I welcome representatives from AXA, Mr. John O'Neill, CEO, Mr. Paul Moloney, head of corporate affairs and Mr. Pat Healy, executive director of finance. We will begin with the presentation, followed by a question and answer session.
Insurance Industry: Presentation.
Mr. John O’Neill
We have made copies of our quite detailed submission available so if the committee agrees I will just make some opening remarks and then we will make ourselves available for questions.
This is our fourth appearance before this committee over the past few years and we have given a consistent message to it. AXA Ireland is predominantly a motor insurance company with 85% of its premium income from that source, the majority of which is private car insurance. Previously we were known here as PMPA and Guardian Royal Exchange, both predominantly motor insurance companies. We have approximately 1,000 staff in Ireland where we operate in both the Republic and Northern Ireland.
The message we have been giving this committee, the Government and anybody who will listen to us is that the cost of motor insurance is directly related to the number and severity of accidents and crashes on our roads. That is the single largest determinant of the price motorists pay for motor insurance. We can work together to reduce the number and severity of accidents and the cost of settling claims arising from those accidents.
At our previous visit the Chairman said his dearest wish was to see motor insurance premiums reduced to 1999 levels, allowing for inflation over the period. I confirm, as evidenced in our submission, that our premiums have reduced by those amounts. Therefore, we have met the wishes or requirement of the Chairman of this committee. When the Motor Insurance Advisory Board made its report and the PIAB was created, the Tánaiste said her wish was to see motor insurance premiums reduced by 30%. Again, we have met that requirement.
To use a familiar phrase, we have "A lot done, more to do". We certainly have more to do on road safety, an issue that will not go away. Because of our increasing profitability over the past two or three years, we have been in a position to persuade our shareholders to go into further markets within Ireland. Over the past 18 months we have moved into motorcycle insurance, historically an area with only one or two players. There are now five active players in the motorcycle insurance business here. Therefore, profit from insurance companies is good for competition and for consumers because premiums have fallen.
I welcome Mr. O'Neill to the committee. I acknowledge what he has said with regard to the reduction in premia. There is evidence of significant reductions in motor insurance premia. However, there is still concern in the general market about the liability end of the market in particular sectors. Much progress has been made since AXA's previous appearance at this committee.
Mr. O'Neill mentioned road safety and fatal-ities. There is a worrying trend with regard to fatalities for the first four months of this year. Has he any further comments regarding what action is required at national or Government level to deal with this more urgently and aggressively? Will he also comment on the Competition Authority report on the insurance sector? What observations has he to make on the contents and recommendations of that report?
I welcome the group from AXA, whose submission and charts which clearly identify current trends I found very interesting. AXA is more profitable now, which is important for the security of shareholders and those people insured with the company. I compliment the company on the significant numbers, 1,000 people, it employs. I was interested to hear Mr. O'Neill say AXA was to take on motorcyclists, the last people I would have thought it would insure. There were two motorcycle fatalities last weekend, which is a very high level. Given the frequency of motorcycle accidents, why is this business being taken on?
Has the company carried out a detailed examination of the number of accidents involving only one driver which usually occur in the early hours of the morning? What is the liability of the company in respect of the driver of the car and the family who survive the person who died in tragic circumstances? There has been a trend in which fatal crashes occur on straight stretches of road at 2 a.m. or 3 a.m. As the investigative wing of the company must have studied the phenomenon, have any conclusions been drawn? Does the delegation have any observation to make? Is the cause of these accidents falling asleep at the wheel or something else? I am very interested in the phenomenon. We have dealt with the PIAB and other matters very well, but this is an area in which I would like more information. Families are extremely worried that people can leave in good quality cars and end up in a fatal crash for which there is no reasonable explanation.
Mr. O’Neill
If we start by asking what can be done, the only possible answer is enforcement. We have met with the Minister for Justice, Equality and Law Reform on four occasions and he has been very sympathetic due to the fact that our agenda is simply to——
"Sympathetic" is not a word I normally associate with him.
Mr. O’Neill
Deputy Howlin is in a different position from us in relation to the Minister.
They are the Minister's insurers.
Mr. O’Neill
No, no.
They have had tea.
Mr. O’Neill
We have had coffee. While I do not wish to take from a headline of 48 hours, I would dearly like to see enforcement over 24 hours per day, 365 days of the year. Enforcement over 48 hours is a very small start. As the Minister has demonstrated to us that he is a man of action, I believe the 1,200 member Garda traffic corps will be put in place. I have spoken to Commissioner Conroy about the matter and viewed the new cars, including Saabs, and motorcycles. While the Government is serious, action is required to ensure motorists see gardaí on roads to stop people who are breaking the law. Circumstances must be created in which members of the public find themselves talking to each other about friends who have been put off the road due to the accumulation of points. Visible enforcement is all that is required. There is no more magic than that. We do not need new legislation or draconian powers.
Our position on motorcyclists is interesting for the committee. Our company is a motor insurer. We are the largest insurer of motorcyclists in Europe, but had not entered the market in Ireland as it was very poor from a profit perspective. The PIAB and the Government's commitment to the enforcement of driver training before the granting of licences to motorcyclists will radically change the motorcycle insurance landscape. Current legislation provides that there should be no pillion passenger on a motorcycle being driven by the holder of a provisional licence. If that simple rule were enforced, 50% fewer valid claims would be made.
The rate of deaths among motorcyclists is very sad. We killed 50 motorcyclists last year at a rate of almost one a week by failing to enforce the law. Our goal is to work with Government and road safety interests to reduce the number to 25, to save half that number of lives in 2006. We seek to achieve the goal by providing significant incentives to motorcyclists who will take a series of simple driving lessons to make themselves more competent on the road. It is competence which is the issue among motorcyclists. When a motorcyclist is hurt or killed, it is very sad for the family and there are costs for the emergency services, clean up and, perhaps, hospital treatment. It is generally the case, however, that no payment is made to the dead person. If motorcyclists kill only themselves, the cost to the insuring public is rather small. While that is a terrible thing to say as the human cost is inestimable, deaths in motorcycle accidents do not tend to affect the bottom line. My colleague, Mr. Healy, will address single-car accidents.
Accidents involving a single car are a little different. Senator Leyden was correct to state that a very high proportion of serious accidents involve just one vehicle and typically occur between 2 a.m. and 3 a.m. The difference between single-car and motorcycle accidents is that in the former scenario there are often two to five passengers in the car who are badly injured. Frequently, the driver is killed and a number of people are seriously injured, which is a significant insurance issue. The cost of serious injuries to young people is very high. We examined some time ago the 20 most significant claims on our books, of which approximately 12 involved young male drivers in single vehicle accidents in which a number of passengers had been injured.
I meant to refer to accidents in which a person driving alone in the early hours of the morning crashes without explanation. Has the company carried out research on the profile of accidents of this type involving young drivers? There are concerns abroad about such accidents and the company must have information on the people involved in them. I understand the families are not compensated on foot of tragic accidents like those I have described.
There is no insurance cover in such cases. The nature of insurance is to provide one with cover for negligence which leads to the injury or death of someone else. In the tragic circumstance of someone driving alone and killing himself, no insurance issue arises. We do not have specific research on the nature of the particular form of accident to which Senator Leyden refers. Clearly, we have plenty of research on the typical accidents which involve insurance claims. I guess the factors affecting those accidents and the ones to which Senator Leyden refers are speed, drink driving, drug abuse and general carelessness.
Going to sleep.
Going to sleep is another factor. There have been many studies on accidents caused by people falling asleep while driving. Such accidents are quite frequent on motorways. I have seen research indicating that 20% of accidents may be caused by drivers falling asleep.
I welcome the AXA delegation. We appreciate its ongoing co-operation in this important and so far successful work.
Mr. O'Neill has been consistent in pointing out what we or other agencies can do. I strongly welcome the reduction in motor premiums to 1999-adjusted levels. This happened before the PIAB had really bitten — if this word is appropriate — and before the anti-fraud measures became law. Can we expect a significant further reduction given that these were very important elements of the campaign the insurance industry demanded of us? The delegates' presentation harks back to the unprofitable days but is optimistic that the industry will continue to keep its own financial controls in place to give value back to the premium buyer. We need to be reassured of this so we can continue to campaign for increased enforcement on the part of the traffic corps and cameras that will take footage for more than a couple of hours.
The AXA-supported campaigns have had a strong impact. I commend the company on these. Will the delegates refer to them and state what further campaigns and collaborations AXA has in mind?
The remit of this committee covers more than the motor insurance sector. As Deputy Hogan stated, we are grateful that we are making some progress in this sector but there are other areas in which we would like to see greater competition. One issue we have not really cracked is the broadening of the number of competitors in other sectors of insurance. The delegates have indicated AXA is moving into other sectors. I am interested to know whether it will compete for the broad spectrum of insurance business, as it does elsewhere in Europe. What are AXA's plans in this regard?
Have the delegates any observations on the public liability and employer liability sectors? There is a worrying trend showing an increase in fatalities of 40% in these sectors in the first four months of this year. New legislation, envisaged to have a great impact, is passing through the Houses but will, yet again, depend on labour enforcement.
I am vice-chairperson of the PIAB but I do not believe this involves a conflict of interest. I welcome the AXA delegates and their statements.
On foot of the points made on falling asleep while driving, irrespective of the enforcement of obvious provisions, Ireland is the only country in Europe without safe pull-in places along its main highways. It is a considerable problem that people cannot pull in, at 2 a.m. or 3 a.m., to a place where they will feel safe from any kind of aggression or assault. What are the delegates' views on this?
The delegates made a significant point on competence and I agree with it absolutely. Do they have any views on the daft elements of driver testing? I am not referring to the queues and to people driving without having passed the test. Does it make much sense to have a driving test that does not involve an overtaking manoeuvre? Is it worthwhile having a driving test in which so much attention is paid to the principle that one should not let one's rear wheels hit the kerb while doing a three-point turn? There are many other daft features of the test that have nothing to do with real driving. Do people not learn how to pass a test rather than to drive? Is there not a need to consider seriously how a test for the latter could be put in place?
Developments in the PIAB and the reduction in costs, in addition to the reduction of costs to insurance companies of settling claims, should bring us closer to continental models. This should attract other companies into a competitive market. On this issue, does AXA have any plans to introduce insurance for vehicles rather than for persons, as is the case in many European countries? Is it possible to have family insurance for people with clean driving licences and a certain level of experience?
What recognition does AXA give, in assessing the level of premiums, to the safety rating of cars? What is the payback in terms of insurance costs to those who invest in safe cars? I would like to hear the response to Deputy Howlin's questions also.
Mr. O’Neill
I will ask my colleague, Mr. Pat Healy, to address the question on the gains we have delivered to policyholders as a result of developments before the establishment of the PIAB and the introduction of the anti-fraud measures. In his answer, he might give the committee some indication of comparisons between the average price of motor insurance in this jurisdiction and some others in Europe.
Like Senator O'Toole, I am on the board of the PIAB. I am the nominee of the insurance industry on the board.
The enemy.
Deputy Howlin pointed out that the PIAB has only begun to take effect. It will take some time before it has a real effect on claims and the cost of making claim assessments. The same applies to the anti-fraud initiatives.
It is very important to note that motor insurance companies, and all other insurance companies, must look ahead when pricing insurance. We cannot look behind but must consider the expected frequency and cost of claims. We must make judgments in this regard. This is one reason insurance companies get it wrong all the time and why there are considerable swings in profitability. There are periods in which insurance companies lose significant sums of money and in which they make very large profits.
Unlike a manufacturing company, we do not know our manufacturing costs until many years after we set our prices. The typical personal injury claim takes three to four years to settle. Even in the PIAB environment, it will take some time to settle them and therefore we must make an estimate. In setting our current premiums, we are partly taking a leap of faith by deciding how the anti-fraud initiatives and PIAB will affect claims over the coming years. The PIAB and the Civil Liability Acts, which the insurance industry obviously welcomes, have had some benefit by way of lowering current premium rates. I have no doubt that the initiatives could have a further impact but we can only make a projection of the benefits that will accrue. We must wait to see what the actual benefits will be.
It is not a question of waiting to see what the benefits will be. The issue is an assurance to the committee that, once the company has reached a plain of profitability, it will not say that it would like to deepen its pockets. We expect the fruits of the legislative changes we have made and the further enforcement measures that will happen to be passed on to the consumer rather than fatten those who are already in a comfortable position. We do not begrudge that. We want the company to be profitable. However, we need an assurance that it does not see the future as fattening those who are already in a healthy situation.
Mr. O’Neill
Perhaps I might respond. In the happy capitalist situation in which we exist, unfortunately the competition will not allow us for very long to shove the money in our pockets. We act in enlightened self-interest by reducing premiums to customers since, if we do not, they will go to someone else who will charge them less.
When we have truly effective competition, I am sure that it will eventually happen.
Mr. O’Neill
I wanted to take up the Competition Authority report too. It clearly demonstrated, after exhaustive and exhausting inquiries for both us and the authority, that it could find no evidence in motor insurance of any collusion between the players. We still have a crazy situation where the difference in premiums between what insurers deem a risk to be worth can be as much as 100%. The reason is the difference in the data available to them. We very much work in silos on those data. Premiums would not have fallen were there not competition. If there were no competition in the market, and we could get away with charging 40% more——
Would you?
Mr. O’Neill
I think that we probably would. That is the reality. The market drives the premiums down.
If the competition were better, would it squeeze the margins more?
Mr. O’Neill
It could mean that there would be fewer players. That is what happened in the past. As profit is squeezed, players move out of the market.
That is the Fine Gael influence.
Mr. O’Neill
Perhaps I could continue addressing that issue of the comparative levels of premiums in other capitalist situations.
It is interesting. As everyone knows, when this committee began three or four years ago, the level of motor insurance premiums in Ireland was very high in relation to the UK and continental Europe. Now the average motor insurance premium in Ireland is very close to the average level in the UK. We may still be 10% above it.
It would be interesting if the witnesses could provide the data to the committee.
We can do that. Regarding continental Europe, we are still a little higher, but the gap is much closer than it was. It is interesting to note that there are some misconceptions. While we talk about the need for enforcement on our roads, we are not the absolutely freewheeling environment that some people think. It is interesting that the rate of personal injury claims in Ireland is lower than in the UK, including Northern Ireland. The reason that our premiums are higher is that our compensation levels are considerably higher.
It is AXA's cost levels rather than compensation levels.
No, it is the actual compensation paid to the victim, as clearly demonstrated in the book of quantum that has been established by the PIAB. The level of compensation is four times that paid in the UK to victims of similar injuries. That is why insurance premiums are higher. If the frequency of claims were similar to that of the UK, insurance premiums would be off the scale here. Thankfully, they are not, however.
Mr. O’Neill
Those were the questions. The question is whether it is over. In our slides, we have demonstrated to members the increasing frequency of accidents. If that continues, premiums will rise, since profits will disappear. As it is, for each of the last three years, we have been, in an act of faith, reducing the premiums systematically. They have not fallen in one fell swoop. We have tactically been reducing our premiums in those markets where we are seeing more competition — in other words, the profitable ones.
And to make a profit.
Mr. O’Neill
Exactly. Equally, however, we do not want to lose that business. We have seen that with the premiums for small public service vehicles. One no longer hears taxi and hackney drivers complaining about the cost of insurance. When we sit in their taxis now, they no longer attack us. They ask whether premiums will continue to fall, since they may have fallen by as much as 40% over the last four years. We are reflecting the results that we get in the segments in the premiums that we are charging. There is real value for money now in motor insurance.
Taking Mr. Healy's point, the actual amount that we are paying out in benefits and compensation is at four times the level of the UK. In Ireland, we are becoming very efficient in motor insurance. We have achieved the goals set out before the enhancements of the PIAB and the Government fraud initiatives, which are valuable. To get more value and see premiums falling more, we will have to see the accident frequency reversing the trend not of the past four months but of the past 18 months. Since two months after the introduction of the penalty points system, road deaths have been increasing again. Those are the Government's own statistics. We have to reverse the trend of road accidents, and that can be done only through enforcement.
Senator Leyden asked about single vehicle accidents and driver testing. We have come a great distance regarding the efficacy of our driver testing, with the theory and practical tests. Through my two daughters I have practical experience of the testing system. I believe that it works well. One of my daughters had to do her test four times before she passed. When she was approaching the fourth time to sit the test, I felt that she was competent to drive. When she went for the third test, I had a nagging fear about what she would do in the event of an emergency situation arising. I did not feel that she had sufficient control of the vehicle, mentally or physically. She had not got a complete tie-in. However, that changed with practice and doing those apparently very simple things, such as controlling the vehicle so that one stops two inches away from the kerb. That is extremely important when it comes to judging the distance. The difference between killing a motorcyclist and having no effect may be the six inches to the left of the car. It is the control and that repetitive learning that make a good driver.
Overtaking is the most difficult manoeuvre on the road, and it is not in the driving test. It cannot be right to send people out on the road saying that they are efficient drivers when they have never been shown how to complete an overtaking manoeuvre. They go out on the road and are at the top of a queue of cars that they could easily overtake safely with half a mile of road in front of them. They do not know the distance in front or the speed of their cars, and they have never had to learn that. That is what causes the problem when people behind start taking chances.
Mr. O’Neill
I agree with the Senator that the current system can be improved. However, my point is that we have really come a long way. Mr. Healy and I have been to Germany and Spain to examine driver testing. We have sponsored some schools programmes on driver training. We would prefer as insurers for driver training to be done off road initially, delivered only by professionals, and also for it to incorporate all types of road, including motorway driving, which is not part of the test at all.
There are some parts of the country where the hour lesson time would expire before the motorway was reached. We do not all live in motorway zones.
Mr. O’Neill
Even if the Government had the funds to set up and support private testing centres, would they be based in Dublin or Waterford, for example, or are we going to differentiate our public? Great strides have been made. The point the Deputy makes is well made and is valid, but we have come a long way. If we could get the alleged 400,000 provisional licence holders through the current testing, we would have advanced very much.
On Senator Leyden's point about single vehicle accidents, it is about education and knowing the danger one is putting oneself in, and other road users. This can only come about through training that makes a driver recognise that he or she is too tired to drive. This is not just an Irish situation, but is a worldwide phenomenon. As Mr. Healy has said, we have been studying data from the University of Manchester which relates specifically to this. There are no easy answers.
Some vehicles are now fitted with sensors to detect a dropping head. Others are fitted with sensors to pick up the movement over to the side of the road. Many roads in Ireland have indentations at the side to cause vibration and wake drivers up because this is a well-known phenomenon. However, in the cases we look at, 12 out of 20 of the largest claims, on average, relate to what I call "young male driver syndrome". It may be drink, or drugs, but generally these are weekend events. Of course there are the occasional accidents involving single drivers that certainly do not involve drink or drugs. These involve people coming home from work or other stressful situations who simply fall asleep, or it might be a case of making a misjudgement on a bend, and that is it. These can truly be called accidents, not road crashes.
Certainly we have a responsibility as regards driver training, education and the provision of reasonable spaces for people to be able to pull in safely when they wish to rest after an hour's driving. If we can only move on what we already have, to get enforcement of the rules of the road and existing licensing laws, particularly for motorcyclists, more lives will be saved. If more lives are saved, profits will start to rise again, more competition will come in and drive down profitability. That will be good for the consumer in overall terms.
What about the family rate and competitive rating?
I would like to address that. The Senator made the point about vehicles as against drivers. The reality is that we take both into account. It is actually important to match the vehicle with the driver because there are interactions between the two. We find, very significantly, however, that the characteristics of the driver are the single most important factor — age, gender and so on. They are the characteristics that drive the risk and affect the premiums. However, the interaction between driver and vehicle is important.
I know some companies offer insurance cover up to 12 midnight, in line with the idea of taking the vulnerable driver away from the dangerous hours.
As the Senator may know, and as we explained previously to the committee, we introduced a unique system of in-car speed monitoring against speed limits, as a facility to reduce the premium rates for young drivers. That was relatively successful at a time when insurance for young drivers was extremely prohibitive. The issue now is that it has become much more affordable and the average cost of insurance for a 20 year old is a great deal lower than it was at that time. It is actually now difficult to give a discount on that premium and pay for the technology.
I will be brief because a great deal has been discussed already. I thank the delegation for the frankness and openness of its presentation and the manner in which it has answered questions. It is good that the delegates have come out and said what exactly is wrong. They place the emphasis on enforcement. I have just a couple of questions.
How are insurance brokers paid? I assume they can seek business from different companies. The delegation has spoken much about the need for training of young drivers. Surely, at this stage some of the training should be done in secondary schools as part of the curriculum. It is such an important life skill that it should be introduced in schools.
Senator O'Toole raised the question of stopovers and perhaps service stations on dual carriageways. A driver travelling a journey of 100 miles needs to be able to pull in somewhere. It is a good idea, too, to have some kind of rough surface on the side of the road. We all get tired from time to time.
I also wanted to ask about suspended drivers who have been off the road for some time and then return to driving. To what degree are such drivers penalised by the insurance companies? When they have served their time, so to speak, and have done their bit, are they penalised severely? If they do not own up to having been suspended from driving or if they do not tell the insurer the full situation, are they covered?
Mr. O’Neill
On the issue related to brokers, because of our company's historical position as PMPA, some 60% of our business is dealt with directly, without the intervention of insurance brokers. The other 40% is introduced by brokers. An interesting statistic is that 30% of that business is moved from us every year. Over a four-year period, in effect, the entire portfolio of business that brokers place with us is, in theory, moved. If brokers in the private motor insurance field do not produce the right premiums, their customers disappear. Brokers, we feel, are actually moving the business. We wish they would leave it with us, because it costs us money each time they move. However, the system of brokers works relatively well in this field.
I concur completely on the point about training. Driver training must be part of the second-level school curriculum. It fits neatly within the transition year programme and we commend that. We have looked at a number of propositions along those lines. The cost is enormous, but the price of not doing it is even greater. We all need to seriously look at this.
Drivers can be put off the road through the points system, but we are only aware of two cases where drivers have lost their licences in this way. If a driver loses his or her licence though drink-drive convictions, which is a more common occurrence, we generally take into account the customer's history with us before the unfortunate event — and also whether that event coincided with a major cost to us in terms of a personal injury or deaths claim. This is reflected in the premium we charge. If it was a simple situation where a person was caught above the alcohol limit and lost the licence, he or she would be treated as starting off again and get the benefits new customers get in terms of discounts or whatever. We treat them the same way as anyone else, except where it has cost money, because that is where there is a costing.
I did not address the competition issue, as regards whether we have any intention of getting into other fields of insurance. Two of the committee members have asked that question. AXA in Ireland is essentially a motor insurer. We have dabbled in non-motor business, other than home insurance, in the past. It has not been profitable for us. For us to enter that market again we would have to employ specialists in that field. We believe that the element of the competition and the professionalism of the players there already would make the cost of entry quite high, with no security of gain for us. I am not saying "never". However, at this time we see ourselves as a motor insurer. We are extending our portfolio to motor and motorcycle business and to where we understand the product. There is less security in going into other forms of commercial insurance, particularly liability. We will wait for that market to become more profitable before we look seriously at it. We would have a difficult job persuading our shareholders that we should get involved in a market where we have been singularly unsuccessful in the past.
That concludes the meeting. I thank the witnesses for attending today and for updating the committee on the insurance industry. Their attendance is much appreciated.
The joint committee adjourned at 10.30 a.m. sine die.