's accusations to be accurate. The Ministers' co-operation has been second to none. We have had four Bills enacted and have acted as a conduit between the industry and the Government. We have delivered. While I do not think IBEC's criticism is just, we will take it seriously.

Mr. Butler

To answer Deputy Howlin's question, health and safety legislation is important. While the Bill includes a number of positive elements, the key question is whether it will make the quantum leap to create a safety culture in business without entailing greater bureaucracy and higher costs. My answer as a safety professional is that it probably will not. From a safety consultant's point of view it is wonderful. The Bill contains a mixture of prescriptions and framework provisions with onerous responsibilities. I suggest that the Bill's progress should be monitored. The Deputy is right with regard to the business of reviewing things annually and so on and bringing in experts to do it. We had developed a model in Ireland and I recall I attended a conference in a country, which shall remain nameless, where they said that they liked the model but could only use it where there would be less than one employee. I asked why and was told that in their country they had to bring in an expert every year and pay them a certain amount in their own currency every year to make sure their safety was right. That should answer the Deputy's question.

I was happy to hear of a decrease in costs from the three insurance companies. IBEC stated that there was an increase of 3% in 2004. However, Allianz reports that its commercial liability fell by 16% between March 2003 and March 2004 and a further 16% in 2005, with a decrease of 23% and 14%, respectively, on commercial property over this period. I want the delegation to comment further on this matter because there is no point in quoting figures if they are not accurate.

If a person suffers a slight accident and enters hospital, he or she is charged at the full commercial rate. Does every insurance company reimburse this charge? Formerly, if a form was signed to the effect that a claim would not be made, the health board charged the patient at a lower rate.

How much extra must someone convicted of drink driving offences pay for insurance? Is it so much that it is impossible to return to the road? The State has decided that justice has been done and that the offender may drive. The situation may involve an elderly person who was unfortunate to be caught and might never hit another ditch.

Is the book of quantums used by every sector? It should be. Perhaps it is too generous. If it was not, it would probably not work at the initial stage.

I compliment Hibernian and other insurance companies on providing training for young drivers, particularly provisional licence holders. That is a good approach.

Insurers pay brokers a percentage. Would it not be correct for brokers to state their fee on a separate sheet? Whatever it is, they get paid. In all fairness, they do a good job also.

I acknowledge the progress made. The figures speak for themselves, as they did in previous years when matters were very difficult. There has been a major moderation in premia, which is to the benefit of consumers. The work done in that regard deserves to be acknowledged.

I am surprised that there is such consensus on the return on capital, with a figure of 15% being cited all round, particularly as money is very cheap to obtain nowadays. I am surprised that such a return on capital is needed and wonder whether a little more could be given to the consumer, as a figure of 15% seems high. However, we know companies are governed by others and do not have the cutting of the loaf in this jurisdiction in setting the rate.

I wish to ask about the level of regulation through the Irish Financial Services Regulatory Authority. A very different regime has been put in place since it was established. I want to develop a sense of whether there have been any difficulties on the part of insurance companies that we could usefully examine, as they could be a barrier to competition.

I notice that the companies' profit figures ranged between 20% and 30% in 2004, on which I congratulate them. When will they provide for more reductions in premia, perhaps even to pre-1999 levels? We know that premia went up by an average of 250% during the difficult period that followed, with the difficulties in the United States being blamed for the withdrawal of many reinsurance companies from the market.

Have EU directives had any impact about which we should know and which is of concern to the industry? The financial services directive might eventually end up on the lap of insurance companies. Would the delegates care to comment on any of the issues which might have a debilitating effect on competition? The number of general insurance companies prepared to operate in this market is still too low considering the number of licensed operators.

The road safety issue is a bone of contention from our point of view, with only three speed cameras working, as highlighted two years ago. There might be only two working now. All the good things we hear from Departments about their concern over road safety issues represent a litmus test of our failure as a nation in dealing with the issue. While we know the delegates' views on the matter, I acknowledge that we, on this side of the table, need to do something about the matter.

On safety training, I have been very concerned, as Mr. Briscoe knows, about the difficulties in the construction industry regarding the roles of the FÁS safe pass scheme and the training authority. There is a lot of money in the training business but the level of accountability for how it is spent leaves much to be desired. I ask those responsible for health and safety to take this on board in a more rigorous way to ensure there are no catastrophes on construction sites, that the training that is supposed to be offered is offered and that employees and the public are not put at risk through a lack of enforcement or accountability.

Mr. Murphy

Deputy Callanan asked about rate reductions. I can guarantee him that the ones he has in front him are average rate reductions in our organisation. Our share of the market is much more representative than the relatively small IBEC survey. It covered 79,000 employees, whereas the workforce is of the order of 1.6 million.

Is it not 1.9 million?

Mr. Murphy

Thank you, Chairman. It is of the order of 1.9 million. To reinforce the position, in our presentation we showed the overall market impact. We need to consider the mathematics. An increase in premium from €55 to €100 represents an 82% increase but if it comes back down again to €55, it only represents a 45% reduction. We should not lose sight of this. People do not think about the matter in those terms.

On drink driving, the first issue is whether it is declared to us. If someone has a conviction for drink driving, it is not always declared. It can be difficult to establish. We tend to adopt a one-to-one approach. In the first instance we might interview the person concerned to discover the circumstances before we take any action. We examine cases individually because in our overall experience a relatively small number of cases of drink driving are declared to us. There is no available database for us to check.

Does the company give a reduced premium to members of the Pioneer Total Abstinence Association of the Sacred Heart?

Mr. Murphy

No, we do not.

It might wish to consider this.

The companies severely load those who are honest with them.

Mr. Murphy

No, we discuss and review the situation with the customer. We will have an issue about whether we wish to continue to insure somebody who is particularly careless and continues to be so.

Does Mr. Lunney's company give an incentive for membership of the Pioneer Total Abstinence Association?

Mr. Lunney

No.

Does Mr. O'Driscoll's company?

Mr. O’Driscoll

No, we do not.

Does any insurer do so?

Mr. O’Driscoll

There was one which did so a number of years ago but that company subsequently left the market.

I am happy to take the remainder of the points put to us. On the approach to drink drivers, our concern is exactly the same as that expressed by the representatives of Allianz. Only a tiny percentage convicted for drink driving acknowledge it to their insurers. This shows there is an endemic problem which we have been highlighting for a number of years. Data sharing is not adequate for such criminal convictions. While we treat individuals on the basis of how far they were over the limit and what the circumstances were, we load the premiums of those with drink driving convictions, normally at a minimum of 100% of their normal premium.

On the standard commission paid to brokers, it has come through from recommendations made here and by the Competition Authority and IFSRA that we are in a transition period. There will be greater clarity later this year or early next year about how brokers' commission payments should be revealed to the customer. The practice that has emerged among the more professional broking groups is clear. Most brokers are making a huge effort to be clear with their customers about fees and commission. The Spritzer case in New York last year highlighted to many businesses the need to ask the question. The situation has improved enormously in that respect.

We were asked about the impact of the new regulator, IFSRA, and whether we are experiencing any difficulties with it. IFSRA's powers are extensive but it is still early in the period of their use. We need a partnership approach. The regulator and the industry need to be open with each other. We need open discussions with the regulator about how best practice is emerging. If there are concerns that will result in the hammer dropping immediately we raise a problem with the regulator, there will be a reluctance to do so. The more open the discussion is at this stage, the more effective regulation will be in the long term.

The cost of defending equal status cases is significant when expert witnesses are demanded. Even in cases where we have been successful in pleading our case, we have incurred costs of €200,000 and €300,000. Unless there is an effective screening mechanism to ensure there is a case to answer before it runs, the consumer will ultimately bear the cost of equal status cases. We would be cautious in that regard.

On the issue of upcoming EU directives, nothing in particular is happening that willthreaten the industry, although Ireland is way behind in implementation of the EU fourth directive on motor insurance. We are not sharing information between the Garda, the insurance industry and the motor tax authority in a way that maximises efficiency for the consumer. We need to focus more on how data can be used in a particular way with the consent of consumers to make services less expensive for them.

Much has been said about road safety. That two cameras are working is a clear indication to the road user that there is no evidence of a desire to make people pay for misbehaviour. We need to focus on this issue.

Deputy Hogan asked about the return on capital. Global markets demand such a return. He is correct in saying some of the returns demanded are set outside the jurisdiction. In regard to the risk assumed by insurers, particularly general insurers, a return on capital of 15% is not excessive by any manner or means. Acknowledging the cyclical nature of the business and the fact that there are long periods when a 15% return is not achieved, it is important to set the global and risk-reward contexts.

We now have a much more benign environment.

Mr. O’Driscoll

Yes.

Therefore, the return on capital should not be as large.

Mr. O’Driscoll

The Deputy should say that to the global capital markets.

Mr. O'Driscoll has to say it; he works for them.

Mr. O’Driscoll

We do.

I am surprised that none of the three companies has any incentive to offer to non-drinkers. What example will they give to young people who are putting the emphasis on sport? I understand from my broker that I am getting a 5% reduction because I am a pioneer. Be that as it may, it is an issue on which we can improve and at which the companies might look in the future. Given that there are 250,000 of us in Ireland, the issue should be addressed.

On behalf of the joint committee, I thank the representatives of Allianz, Hibernian General Insurance, Quinn Direct Insurance and IBEC for coming to assist and update us on what is happening in the industry. I assure the general public that we will do everything possible to assist the industry, on the one hand, and to protect the consumer, on the other. It has been two and a half years of hard work. At least 40% of the work of the committee since November 2002 has been devoted to dealing with the insurance industry. We will continue this work right up to the date of the next general election. I thank the delegations for their assistance and Mr. O'Reilly and his assistant for being with us this morning.

The joint committee adjourned at 11.25 a.m. until Thursday, 12 May 2005.

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