Item 6 is the reform of the Irish insurance market. We have presentations from FBD Insurance, the Financial Regulator, IBEC and the Society of the Irish Motor Industry. I welcome representations from the organisations here to assist us in our examination of the reform of the Irish insurance market. I also welcome our consultant Mr. Myles O'Reilly. From FBD insurance we have the chief executive, Mr. Philip Fitzsimons, the financial director, Mr. Andrew Langford, and the claims director, Mr. Niall Higgins. As time is against us, I propose that we take Mr. Fitzsimons's submission first, the Financial Regulator second, IBEC third and the Society of the Irish Motor Industry fourth, followed by a question and answer session with members.
Reform of the Irish Insurance Market: Presentations.
Mr. Philip Fitzsimons
We are pleased to be back to attend this committee meeting and assist in this work. We believe the committee has contributed greatly to the improved scenario for both insurers and insured. Although I understand the committee may have made its last report, it should keep going in the next Government because the journey has just started and there is a long way to go.
The committee asked us to report on a number of matters, the first of which is the level of income and profit that we achieved in 2005. I refer members to my presentation, which shows that last year's gross written premium was €389 million, the underwriting result was €88 million, the investment return was €41 million, there was an operating profit of €129 million and paid taxation of €20 million.
The second item was the changes in premia by category. The committee wanted us to track the movement and the trend. We looked at the April renewals and tracked them back a number of years from policies that had been accepted in 2000 and 2001. Members can see on page 4 the average premia that applied. They will see that the 2006 average premium of €585 has fallen well below the 2000 level, which was €685. There has been a significant drop in premia over that six-year period.
The next item is commercial motor insurance. Again, members will see that premia have fallen. The current commercial vehicle premia are €661, well below the 2000 level of €709. Savings have come to pass. Commercial insurance, which is commercial property and liability because we sell a package policy that combines both and for tracking the trends in business insurance costs the two are together. Again, the 2006 average premium, €2,364, is below the 2001 level. That evidence confirms what we reported on previous visits to the committee, that premia are falling in response to a number of factors, such as the structural changes in the industry and the environment generally.
The committee asked us about our experience with the PIAB. We are committed to supporting the PIAB in every way possible. The PIAB is still in start-up mode and the number of cases it has issued assessments on to date is small. It is early days for passing judgment on its efficacy and what it can deliver. There are concerns about it being possibly derailed by vested interests. When we have been asked to deal with cases through the PIAB, we have consented to an assessment being made by the PIAB in 70% of cases. In other cases we have problems with issues such as liability and we wish to defend them in the civil process. Our consent rate of 70% is ahead of that of the industry, which we estimate to be 50%. In the cases for which we gave consent for assessments, we have accepted all the PIAB assessments because we believe in supporting it as much as possible. Plaintiffs have rejected 24% of them and that reflects the acceptance or rejection rate that applies to the PIAB in general.
We have concerns over ongoing efforts to undermine the PIAB process. We are aware of a number of cases where claimants who have received a fair award by the PIAB were subsequently advised by their solicitors to reject the awards, thereby enabling them to initiate court proceedings. The defendants in these cases, the insurance companies, made tenders equal to the PIAB awards, which were accepted by the claimants' solicitors. That sounds fine, but despite argument on behalf of the insurance companies that they should not be liable for legal costs in these circumstances, they have been held responsible for all the defendants' legal costs up to the date the tender was accepted. Notwithstanding the fact that the PIAB does not pay legal fees, some lawyers are exploiting this loophole in the law in a bid to receive fees through the back door. We urge the committee to initiate whatever measures are needed to close this loophole. The PIAB is critical to reducing the excessively high legal costs in our settlement process and the claims cost regime.
The other area of concern relates to the provision in the PIAB Act which states that "an assessment made in respect of a relevant claim shall not be admissible in evidence in any proceedings between the claimant and the respondent in relation to the claim". As a result it is open to a claimant to bring a substantially different and more serious claim to the court than the one presented before the PIAB. They can do this in the knowledge that matters that influence the assessment of the PIAB award cannot subsequently be referred to in a court of law. They are separate and distinct, which does not support the PIAB and is a serious flaw. We believe it will serve to encourage litigation and the exaggeration of claims. In time, this will lead to the courts awarding higher damages than the PIAB. We have examples of PIAB awards that fell within the medium to lower end of the Circuit Court jurisdiction being rejected. Proceedings in these cases have been initiated in the High Court, suggesting that the cases will be presented to the court in a vastly different manner to the PIAB hearing. We ask the committee to consider amending legislation. At present, the PIAB has no system of monitoring a case after the outcome is rejected, a major flaw. I do not know if representatives of the PIAB have appeared before the committee. Their first hand accounts of the board's experience should be listened to.
The vice chairman of the PIAB is a member of this committee.
I am vice chairman of the PIAB as well as a member of this committee. I have been nodding furiously at what Mr. Fitzsimons has stated.
Mr. Fitzsimons
The Civil Liability and Courts Act has had a positive impact. We are concerned that the provisions aimed at discouraging and preventing exaggerated claims are being undermined. In cases that should have been dismissed where plaintiff exaggeration is proven, judges take the view that because genuine injuries have been sustained it would be unjust to dismiss the claim outright for exaggerating the extent of the injury. This approach sends out the wrong signals to a dishonest claimant. There is no deterrent if the worst case scenario is that the claimant will be compensated for genuine injury and may receive more.
The defendant, the insurance company, is also at a major disadvantage in so far as significant additional resources would have been expended in trying to defeat an exaggerated claim. These resources can never be recouped. Allowing the approach to which I refer defeats the purpose of the legislation and undermines insurers' efforts to eliminate exaggerated claims. Discretion is allowed in the hands of the judge and, invariably, the claimant is not penalised in any meaningful way for dishonesty. We accept the discretion of the courts but suggest that if legislation is passed to eliminate exaggerated claims it must be implemented if it is not to become meaningless.
It is widely acknowledged that there has been a major failure to improve road safety. This failure hinges on lack of law enforcement and a lack of resources. We note yesterday's encouraging Cabinet meeting regarding proposed legislation. We experience this failure in terms of the accidents reported and claims processed. We have noted an upward trend in accident frequency in recent times.
Arising from the MIAB report, a regulation was introduced decreeing that insurance renewal notices should be issued to policyholders in order that the notices are received at least 15 days in advance of the motor insurance premium renewal date. This regulation is not being adhered to by all companies, particularly insurance intermediaries. This places those complying with the regulation at a competitive disadvantage, a matter the regulator should investigate. A code of best practice has been drawn up by the Irish Insurance Federation and IBEC, providing for 15 working days notice of renewals. Many companies are not meeting this guideline.
The MIAB report recommended that the system of taxation of legal costs attaching to claims be reviewed. A working group set up by the Minister for Justice, Equality and Law Reform is considering this. Its report is urgently awaited as a prerequisite to implementing a more independent method of fee arbitration and assessment. The present system of taxing legal costs is weighted against the defendants.
The ability to renew vehicle road tax over the Internet facilitates driving uninsured vehicles. When renewing on-line, a person is requested to state the name of the insurance company insuring the vehicle. No cross-checking is done to ensure the veracity of the statement, in contrast with the situation obtaining previously where a certificate of insurance had to be submitted when renewing vehicle road tax. This anomaly highlights the need for a comprehensive, centralised vehicle and driver database to which the Garda Síochána would have immediate remote access.
I referred to additional reform ideas previously. In order to further reduce premia, a specific plan should be created to reduce the level of uninsured driving. It should not be included with a raft of other initiatives. The road safety authority strategy should be implemented and the PIAB should not be thwarted in achieving its objectives.
FBD has not provided incentives or imposed penalties regarding the use of cruise control limits on vehicles of young drivers. We are concerned that they could be dangerous in particular situations and therefore we are not in favour of them. FBD has no plans to institute a scheme of voluntary monitoring of speeds, nor has any assessment been undertaken of its likely efficacy or cost benefit.
Mr. Fitzsimons referred to many points that interest members and I thank him for the insight into how the industry views matters. I welcome Mr. Patrick Neary, chief executive of the Irish Financial Services Regulatory Authority, Mr. Frank Brosnan, insurance supervision department, and Mr. John Pyne, consumer information department.
Mr. Patrick Neary
I thank the Chairman and the committee for the opportunity to address it on reform of the Irish insurance market. I wish to inform the committee of developments that have taken place since I last appeared before the committee in June 2005. I will also outline progress on recommendations the committee referred to us and our work with the Competition Authority. I will then add some comments on new entrants to the insurance market.
Our statutory mandate is to protect consumers. We help them to make informed financial decisions in a safe and fair market and by fostering sound, dynamic financial institutions. Insurance companies provide the fundamental safeguards for policyholders and potential claimants. We welcome the work of the committee on the insurance market. We have acted on all but three of the recommendations addressed to us and our position on the remaining recommendations is outlined in our recent letter to the committee.
As well as acting on recommendations we have undertaken significant complementary work in the past 12 months. We have been finalising our consumer protection code, which will apply to all financial service providers. The new code represents the single biggest development in consumer protection for consumers of financial services since the establishment of the Financial Regulator. It will ensure a consumer-focused standard of behaviour by financial institutions, including those in the insurance sector, in their dealings with consumers, whether they are individual consumers or part of the small and medium-sized business sector. The same level of protection will be offered to consumers regardless of the type of financial services product or channel they choose.
The Financial Regulator will issue the consumer protection code in July 2006. It contains several provisions for all firms, including acting in the best interests of clients, making full disclosure of relevant information to the consumer, providing suitable recommendations and a prohibition on making the sale of one product contingent on the sale of another. The code will contain a specific chapter on insurance, addressing a range of issues, including requirements for quotations, proposals and policy documentation, and new rules for claims handling. The code was developed following detailed consultations over two years, including two rounds of public consultation.
The committee will be aware that both the Motor Insurance Advisory Board and the Competition Authority have recommended that the Financial Regulator continue to publish private motor insurance statistics similar to those published by the MIAB. Those relate to claims developments. The data for 2002 have been already published and we will publish data for 2003 and 2004 this year. On foot of a Competition Authority recommendation that the Financial Regulator publish claims statistics on employer's liability and public liability insurance, we have commenced a regulatory impact analysis.
The first step was the publication of a consultation paper, a copy of which was provided for the committee. The consultation period has just closed and we are examining the submissions received. However, I can inform the committee that the majority of the responses received failed to indicate strong support for the initiative. In the period since I last met the committee, the Financial Regulator has also continued to augment its range of publications aimed at informing consumers of the costs, risks and benefits of insurance and other financial products. Looking only at those publications dealing with non-life insurance, in that time we published another two motor insurance cost surveys, two home insurance cost surveys, a fact sheet on payment protection insurance and a guide to employer's liability and public liability insurance for small businesses.
The committee will be also aware that since the establishment of the Financial Regulator The Insurance Statistical Review, formerly known as the Blue Book, has been published earlier each year. The 2004 report was published in September 2005, representing a significant improvement on previous years. The committee will have received my letter of 19 May 2006 addressing its recommendations to the Financial Regulator. Considerable progress has been made in implementing the 57 recommendations addressed to us by the committee and the Competition Authority. As I said, we have been able to act on all the committee’s recommendations, with the exception of three. We have asked for further guidance on one of those, relating to providing information on premia calculations. The other two recommendations cannot be fulfilled by us since they fall outside our remit.
On the Competition Authority's recommendations, there is one major theme on which I wish to comment, the issue of transparency. We have a very positive relationship with the Competition Authority and dialogue continues between us on its recommendations. We continue to explore the most effective framework to give practical effect to its recommendations. As part of those discussions, a key concern of the Financial Regulator is to ensure appropriate and sufficient levels of information are provided to customers and that a balance is achieved between the level of required disclosure and the information that should be provided to the customer.
The Competition Authority will publish its assessment of the implementation of those recommendations in due course, but in this context I wish to highlight that disclosure and the provision of consumer information are not necessarily the same thing. Disclosure is a quasi-legal concept referring to provision of certain statutory information such as terms, conditions, key features and legal requirements. There is differentiation between that form of statutory disclosure on the one hand, and provision of information to ensure consumers understand the costs, risks and benefits of financial products on the other.
Disclosure alone is not sufficient to enable consumers to make informed decisions and can create information overload. We believe consumers should receive such information from financial firms as would provide them with relevant information about a product or service in plain language. We expect a financial firm to explain its products clearly to ensure its clients can make informed choices. However, there are limits to the amount of information a typical consumer can assimilate. Where we go beyond those limits, not only does additional disclosure fail to inform consumers, it threatens to crowd out the key messages. In those circumstances, additional disclosure can impose costs on regulated firms without yielding benefits to consumers.
The Financial Regulator is acutely aware that there is a balance to be struck on this issue. Through consultation and market research, we seek to achieve optimal outcomes for both consumers and the industry. We also seek to assist consumers in understanding financial products by providing independent information about various products available on the market in order that they can make informed decisions themselves. In giving practical effect to recommendations, we do not wish to cause unnecessary duplication, small print or confusion, and are guided by that principle in acting on the recommendations of both the committee and the Competition Authority.
Before I conclude, I would like to comment on solvency and market access. In our correspondence with the committee, we have outlined the rationale behind the solvency regime in Ireland and the significance of the Solvency II project for Ireland and internationally. Having a solvency requirement for insurance companies is fundamentally about protecting consumers, and that is the sole principle guiding the Financial Regulator's approach to solvency standards.
We are alive to the competition implications a solvency regime can have. I point out that there is no evidence our solvency regime impacts negatively on competition. All the major international insurance groups and many of the next line of insurers are active in the Irish market. Nevertheless, we are aware of the call from the Competition Authority for greater transparency regarding solvency requirements. We are in the process of finalising our revised solvency guidelines to provide clarification, and those will be published on our website in the next fortnight.
That brings me to my final points. The committee requested that I address the issue of new entrants to the insurance market in Ireland and whether there are regulations here that may inhibit establishment of new firms. The committee will be aware that the Competition Authority found no evidence in its report to cause concern in that regard. The Financial Regulator requires new non-life insurance companies to have a solvency margin twice that of the EU minimum. After three years of operation, companies' activities are reviewed and they then have a lower requirement of 1.5 times the EU minimum. Many EU countries have a higher solvency requirement for such companies than the EU minimum.
Higher requirements for start-up companies reflect the higher operational risk posed by new firms. Clearly, any new firm will have an unproven business model. A new insurance company without a proven track record poses increased potential harm to policyholders and it is therefore appropriate from a prudential and consumer perspective to require that the risk be balanced by a more robust initial capital position, which is reviewed after three years of operation.
During the period from 2001 to 2005, some 59 new companies received authorisation here. The Financial Regulator has never been informed, and has no evidence, that the higher solvency requirement posed any difficulty to a company starting up in this jurisdiction. Of companies authorised by the Financial Regulator more than three years ago and that continue active trading, 85% continue to hold capital in excess of our requirements. Some 42% of such companies hold in excess of five times the EU requirement. Clearly, companies themselves recognise the capital level needed to reflect the risk in their business model.
Regarding access to the market, companies from other jurisdictions are also entitled to write business in Ireland under EU freedom of services and establishment provisions. Currently, 561 EU companies have notified their intention to write business in Ireland on that basis, providing further evidence that there are no barriers to entry to the Irish market.
I reiterate our support for the committee's work. We will continue to work on implementing the recommendations it has addressed to us. In that context, it is also important to say that the Financial Regulator is a member of and active participant in the better regulation group established by the Department of the Taoiseach to implement the recommendations of the Government's White Paper on regulating better. The criteria are necessity, effectiveness, proportionality, transparency and consistency and we fully subscribe to them. We are also committed to carrying out regulatory impact analysis on all new major proposals, as appropriate, and public consultation is a key component of this analysis. My colleagues and I will take any questions.
I thank Mr. Neary and welcome Mr. Tony Briscoe, assistant director of IBEC.
Mr. Tony Briscoe
It is a pleasure to be before the committee again to report positive experiences relating to insurance reform measures. I hope each member has received a copy of my presentation. The experience of the business community has been very positive following the reforms, particularly the introduction of the Personal Injuries Assessment Board, PIAB, and the measures set out in the Civil Liability and Courts Act 2004. However, IBEC has learned of experiences related to IBEC by its members that the committee will be interested to hear. These concern measures absent from the civil liability reforms, the incidence of claims and the level of damages set out in the book of quantum set out by the PIAB which determines general damages for personal injury by reference to specific injuries. There is anecdotal information on cases where the expectations of those using the PIAB are of concern as well as indications of some cases of attempts to circumvent the PIAB and to force parties into litigation which may be unnecessary and expose those parties to avoidable litigation costs. In our view the only apparent beneficiaries in such cases are those who represent the parties. It is our hope that the measures in the Civil Liability and Courts Act 2004 if acted upon by the courts, as intended by the Oireachtas, will adequately dissuade and penalise such actions.
Our most recent survey of business insurance costs, reported in January 2006, covered 224 companies employing 83,000 and it considered actual premium costs in respect of all business insurance. The indications this year, based on this survey, are that there has been an 8% reduction in the total cost of insurance. This contrasts with the previous year when there was an increase of 7.4% on average. The cumulative effect over the two year period was a decrease of 1.2%. We also track the ranking of business costs compared to earlier years. Whereas heretofore insurance had been the number one concern, it is now ranked third in our most recent surveys. Over the period covered by these surveys we have seen a reduction in insurance costs in real and actual terms. If this is compared to inflation which was 4.8% over the period 2004-05 the actual reduction could be described as even larger. However, insurance tends to experience a cyclical effect in terms of cost inflation and it would therefore be unwise to predict a positive future based on these statistics. We still need to see greater competition in the insurance market.
There are some concerns relating to the PIAB. I emphasise that IBEC supports and welcomes the PIAB and can see positive developments resulting from its work, however we are aware of efforts to circumvent it. The following is not a reflection on the efficiency of the PIAB but relates to the limitations of the remit granted to it. Some of the values assigned to particular injuries, as set down regarding general damages in the book of quantum, are far too high and exceed what many of our members would have expected to be the level of compensation prior to the PIAB. We support the committee's recommendation No. 7 to have the level of awards examined in particular concerning general damages.
IBEC has ascertained from a number of employers that they have experienced an increase in the number of claims because people, who heretofore would not have considered seeking compensation, see it now as a matter of routine regardless of the circumstances or degree of injury. I do not know the solution to this, it may have much to do with the manner in which these cases are managed.
Another issue is the discharge of the PIAB under section 17 of the Act where the prognosis of an injury is considered not achievable within the timeframe set down for making an assessment. This may force cases into litigation, sometimes unnecessarily, because medical opinion differs or is not received in sufficient time, which could be related to measures to circumvent the PIAB. The efficiency factor may dictate the success of PIAB in some cases.
There may be many ways to hinder the success of the PIAB. IBEC has heard of delays created by insufficient data being supplied and insufficient time which results in a respondent having to decline a PIAB assessment, thereby forcing the matter into litigation. This issue runs contrary to Government policy and one way of addressing it and keeping parties removed from unnecessary litigation is to introduce measures to prevent frustration of the process which acts against the interests of all the parties concerned, except perhaps those who benefit from representing such parties. Neither employers nor employees are best served by any means intended to frustrate a process which deals with the resolution of compensation equitably, efficiently and without the need for expensive delivery costs. However, again, IBEC welcomes the PIAB and these comments do not reflect its operation.
We consider the Civil Liability and Courts Act 2004 a good and necessary piece of legal reform. Many of the sanctions in it are at the discretion of the courts and it is important, as abuses arise, that the courts apply penalties and sanctions that are set down in the Act. Our members are concerned that the courts may not apply these sanctions and if this were the case we could return to the socially unacceptable situation of fraudulent and exaggerated claims being compensated or those who pursue such claims having little to lose as a result. It is important that careful monitoring of claims be carried out to ensure that the intent of the measures this committee and Members of the Oireachtas supported and translated into legislation, is carried through and not abused. If this not addressed, new legislation may be required to ensure that such cases will not succeed. The court should automatically dismiss a claim and impose penalties when this occurs.
In a letter dated 14 March we drew the committee's attention to the issue of double benefit. This is a complex inequity that was addressed previously by the Law Reform Commission through a consultation process spanning five years. The current situation in this regard is grossly unfair to employers who make insurance provisions for future loss of income only to individuals to find that they are doubly compensated as a result.
On occupational safety and health we consider the introduction of the Safety, Health and Welfare at Work Act 2005 a positive development and wish to see it facilitate the delivery of supporting regulations and guidance to assist employers. IBEC in partnership with others, including the Irish Congress of Trade Unions, the Construction Industry Federation and the Irish Insurance Federation endorses a voluntary code on accident prevention and means of looking after the needs of injured people at work and facilitating their early return to work. We will launch this code in June, which will advance this activity in which we are jointly involved. In addition, we will soon update guidelines on communications for policyholders — of which the Chairman has a copy — jointly entered into by the Irish Insurance Federation and IBEC. A previous speaker referred to the 15-day limit.
I wish to refer to our organisation's accident experience, an issue on which much discussion has taken place to date, which is based on the most reliable indicator we have of accident experience, namely, occupational injury benefit claims. I mention that because currently it covers 1.7 million people at work, but it does not include self-employed persons and some civil servants who were in employment prior to 1995. Some 70% or 80% of our workforce are covered by this data and those in employment who are not self-employed. The results show a significant decline in the incidence of accidents at work when the figures are calculated based on the rate per 100,000. Over the ten year period from 1997 to the current year our working population has increased from approximately 1.4 million to 2 million. This is a significant increase, yet the same level of occupational injury benefit claims have been allowed. That must signal a significant drop in the incidence of accidents.
It is extraordinarily difficult for employers and those whom we represent to take responsibility for the safety standards of those who are self-employed. An analysis I carried out of fatal accidents in the workplace over the past ten years reveals that a matter of concern is the significant proportion of fatal accidents involving self-employed people. In some years it constitutes 40% of the total number. In examining the area of health and safety, account must be taken not only of the responsibilities of employers but the safety measures taken by those who are self-employed.
I thank the Chairman for this opportunity to address the committee. I hope I have not spoken for too long. We wish the committee continued success with its deliberations. This is an area that needs to be continually monitored for the reasons I outlined. I will not repeat what I said but I indicated in the conclusion of our presentation the six specifics areas we consider important. I would be more than pleased to answer any questions members may have and thank them for their attention.
I thank Mr. Briscoe for his presentation.
I welcome from the Society of the Irish Motor Industry, Mr. Cyril McHugh, chief executive, Mr. Jim Cusack, president, Mr. Ian MacNeill, deputy president, and Mr. Alan Nolan, deputy chief executive officer. Mr. McHugh is welcome and I invite him to make his submission.
Mr. Cyril McHugh
I echo some of the points made by the delegates from FBD and IBEC, particularly on the PIAB. The Society of the Irish Motor Industry is concerned about the high level of insurance costs and as a member of the Motor Insurance Advisory Board for its tenure, I took a personal interest in it, and I hope the committee continues the work in ensuring that the PIAB is successful.
We would like to underline that the SIMI and our members deplore the unacceptably high level of deaths and injuries on our roads. The SIMI is pleased that the committee is taking an active interest in not only reducing insurance costs but in reducing the number of accidents on our roads and the pain, suffering and misery that inevitably follows for the individuals involved and for their loved ones.
We believe, however, that significant progress can be made by concentrating on the fundamental areas of road safety, the three Es, namely, education, engineering and enforcement. The motor industry's contribution as a stakeholder is one part of the engineering element of the three Es, the other being road infrastructure. Vehicle manufacturers have invested enormously in the improvement of vehicle safety technology and our service repair members have invested in both equipment and training to ensure that vehicles on our roads, serviced or repaired in their premises, are as safe as possible. The improved quality of vehicles and major investment in the national road infrastructure have made a significant contribution to road safety. However, in the short term, concentrating on improving driver behaviour and the related area of enforcement are the most likely areas to lead to a significant reduction of carnage on our roads.
In the longer term, engineering both in terms of continued investment in road infrastructure and the exciting EU e-safety initiative will deliver significant and sustainable reduction in road fatalities. It is important to stress, however, that these are long-term results and although the e-safety objective is to achieve a 50% reduction in deaths on EU roads by 2010, in my view this is ambitious given the technological revolution that is required.
At 95 deaths per million population in 2004 based on OECD figures, Ireland is at nearly double the best practice in Europe, found in the Netherlands which has 49 deaths per 1 million of population. However, we rank significantly lower than some of the new entrant countries such as Poland which has 150 deaths per 1 million of population. It is important also, without losing any sense of disgust at the current high level of carnage on our roads, to realise that more than 30 years ago we had more than the current Polish level of road deaths. As recently as 1990 the road death rate in Ireland was 139 per 1 million population. While it is important to examine what we are doing wrong, we should also examine initiatives that were successful to ascertain if these can be repeated. Engineering, particularly in eliminating black spots, played the most significant part. Education on drink driving and seat belt use combined with improved safety features in cars also played an important part in reducing Irish road fatalities. The perception of enforcement on the initial introduction of penalty points showed briefly the potential under this heading.
The committee asked a number of specific questions, some of which I will address, and the rest are dealt with in the document we submitted. The committee asked to what degree are motor vehicles responsible for accidents. The motor industry is acutely conscious of the potential contribution of vehicles to road accidents and the potential to reduce this contribution through technical developments. The most recent statistics quoted by the Department of Transport indicate that the main contributory factors to road collisions are driver error — 88.3%, pedestrian error — 8.3%, road factors — 1.8%, environmental factors — 1.3% and vehicles — 0.2%.
I take it road factors consist of features such as bad design or potholes.
Mr. McHugh
Yes. The fact that deaths on our roads have reduced from 90 per 100,000 cars in 1979 to 24 per 100,000 cars in 2005 clearly indicates that the improved safety features of cars are part of the solution rather than part of the problem. The actual contribution of vehicles to road accidents is relatively small and such cases may tend to reflect abuse or neglect of the vehicle in question. The motor industry has invested enormous sums in producing ever safer cars, that are better able to stop, can stay travelling in a straight line, or can be steered around obstacles while braking, making it easier to retain control and, in the event of collision, providing better protection for both the occupants and pedestrians. The key focus of vehicle manufacturers has been the development of technology to help decrease fatalities and injuries on the roads.
The committee asked whether VRT is affecting the availability of safety features on cars. The answer clearly is yes. Subjecting safety features on cars to VRT on a family car of 1900cc — VRT at 30% — adds 43% to the cost. Even at the lowest rate of VRT, 22.5%, the increasing cost to the end user is almost 30% and this is where the cost issue is most significant in the price-conscious small car segment, and where the need for safety is the greatest. Members of the committee who attended my pre-budget submission seminars will realise that VRT is on the selling price, which includes VAT and VRT. That is the reason those percentages are significantly increased.
Although safety features are available for all vehicles in the market, the uptake on additional safety related items as an extra option is low, particularly in the small car sector. This is a fact of purchasing behaviour not only in Ireland, but the imposition of VRT makes it an even bigger issue. Research carried out in Sweden using a method called "willingness to pay", whereby a cost figure is elicited to determine what a purchaser will pay for a vehicle with extra safety measures, indicated that, given the general safety features in basic models, people were not willing to pay very much more for extra safety features. Adding an extra 43% through VRT clearly makes this an even bigger problem. This highlights that safety features must be made as affordable as possible for car buyers. The imposition of VRT on airbags has prevented multiple airbags from being standard in the smaller car segment thereby depriving drivers — many of them vulnerable young drivers — of enhanced protection. Our current taxation system threatens to hamper the widespread introduction of additional features such as ESC.
There is a precedent for specifically incentivising the use of such safety features under a high taxation model. Denmark, with the highest rates of motor taxation in the EU, provides favourable tax treatment on technologies such as airbags, ESC and ABS brakes. We calculated that the average Danish car purchaser can save €1,500 by way of the reduced tax on these safety features in cars. Impacting as it does on the overall affordability of motoring, a high tax regime will inevitably impede progress in gaining full benefit from safety-related features. When such features are subject to tax, the issue is exacerbated. In this context, it is hard to see justification for not following the Danish example. If we follow the Danish example, we reckon that the saving for a person purchasing a car, where the average VRT is approximately €7,000, would be in the region of €1,200.
Only one Minister for Finance used VRT in an imaginative way to improve road safety — that is, when Deputy Quinn introduced a scrappage scheme in 1995. This, together with increased new car sales in the following years, reduced the average age of a car in Ireland from over 12 years to 5.7 years with the benefit of enhanced safety features of new cars. We now find that this age profile is increasing again as this year we will import approximately 70,000 used cars with an average age of over seven years. As no VRT refund is given on exporting a used car, even though the EU has repeatedly called on the Government to do so, none is exported to balance out the older, less safe imports and, therefore, the age profile is increasing.
A further incentive for customers to opt for these safety features would be for the insurance industry to actively reflect lower premiums for such passive and active safety items. I understand this is the case in the UK. I was asked if cars supplied to the Irish market were as safe as those supplied elsewhere. The answer is "yes". All new cars supplied through vehicle distributors and manufacturers in Ireland are homologated and type approved to the same standard as applies in every other European country.
These new vehicles are designed to the highest safety standards and, in effect, such new vehicles are invariably the safest vehicles on the road. One must note the previous proviso that VRT may be militating against the purchase of additional safety features. Research in Sweden confirms that 50% of new cars have now reached the five star NCAP standard. Many of these are small cars now reaching a level that was previously the preserve of the more expensive larger cars.
I was asked a number of questions on additional features, particularly in regard to intelligent cars and e-safety. I share some of the reservations of my colleagues from FBD about speed limiters. I mention the e-safety project because it encompasses many of these issues. The European e-safety project, for which many of these projects have been targeted, has as its aim a reduction in road fatalities by 50% by 2010. The motor industry is a key stakeholder in this project and these technologies will be rolled out in Ireland in line with their introduction across Europe. The e-safety project includes an automatic emergency call to make better use of the post-crash golden hour through reduced response times as well as road traffic and travel information by telematics to reduce the risk of accidents.
E-safety is also promoting potentially promising autonomous vehicle technologies, that is, cars talking to cars on the same road, which includes collision and lane departure warning systems, and it is contributing to the speeding up of the deployment of such innovative technologies. Major problems must be addressed in a number of areas before e-safety objectives can be met. For example, the Department of Transport is in consultation on how to integrate the various technologies, such as the SCAT system in Dublin, to avail of the e-safety developments. Preliminary studies on radio frequencies, which could be dedicated to e-safety, are now only being carried out in Europe. Nevertheless, this is a very exciting project that offers huge potential for improved safety on our roads and we recommend that the committee seek a presentation on the e-safety project from the EU experts.
I was asked about changes we would suggest. I will not go through them all because I understand the committee is under time pressure. In addition to some of the more obvious ones, we would recommend a graduated licensing system in order that it discourages teenage drinking and other risky driving behaviour such as speeding. This has been very successful where it has been introduced and the development of a behavioural pattern at the initial stage for young drivers will reap huge rewards in future years. We share some of the views expressed by FBD about governors.
On introducing new technology throughout the car market, I understand there is a problem introducing any such technology in advance of, or above and behind, EU type approval directive. The committee may ask its legal adviser or the Department of Transport about that. We came across it with the metrification process. We understood initially that not only would new cars have metric speedometers but that all of the 70,000 used imports would have them. The Department assured us of this but then found it could not insist on metric speedometers. Metrification has been introduced but we now have a very dangerous situation going forward in that 70,000 used imports will come in from the UK without metric-only speedometers. That dangerous situation is increasing every year. Young people generally buy the older cars and the average age of these imports is 7.5 years. People look at the speed limit of 120 km/h and at their mileage clock of 120 mph which they hit. It is an issue the committee should seriously consider.
The industry is making more than €1 billion. The committee asked all insurers to reduce their premiums to at least 1999 prices. FBD has made an honest attempt to reduce its premium to 2000 prices on the private motor insurance side but on the commercial motor insurance side, it is nowhere near that level. Is there a trend? There have never been as many commercial vehicles on the road as there are today nor has there ever been as many new commercial vehicles on the road. How does FBD see this progressing downwards? If there is €1 billion in the market, why can FBD not reduce its premiums by 15% straightaway? I put this question to Quinn Direct, AXA and Hibernian when they appeared before the committee. To the lay person, €1 billion is a huge profit for an industry the size of the motor industry.
There have never been as many new cars in Ireland as there are today and it is very visible on the roads. Would having the largest number of new cars on the road in the history of the State not indicate that safety standards would be at their highest?
Mr. Fitzsimons
The profit of €1 billion does not all arise from the motor accounts. We have considerably reduced commercial vehicle premiums. This is not the biggest part of our book of business, originally we dealt with farmers and rural towns. The loss ratios we experience on the business determine the premia we charge and as costs come down on the claims side, and competition enters the fray, the premia come down to deliver margins with which people are comfortable.
Competition will dictate premia. We have stated openly to people that there will come a point at which the margins in the Irish insurance industry will be at or in the region of the European norm. The question is when that will happen. The public will benefit because the cost base will be reflected in the premia. It is important to continue to concentrate on the cost base because capital will satisfy itself at the margin to which competition will drive it. The combined ratio insurers are experiencing is declining, particularly in recent years. The price at which it can be sold depends on the book of business, whether large commercial fleets and so on, which is not a major part of our business.
Was last year FBD's most successful year ever?
Mr. Fitzsimons
Yes.
We will keep an eye on it for next year.
Mr. McHugh
Safety features on new cars are at their highest level ever. There is an average of four airbags in a car, and seat-belt pre-tensioners and ABS brakes are standard in all cars. However, we import up to 70,000 used cars with an average age of seven years, in which these would not be standard features. Each year the EU phases in new regulations. Therefore, the motor industry must plan for five to six years ahead of production in design. Initiatives introduced five or six years ago are now coming on-stream as standard in all cars. There is a very high emphasis on safety and the European NCAP is an independent analysis of safety features in cars. When it started seven years ago, no car reached the five star level. Now 50% of even the small cars gain five stars. NCAP is introducing a sixth star to make a further differential.
The committee is concerned about car markets, particularly those that sell ten or 12 year old cars. What can the Government do about them? We are the conduit from industry to Government and have proved to be the most successful committee in the lifetime of this Dáil. We have persuaded the Government to introduce four Bills that the industry requested urgently in 2003 and 2004. The breath-testing Bill will be introduced within the next few weeks, following our interim report.
As the industry is the expert on the reliability of the cars sold at these markets, it should get a team together to consider how we can address the problem.
Mr. McHugh
Our members are investing heavily in their premises as can be seen throughout the country. This is part of a standard manufacturer demand under the EU bloc exemption. They pay rates and taxes. Revenue officials inspect their cars every day to ensure that non-registered cars are properly impounded.
People are setting up on the side of the road all around the country without planning permission, not paying rates or taxes, and selling imported used cars, some of which are ten years old or more. Heaven knows what the mileage is on those cars. There is no control whatsoever on the sellers who tell buyers to pay the VRT if they want to. Revenue's control of this part of the market has sadly lapsed in recent years.
Not all the cars being sold are imported. Who is supplying them?
Mr. McHugh
I agree not all the cars are imported but they are selling outside——
Yes but they must have something to sell first.
Mr. McHugh
There is no difficulty getting cars to sell.
The industry can come back to the committee on this issue.
Mr. McHugh
We will include it in the fourth interim report. We will be delighted to respond with a fuller analysis.
We are deeply concerned about standards and reliability. Some of these cars have been involved in serious accidents.
Mr. McHugh
I am well aware of that and not only are they old cars but some were also insurance write-offs. The committee should also address the insurance industry on this issue.
I have questions about the PIAB but we should leave those to Senator O'Toole who is its vice chairman.
Mr. Fitzsimons
I am astounded to hear that 70,000 used cars are imported. Only in the past few days we have analysed our experience on our motor book and it has emerged that the accident frequency on older cars has risen considerably. There was a time when all insurers imposed loadings on old cars. We have not done so in recent years but the warning signs are that the trend is changing.
No one has made a submission about what is going on in these sales yards late on Monday and Tuesday nights and on Wednesday evenings, but it has been brought to our attention. I visited one quite recently.
As I am a new member of this committee, I am not as up to speed as some of my colleagues and particularly the Chairman. Our political will and the experience the Chairman has mentioned to get the changes with the PIAB and others will only last for as long as the industry can show consumer price reduction benefits. The day that benefit disappears we will start to go after the industry.
I take Mr. Fitzsimons's point about attacking the cost base that there is an international logic within capital and return, and the cyclical nature of the business. We will not try to interfere with that. The matter over which we have considerable control is our own cost base and within that the legal base. I will not repeat the comments I made last week on this matter. We need the delegations' assistance in terms of data. For example, Mr. Briscoe suggested in his submission he had some anecdotal evidence to the effect that members were being forced into litigation against their better judgment. The more substantive and quantifiable information we get that shows the legal industry persists in driving up the cost base against the wishes of the public, the more effective we can be.
We will call the legal interests before the committee on this interim report.
We will wear special clothing on that occasion.
We will be ready as we have gained much experience.
Most of them are people who vote for me.
I must go, but I will try to get back.
I call Senator O'Toole with questions on the PIAB, particularly with regard to Mr. Fitzsimons remarks in paragraph 4 on page 7.
I would like to make a few passing comments on the other issues first. I appreciate what Mr. McHugh said on the issue of metrification. He may not be able to answer this question, but I would like the Society of the Irish Motor Industry, SIMI, to address it. Does the SIMI have a view on driving on the right? Should this country do what Sweden did years ago and what the rest of the world does and drive on the right, the correct side of the road?
I would also like to compliment the motor industry on its buildings and premises, which have added to the architecture of the country. Perhaps not all of them are suitable to their location, but they are buildings of which the industry can be proud. They have provided scale and height to some villages sorely in need of the same.
I hope IBEC understands market forces better than I do. I agree with most of what IBEC had to say, but I would like a response on two significant points. It stated there is a strong view that some of the values assigned to particular injuries are too high. I know IBEC is required to say that by virtue of its position — I have often been in a similar situation — but I do not accept it and defy IBEC to prove it because if the values are too high, the insurance companies will not accept them and if they are too low, the claimants will not accept them. If there was ever a situation where somebody should do a doctorate on market forces, this is it. The values cannot be too high or too low or set because we simply die.
IBEC probably has figures on the other issue I find worrying and do not understand. It suggests that many people who heretofore would not have considered seeking compensation or lodging a claim, see it as a matter of routine or almost automatic that they should now, regardless of the circumstances of the injury or having suffered no financial loss, put forward a case. Can IBEC explain that to me? I do not understand it. People either have a valid claim or not. The assessors in the PIAB or the insurance company will not make an offer if there is not a valid claim.
Mr. Fitzsimons's comments about the PIAB were the most insightful of any of the comments made about it by any insurance company to date. I compliment him on the clear understanding shown by the comments. I and the committee would probably share his views on the issues he raised about the Civil Liability and Courts Act, although some of his conclusions are, perhaps, simplistic. In the week that is in it, we do not have a great reputation for obliging judges to dismiss claims, as he suggests. That will not run, certainly not this week when both Houses are discussing that very issue.
This committee, more than any other, has driven the establishment and the work of the PIAB and needs it to work properly. Mr. Fitzsimons made a point about solicitors. I keep trying to find a middle line to ensure solicitors are entitled to do their job and play their role where that is important. However, Mr. Fitzsimons says, and this is the issue, that he is aware of a number of cases where the claimants who were offered a fair reward from the PIAB were subsequently advised by their solicitors to reject the awards.
What happens is the case comes to the PIAB which makes an assessment and sends its recommendation to the insurance company as respondent and back to the claimant, but the claimant's solicitor says he or she will not accept it. That means the case should then go to court. However, Mr. Fitzsimons tells us that in these cases the defendant, which is the insurance company, then offers an amount equal to the PIAB award back to the plaintiff's solicitor. Despite having said a week earlier that they could not accept it because it was too low and despite argument that they would not be liable, that award is accepted by the plaintiff's solicitor.
In these circumstances, Mr. Fitzsimons plaintively tells us, the insurance company is then stuck for the additional charges and claims put forward by the solicitor. All I can say is that as long as the insurance companies continue to make these alternative offers, solicitors will keep coming back for more. The solution to this is in the insurance company's gift. Every time insurance companies do a deal with solicitors to pay them a higher level they undermine the position of the PIAB. Perhaps we should change the legislation to deal with costs.
The PIAB hopes to deal with 10,000 cases next year. Therefore, this practice where solicitors can reject a claim and then do a private deal with the insurance companies, should not be allowed become the norm. Will Mr. Fitzsimons come back to me on this matter?
I know the PIAB and insurance companies at the top level are committed to making the PIAB work. Sometimes, however, I worry about those at middle level. I say this not to be critical, but to seek information. People working at middle management level have spent their whole careers settling and dealing with claims. Are people being made "redundant" by the PIAB? In other words, are they losing out because we are now doing something through the PIAB that was previously done by them? Do any of the companies have a vested interest in ensuring the PIAB is not too successful?
There are quite a few questions there. Mr. Fitzsimons will now respond, followed by questions from Deputies Breen and Callanan.
Mr. Fitzsimons
With regard to the paragraph on page 7, I will call on our claims director, Mr. Higgins, to clarify the situation. He is in the front line of this and monitors the situation closely. He will confirm what we know is happening with regard to awards that have been made by the PIAB and rejected by the claimant or solicitor. The case is then lodged in the court or civil process and we tender an offer. Mr. Higgins will explain what happens.
Mr. Niall Higgins
One of the difficulties we have relates to legal costs and how to reduce them. The Senator's alternative scenario is that we should not settle on anything. We do not settle above the award levels made by the PIAB. We try to maintain those levels. One alternative would be to take every case to trial, thereby incurring two sets of legal costs. Mr. Fitzsimons mentioned in his submission that the case presented to court can be vastly different.
I accept that.
Mr. Higgins
This is fundamental when it comes to the legal costs. The situation is that we are trying to minimise the costs at the outset by putting the award back on the table and asking whether the claimant and solicitor want to accept it. Where it is accepted is where we see the flaw in the legislation. In that situation no costs should be awarded.
I accept the points made except for one matter. When a claim is settled and the legal fees are added on, this does not mean that the PIAB has reduced the award. We have reduced the fees and the costs attaching to them. If the industry gets a reputation for settling on the steps of the court, like it had when 90% of cases were settled in such a manner, it would have to consider its bottom line. When cases leave the broker's office and are sent upstairs to the accountants who are doing the budget for following year, the cost of claims is examined. I am returning to the point made by the Chairman. It is a question of the company's claims risk experience — no other distinction is made. The premia for the following year would have to increase in such circumstances to reflect such an approach. That is our problem. If solicitors know insurance companies will settle in 90% of these cases, they will keep doing this. The companies have to take a hit for a while by going to court and fighting the bloody cases.
Mr. Fitzsimons
That is what we are doing.
Mr. Higgins
That is what we are doing. When one goes to court, solicitors are entitled to their legal costs which have been incurred up to the point of tender. We go into the court, we tender, we participate in the process, we tender for the award, an assessment is made of the award and due process occurs. If that tender is accepted, the solicitors are entitled to their costs up to that date, including the costs they say accrued when they assisted the person at the PIAB stage. I do not refer to the costs accrued between the PIAB assessment and the court sitting. The costs accrued during the period of time in which the clock is running are a burden when the tender is accepted and the process is under way. Is that not right?
Does Mr. Fitzsimons accept it is an additional cost? Does he accept my point that if a decision is taken in camera without telling anybody about it, every case will be fought? People will know it will cost more to fight them, but they will think at least it will be easier than going to somebody else.
Mr. Fitzsimons
The problem is that when one fights them, the plaintiff has to get less than the tender amount for the costs to be paid.
That is why Mr. Briscoe has to accept that it will happen if the PIAB pitches it too low and we will all go out of business. That is why everybody must play his or her part and why the Chairman has raised this issue on many occasions.
Mr. Fitzsimons
We are prepared to go into court to support the PIAB. We are doing that. We see an anomaly and a loophole in this regard. If, in accepting the tender amount which we submit in the PIAB process, legal costs are to be awarded against us in the court process, the entire process will be undermined.
That is correct.
Mr. Fitzsimons
That will be examined.
Does Mr. Fitzsimons accept that, following the establishment of the PIAB, cases are being settled three times quicker than they used to be settled?
Mr. Fitzsimons
Yes.
That is the positive side of this matter. We will have to deal with this new challenge that has been brought to our attention by seeing how we can address it. If the industry would like to suggest any matters the Government should address in this regard, it should do so. The joint committee's tenth recommendation reads:
Where, not having accepted a PIAB award, the court award is equal to or less than a PIAB award, legal costs should not be allowed to the claimant.
Hear, hear.
We have moved on from that in the discussion between Senator O'Toole and Mr. Fitzsimons and his team.
Yes.
We will have to address it. Can I take it from this morning's evidence that Mr. Fitzsimons or Mr. Langford could give the joint committee many examples to prove this is not a once-off occurrence? Are there 20, 30, 40 or 100 examples of this? Is the number of examples in the teens? Where is it?
Mr. Andrew Langford
The number of cases is not substantial at present. The cases are just starting to hit the system at this stage. Relatively few cases have gone through the PIAB to date because it did not have a backlog of cases from which to work. The cases coming to the stage at which proceedings are being issued are those which have gone through the nine-month assessment process and have been refused. These cases are just beginning to come out of the woodwork.
Mr. Fitzsimons
Vested interests — there is no other way of describing them — are trying to thwart what has been put in place. The legislation needs to be strong enough and firm enough, and to cross-reference sufficiently, if it is to support its intentions. The legislation to which I alluded has managed in some ways to isolate the PIAB from the Civil Liability and Courts Act 2004. It is a question of the independence of the civil system. There is a major loophole in this regard. The Personal Injuries Assessment Board Act 2003 states that an assessment made by the PIAB "in respect of a relevant claim shall not be admissible in evidence in any proceedings between the claimant and the respondent or respondents in relation to the claim". The courts cannot make reference to the assessment or the evidence, etc., that is produced by the PIAB.
On what page is that?
Mr. Fitzsimons
It is on page 8.
I am very aware of that. Mr. Fitzsimons is absolutely right in what he is saying. However, I assure everybody that the legislation would not have gone through these Houses without that provision in it to deal with this significant issue. We had to provide that these matters could be dealt with on a confidential basis to ensure ordinary punters could have trust and confidence in the PIAB. The committee is concerned about the issue of medical records, which is now being challenged in the courts. We are clear enough on that issue because there is the precedent of a High Court case in which it was found that when one has lodged one's claim, one has to be prepared to make such records available. This committee is conscious that every single line of the PIAB Act is being challenged somewhere or other. They are lining up to do it.
Mr. Langford spoke about the fact that the cases are just starting to come through now. The legal profession put in thousands of cases the evening before the commencement date, which I think was 1 June 2004 for general insurance. Thousands of cases were again submitted the night before the commencement date for motor insurance, which was 20 or 23 July of that year. Those cases have been finalised ahead of the various timelines for the PIAB and the other liability legislation. It will take time for the PIAB cases to come through. I reiterate that today's presentation by FBD Insurance shows a clear understanding of the difficulties faced by the PIAB. While I have mentioned one area in which it could do its business a little better, I agree with 95% of the points which have been made by its representatives. As a member of this committee, I would support any proposal to change the legislation in the manner highlighted by the delegation.
I am trying to establish whether there is an emerging trend. Could we be talking about less than 20 cases?
Mr. Fitzsimons
The number of cases could be relatively small. There needs to be more liaison between the PIAB and the industry to establish the level of occurrence of such cases. As my colleague said, the cases are beginning to come through. The warning signs which exist need to be heeded. It is as simple as that. The fundamental intention of the PIAB was that due regard would be paid to its assessment in the courts. That is not quite written into the legislation, which was neutered, possibly for good constitutional reasons. We are highlighting our concern that this legislative gap could undermine the work of the PIAB. This committee, which has done a great deal of good work in policing the legislation and making sure its intentions were delivered on on many fronts, should address this problem and ascertain whether something can be done to ensure the board is not neutered.
We were not under any illusions. We had to address a political problem to which Senator O'Toole has alluded. That is how we got the Bill through with everyone onside. There will be teething problems. Does activity like the activity of the PIAB take place in any other jurisdiction in the EU?
Not really. We looked at the system in the UK. We were trying to solve a unique problem. The system we put in place, which is an Irish solution to an Irish problem in many ways, is proving very effective. To date, approximately 8,000 claims have gone through the system and approximately 2,000 awards have been made. The PIAB is currently dealing with 9,000 cases. The number of cases is increasing each day. We hope that 5,000 cases will be dealt with this year and 10,000 will be dealt with in 2007. We will start to see the trends at that stage because the cases which were lodged before the commencement dates will be going through the courts. If the courts start giving awards which are higher than the PIAB's awards, we will all go out of business. That is why I urge IBEC to take action. I know it has to keep down costs. There cannot be a block on the level of award as it has to be enough to satisfy both parties.
I ask Mr. Briscoe to comment on the remarks made by Senator O'Toole.
Mr. Briscoe
There have been a number of comments to which I feel obliged to respond. As I have been personally involved in the lobbying efforts which sought to establish the Personal Injuries Assessment Board, PIAB, and the book of quantum for more than ten years, I obviously support it. My point is that with any good system, while it is inevitable that some will try to subvent it, others will try to prevent it working.
My specific point regarding the book of quantum values is that in some cases, people's perceived expectations regarding the levels of compensation are poles apart from the expectations of those who have experienced them in the past. I am not making the issue. We entered into this arrangement on the understanding that the saving would be delivered on——
Is this because one or two injuries, such as whiplash, are very hard to quantify, or is it a general issue?
Mr. Briscoe
It is general. Five years ago, we carried out a major survey on personal injury compensation which showed that one in ten accidents resulted in a claim.
Very well.
Mr. Briscoe
For whatever reason, not everyone who has an accident seeks compensation. Hence, my point is that we now have an easier system for compensation, which inevitably gives rise to an expectation and which may give rise to an increase in the number of people seeking compensation. At that time, we stated it was absolutely vital that only genuine cases, in which there was no exaggeration of injury, should be compensated.
At present, our fundamental concern is with the effectiveness of the measures in the Civil Liability and Courts Act to deal with that issue. It must be ascertained whether, on balance, such measures have the desired effect in terms of preventing people from being compensated because they may wish to use the PIAB as a two-tier system, or because their legal representatives have advised them that they would do better in court, or because they have nothing to lose by going to court, even though it may be shown that they have exaggerated their evidence or some other aspect of their claim. These are the important issues.
I was at an event recently at which the Irish insurance industry launched a presentation on insurance fraud and various cases were shown. It is not in the public interest for people to form the perception that a Joe Bloggs who exaggerates his injury will be compensated nonetheless, and that they will be obliged to pay for it as taxpayers or policyholders. This is our concern and the scheme could completely unravel unless it is closely monitored. In our presentation, IBEC asks the joint committee to monitor this issue carefully. While I do not claim to have all the answers regarding legislative solutions, this issue must be monitored and acted upon in order that such a development does not take place.
Mr. Briscoe has suggested to the joint committee that as matters transpire at present, the claimant has little to lose.
Mr. Briscoe
Whether that is a perception or a reality, we must ensure this does not apply.
That is the impression I have been given. That is the danger.
I concede that Mr. Briscoe has touched on an issue regarding the question of genuine claims. An issue which has not been considered in any discussion is that prior to the establishment of the PIAB, many people did not pursue genuine claims because they could not face the idea of going to court. While some people undoubtedly find it easier at present, that is a good thing for society. The insurance companies do not have a problem with genuine claims.
I completely agree with Mr. Briscoe regarding the real issue, which is that when the legislation was passed, it was intended that exaggerated claims would not receive an award. A number of judges have taken a strong line in this respect, which all members welcome. However, judges have since taken the view that because someone has an injury, they will ignore the fact that he or she took a dive and will award him or her the penalty anyway. Such a development would be a problem and the Oireachtas may be obliged to revisit the legislation.
I compliment FBD on its important submission. Mr. Briscoe stated that safety at work has improved considerably. I compliment everyone for their co-operation in that regard. When one visits a site now, safety regulations are visibly present.
I want to raise a couple of issues.
As the Safety, Health and Welfare at Work Act 2005 came into operation on 1 September last, we may see the fruits of it later on.
The Society of the Irish Motor Industry has stated that driver error is responsible for 88% of accidents. This is an issue on which the joint committee must concentrate. Little effort has been made to educate drivers, especially at school level. Has FBD ever provided any funds on a pilot basis for training in schools? Has any other insurance company ever done so? Driver education should be compulsory at second level.
My next question pertains to non-nationals who drive cars of a poorer quality which they have brought to Ireland. What safety checks are conducted on such cars, if they are brought in and out of the country? In other words, such people are probably not obliged to have any vehicle testing performed on such cars.
It has been suggested that young drivers who fail their first test should be put off the road immediately. I do not agree with this proposal because people can fail a test out of nervousness. Would it be better for such candidates if, rather than putting them off the road, they were obliged to undergo some driver training? I welcome the witnesses' views in this regard.
The Deputy may recall that recommendation No. 55 in our last interim report states:
The National Council for Curriculum and Assessment should make early provision for the inclusion of the driver theory test for secondary school students as part of their transition year studies. In addition, secondary schools should be required to provide simulated driving instruction for all students on reaching 17 years.
The committee will revisit this issue in the next interim report.
I have some questions for Mr. Neary and the committee has not forgotten about him.
I will be brief. I apologise on behalf of my colleague, Deputy Hogan, who has been obliged to attend a number of interviews. While he hopes to return, he has not done so yet.
The insurance market in Ireland is quite small in comparison with Europe and the United Kingdom. Does Mr. Fitzsimons think more competition here would bring down insurance prices? In the IBEC presentation, Mr. Briscoe suggested that more competition would probably bring down the cost of insurance. At the last presentation by insurance company representatives to the joint committee, I gave them an example of a young man who received a quotation of €1,200 but who, on calling another insurance company, received a quotation of €790. Clearly, the insurance companies compare prices by asking questions regarding the details of quotes and so on. Obviously there is room for more manoeuvring among them. Does Mr. Fitzsimons believe we have reached the end of cheaper insurance in Ireland by now? This is an important question.
I refer to FBD's policy regarding boy racers with souped-up cars which emit loud noises and exhausts. According to its presentation, it does not impose any penalties on such drivers.
Mr. McHugh mentioned a figure of 70,000 imported cars, which mainly come from the United Kingdom. Do significant numbers of cars continue to be imported from the Japanese or Far Eastern markets? Japanese cars used to be imported in large numbers. In Mr. McHugh's opinion, if such cars continue to be imported from the Japanese market, do they possess the requisite safety specifications to which he referred in his presentation? This is also important.
I want to ask Mr. Neary two or three questions. First, could a study of the insurance broker market be commenced within the next six months? Second, he stated that two of this committee's recommendations should be referred to the Minister. Does the Financial Regulator not consider it to be its responsibility to make representations? Finally, do production quotas for brokers not encourage conflicts of interest? Mr. Neary mentioned bad advice.
Who will respond to Deputy Callanan's questions?
Mr. Fitzsimons
The first question raised by the Deputy was whether FBD provided any support or financial aid to young drivers in terms of training and so on. We give a discount to learner drivers who go through an approved driving school. If they can show evidence of having gone to reputable driving schools we will treat them better than people who have not. Our roots and origins lie in farming. We provided considerable training and support in the skill of driving tractors, but we have not done it for cars.
I will let Mr. McHugh respond regarding cars of non-Irish nationals. We have concerns about the quality of cars being driven by some people.
Deputy Breen asked about the competition in the market, etc. Anyone who believes there is not vibrant intense competition among insurers in the market is mistaken. One does not have the level of advertising. Even in the Financial Regulator's surveys of car and house insurance, the variation in premiums that arise show that companies are doing their own assessments of risk and their own pricing, etc., and it is very intense. As the regulator, Mr. Neary, has said under the freedom of services, many people are in a position to provide insurance if they want. He mentioned a figure in the hundreds. They have chosen not to do so for their own good reasons. There is no dearth of competition in the marketplace.
The end of cheaper insurance was mentioned. If the PIAB goes its distance and goes as far as people hoped, and if the matters we have already discussed, such as the Civil Liability and Courts Act, the savings and so on are maintained and supported, there is scope for costs to come down and premiums will follow those costs down. Insurers want some markup. We have a pretty efficient operation relative to other companies in terms of our cost base, etc., which is a factor in the profit we manage to generate. Cheaper insurance will depend on that agenda. We are half way there. It is like a journey. We are in Portarlington or Thurles and we need to get to Cork. That is one of the fears we would have. When this committee reconvenes after the next general election it will need to keep the work going. It has been very successful and the foot cannot come off the pedal, metaphorically speaking.
The other issue related to boy racers. We are very conscious of them. They tend to go for a particular type of car and we all know them. We are endeavouring to identify them and rate them appropriately. It is as simple as that.
Does an insurance company need to see the car before giving insurance?
Mr. Fitzsimons
Quite honestly it is not practical. At a point in time we probably would have——
If an insurance company representative went and looked at a car with dragon stripes, crazy exhausts and the rest of it, would it change his view?
Mr. Fitzsimons
It might. Again, it is back to the analysis, on which we rely, as to the particular type of car, its attraction in particular for the boy racers as we call them. We monitor their performance and our experience with them and rate them accordingly. Our eyes are open. We have a network of offices throughout the country. People call in. They can see what is happening on a Saturday and Sunday. We use that knowledge in terms of our rating structures.
Mr. McHugh
We expect 70,000 used cars to be imported this year, which is an increase of 50% on last year. Last year there was an increase of 100% on the previous year.
It went from 17,000 to 35,000 to 70,000, which indicates the extent of the challenge.
Mr. McHugh
It was 43,000 last year and has increased by 50% this year.
Why is that?
Mr. McHugh
The bulk of these cars are coming from the UK. At the time when a large volume were coming from Japan, a number of factors, such as the scrappage scheme, came into play. In addition, Irish people became more prosperous. It was a poor man's choice for transport. At that time there were different standards for seatbelts in Japan and Europe. Type approval is much the same in both countries now and imports now coming from Japan are niche market cars in small volumes. The bulk of the cars are coming from the UK.
Regarding boy racers, I attended a presentation organised by the Swedish ambassador, which contained some interesting facts. Sweden has an objective of zero fatalities, which is obviously very ambitious. However, with the European Commission e-safety initiative, which the committee should review, there might be some validity in going some of the way towards it. Sweden has provided facilities for boy racers to race cars in supervised areas. These are not racetracks as such and do not have the same degree of safety as a racetrack. However, at least it takes place in supervised areas. Participants can come and show off all their extras and gimmicks in controlled atmospheres. It might be worth considering here.
Mr. Neary
The first question the Chairman asked was about the study of the insurance broker market. We have accepted the committee's recommendation in full. As I have said to the committee before, we have been devoting our resources to putting in place a consumer code. That work is coming to a conclusion. We have undertaken to make the review of the broker market a priority in our strategic plan. We will endeavour to get that off the ground as soon as we can. I reckon it will be towards the end of the next six months rather than within the next six months.
The Chairman also asked about the two recommendations, which were outside our remit. I am willing to assist the committee in any way to move those recommendations forward, including making any submissions in support of the committee to the Department of Finance and the Department of Transport. The committee can take that as done.
We would appreciate if Mr. Neary could do that.
Mr. Neary
We will certainly do that.
The third issue was that of production quotas and I will shortly hand over to my colleague Mr. Pyne to amplify our response on the matter. As stated in my letter, we do not accept that the quotas should impact on the way intermediaries give advice. The client should be given the best advice available. The quota is a separate matter. When they seek to place that particular policy with a product producer it is a separate matter whether there is capacity available. I will ask Mr. Pyne to elaborate.
Mr. John Pyne
The question of whether production quotas are in place does not impact on the obligation of the intermediary to recommend the best product. The Financial Regulator will keep this issue to the fore when inspecting intermediaries and reviewing their sales processes. The related theme of commission overrides will be considered by the Financial Regulator in the context of its remuneration and transparency review. In our letter we indicated that we were willing to look again at the issue in the context of the review of the broker market, as the chief executive said.
Mr. McHugh
I did not answer a question on used car imports from Poland. I ask Mr. Nolan to address the issue.
We do not have a system of single vehicle type approval. Therefore, we do not have any check on vehicles coming into the country. Some of these vehicles may predate their country's entry into the EU and therefore might not have been designed to the highest specifications. Obviously, if the vehicles are reregistered in Ireland they would be subject to the NCT on the fourth anniversary of their entry into service. Enforcement in that area is not as strong as it used to be, as it is no longer a requirement to have a disc displayed on the windscreen of the vehicle, an issue with which we have concern. Even that presupposes that the person would take the decision to reregister the vehicle. However, of course, the person only needs to do so on change of residence which is likely to be six months later. If the person never changes residence, there is no control on the vehicle. There is an EU requirement to carry out roadside checks at a certain level. Ireland has been very slow to introduce a strong system of roadside checks and that issue should be examined.
Is it compulsory to display insurance and tax discs on car windscreens?
It is and failure to do so is a penalty point offence.
What point is Mr. Nolan making in this regard?
There was also a requirement in the draft legislation to establish the NCT that a driver would have to display a valid NCT disc to show the vehicle had been tested to appropriate safety standards. This is only a basic safety test but the wrong message is sent if people are not required to show the vehicle has been tested to the appropriate standard.
Is Mr. Nolan only referring to vehicles imported to the State?
No, it is no longer a requirement for all vehicles.
If I enter the State from Poland with a car in poor condition, I can drive it legally unless I change my residency status or I tax it in the State.
Yes, there is a requirement that if one changes residence, the vehicle should be re-registered here but we are concerned that the enforcement of that provision is not as strong as it should be.
If a citizen of another member state is working in the State legally and is paying taxes, he or she should be obliged to have their cars taxed and tested.
I refer to the cost factors, which we discussed earlier. One cost factor is the panoply of legal costs and incentives for people to take claims. From my limited knowledge of the industry in other jurisdictions, where a legitimate claim has been made and an award assessed, an assessment of a claimant's earning capacity is made instead paying a lump sum. For example, if the earning capacity of a carpenter aged 35 reduced by 20%, he would receive an income supplement for the next 20 years or so at 20% of the average pay of carpenters. That could be made tax efficient, given that a lump sum is not taxed.
If the disappearance of the lump sum was a factor and if a lump sum was no longer paid from which lawyers could demand a substantial fee, would that have an impact? Are income supplements paid in other jurisdictions to people who suffer physical injuries as a result of accidents, leaving aside the question of liability? I am examining the cost base and the impact of lump sums on people. Everybody in the State, irrespective of their legal or employment status, has access to a much more open finance market, whereas in the past lump sums had an attraction because many people could not access the credit market. Was this matter discussed previously by the committee? If not, could it be added to the list of requests? It is a major issue but I would like a preliminary response with a more substantial response in due course.
Mr. Briscoe
I have been involved on various committees such as the McAuley committee, which examined different compensation systems such as staged payments and so on. It is a complicated area. Research is being conducted by the Rehab organisation on our behalf to examine benefits and supporting people as they return to work. For example, I learned that certain benefits are counted, while others are not. When somebody receives compensation under the current system, he or she is awarded special damages and general damages. Special damages involve a calculation of future or past loss and the general damages are the pain and suffering element, which is the book of quantum equivalent. An individual receives a lump sum in compensation and benefits that may accrue to them from other insurance arrangements and so on may be taken into account in that calculation.
I referred to double benefits for certain insurance benefits in my presentation that are not counted but recommendations were made about stage payments for significant losses. In more critical cases where somebody suffers a significant loss, rather than giving a family a lump sum of €2 million or €3 million where they may need benefits to support them in the future, there may be a case for providing them with an income to address those supports. The only question then is how to calculate the family's premium. The major factor in calculating insurance premiums for business is running costs, which is a function of claims settled and claims outstanding. A stage payment could be difficult financially.
Mr. Fitzimons
The MIAB report suggested there should be a move away in certain cases from lump sum to stage payments. That has not happened but it should be examined to ascertain whether it is viable. There are many administrative issues but it makes sense. The calculation of the lump sum might prove to be insufficient or excessive. For example, in a case of serious injury, the person could die sooner or live longer. Lump sums are not ideal but I do not know of an easy solution. In other jurisdictions, stage payments are provided.
Mr. Higgins
The UK uses structured settlements but only in cases involving paralysis or a care element for life. Where people suffer whiplash, for example, there might not be a loss of earnings. They could still work while claiming for problems they are suffering. That could be difficult.
Is my premise valid that stage payments in principle would be cheaper for the industry over time than lump sums up front?
Mr. Higgins
That could be simplistic. Life expectancy is much higher than it was many years ago and seriously injured claimants are being cared for much better. It would be more costly going forward.
The motor industry is buoyant and the next two years look promising but the message from the delegation is that ten to 15 year old cars are being brought into the country, which present a challenge to road safety and they cause many accidents.
Mr. Jim Cusack
There is increasing concern. Manufacturers are making every effort to produce vehicles that will prevent accidents and protect the occupants and they have made huge advancements. New imported vehicles are achieving all that. However, 43,000 used vehicles were imported from the UK and Japan last year and the number is forecast to increase to 70,000 this year but there are no controls over their specifications.
The organisation's counterparts through Europe might examine this issue. Will Mr. McHugh come back to the committee about this, as we might examine how other jurisdictions regulate the challenge we are facing as a result of a buoyant economy and the maturation of SSIAs? Many young people have accounts and will receive €10,000 or €12,000 over the next 16 or 17 months. We would appreciate the assistance of the insurance and motor industries in meeting that challenge.
Mr. Ian MacNeill
The representative from FBD made the point that a valid insurance certificate is not necessary to renew car tax on-line because it is not possible to validate an inputted number. That is indicative of the lack of co-ordination between the State's various systems. Another issue that concerns us is that we have no access to files on stolen cars, which are often responsible for accidents. This lack of information makes it more difficult for us to implement road safety.
We are working very closely with Assistant Commissioner Rock in this regard and we visited the New York Police Department while compiling our third interim report.
A telephone-sized handset is available which, by scanning a disk on a car windscreen, can determine within 30 seconds whether a person has a record. That device, which is being used in New Zealand but not yet available in Europe, is unique in its ability to provide detailed information to gardaí on the entire penalty points system. If time permits us, we hope to refer to it in our final report.
All forms of public transport will face the challenge of black box technology. This technology should be available to buses, trains, ambulances, Garda cars and ESB and Eircom vehicles. The experience of the Health Service Executive, which spent a fortune on new computer systems, is close to our minds but the New Zealand Government spent a lot of money on this computer system and has deemed it successful. We are trying to make time for everything but, when it comes to definitive monitoring, technology will be required if the legislation is to be properly implemented.
Mr. Frank Brosnan
The Chairman asked about the level of competition in the market. At present, there are 132 insurance entities in this jurisdiction. That most also operate in other jurisdictions should address in some way the concerns expressed by the committee about barriers that prevent companies from entering this market. As my chief executive, Mr. Neary, pointed out, we have received notification from other supervisory authorities of a further 561 companies which are entitled to operate in this jurisdiction on a freedom of service basis. Mr. Fitzsimons is correct that they are entitled to write the business. Therefore, whether they are writing it and, if not, why not, are separate questions.
Data protection barriers may prevent us from introducing the measures discussed by Mr. MacNeill. The interpretation of data protection here is very restrictive.
We will examine that issue. The success of New York's penalty points system and the city's ensuing substantial reduction in fatalities and serious accidents were due largely to the establishment of a traffic corps by the New York Police Department. There have been 400 deaths on Ireland's roads but 1,300 people were maimed for life. New York's crime levels also fell by 30% because criminals were intercepted by the traffic corps. We received an assurance from the Minister for Justice, Equality and Law Reform, Deputy McDowell, that he plans to expand the Garda traffic corps from 575 last year to 800 this year, 1,000 next year and 1,200 by 2008.
This committee will continue to push for substantial reductions in insurance premiums. We accept the period between 2001 and 2003 was a nightmare for the insurance industry but profits have increased significantly in 2004 and 2005 to more than €1 billion. If we make Ireland a safer place for business, we will want to see further reductions in the cost of insurance.
I thank the representatives from FBD, the Financial Regulator, IBEC and the Society of the Motor Industry for their contributions and members of the press for their attendance.
The joint committee adjourned at 11.55 a.m. until 9.30 a.m. on Wednesday, 14 June 2006.