Skip to main content
Normal View

Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach debate -
Thursday, 8 Sep 2016

Rising Cost of Motor Insurance: Discussion

I welcome our guests this morning, Mr. Conor Faughnan and Mr. Colm Carey from AA Ireland, Mr. Kian Griffin from Ireland Underground and Mr. Justin Moran from Age Action Ireland.

I propose that the witnesses present their opening statements and then we can have a question and answer session with committee members. It is up to the witnesses to decide who goes first.

Mr. Conor Faughnan

Given that AA Ireland is first alphabetically, I will begin. I thank the Chairman and members of the committee for giving us the opportunity to speak at this meeting this morning. My name is Conor Faughnan and I am joined by my colleague Mr. Colm Carey from the Automobile Association, AA Ireland. AA Ireland is over 100 years old. It was originally a motoring organisation and lobbyist for motoring interests, which is something we still do. Indeed, I am on the register of lobbyists and must fill in my return annually. I will have to remember to include this meeting. In addition, the AA has grown into a very large motoring services organisation. We are the largest personal lines insurance intermediary in Ireland providing motor, home, travel and, more recently, life insurance. The AA has more than 120,000 motor insurance customers and deals with a panel of three underwriters to provide them with quality motor policies. The AA occupies a unique position and is very well placed to see differing points of view in the ongoing debate on rising prices.

The rising cost of motor insurance is the single most important issue for the motoring consumer right now according to AA research. We regularly carry out opinion surveys among our membership base, which involves sending out questionnaires with 25 or 30 detailed questions. We typically receive 8,000 to 10,000 completed questionnaires from members of the public and AA customers. We carried out a poll in March of this year, to which 9,000 people responded. We had asked them to rank various issues in order of importance and they ranked motor insurance costs as more important than road safety, fuel costs, taxation and road maintenance.

The AA has been active on this issue for quite some time. In November last year, we published a detailed set of recommendations under five headings. These are summarised in the paper I have submitted to the committee. Since November 2015 when we published that document, there has been disappointingly little progress on these issues.

There has also been a worsening of the competitive position for the provision of insurance in Ireland. This is something that we feared but the situation is actually worse than we had predicted.

The market in Ireland is increasing, with new car sales up 20% as the economy grows. Motor insurance prices are also increasing sharply. This should mean that competitors are attracted into the market but, in fact, insurers are in active retreat from Ireland. The entry of the Qatar Insurance Company which was announced on 31 August is welcome but is against the trend. We do not know the planned extent of that company's participation in the Irish market. Overall, there are very few foreign players looking to enter the market which is a deeply unhealthy indicator and a worsening problem. Furthermore, premium increases have not finished yet. We estimate that prices may rise a further 20% overall over the next two or three quarters unless action is taken.

As well as retreating out of Ireland altogether, insurers are also seeking to narrow their footprint. They are now typically only interested in mainstream risks or what one could call the plain vanilla insurance policy. They are interested in drivers with no penalty points, a standard car, an ordinary profession and a normal driving history. Even these drivers are facing price increases but drivers who fall out of those standard categories can struggle to obtain insurance at all. We have had conversations, for example, with people who have had an insurance claim or who have acquired some penalty points who cannot shop around. They are captive with their existing insurance company and must absorb whatever price increases are sent their way.

There are several reasons we are not seeing foreign competition enter into the market. One is the reputational damage that was caused by the failure of Setanta but a more significant reason is the lack of clear information and data on claims costs. Foreign insurance companies considering entry into the Irish market are at a disadvantage vis-à-vis the insurers already here because our data are so murky and difficult to understand.

What can the Oireachtas do about this? Our submission makes a number of detailed recommendations. I do not propose to read the entire paper now as that would take longer than the allotted five minutes. There are a number of issues that I would like to draw attention to because they are levers that the Oireachtas can pull. The first of these is to update the book of quantum. Members might be familiar with this book, which describes in detail the appropriate level of financial compensation for injuries of a given severity. There are two problems with the Irish book of quantum. The first is that it is hopelessly out of date. It is more than ten years old and is effectively useless as a guideline document for the courts. The other problem is that the courts are not bound to abide by it. There is a touch of chicken and egg operating here because if the document is not terribly useful, it is hard to compel the courts to stick to it.

We are about to see an updated book of quantum which we called for last November and which was supposed to be produced in January. The updated book is due next month and that will make an important difference. However, what is even more important is that the courts, within the confines of the proper separation of powers, are persuaded to adhere to the book of quantum. That is at the heart of the Gordian knot that feeds into escalating legal costs. Individuals with insurance claims go to the Injuries Board and are given an estimate of the value of their claim. Often their solicitor will suggests that they might do better in court and that they should threaten the insurance company with court. The practical effect of this is that 20% of cases are settled by the Injuries Board, for which there is clear data, and 10% of cases end up in court, for which there is some data, but 70% of cases are settled directly by the insurance companies to prevent a court case from happening and we cannot see what is going on there. The data on out-of-court settlements is not published. This means that insurers are hiding 70% of claims information under their skirts, so to speak. Insurance companies are reporting an increase in claims and I believe that is true. They are also reporting that claims costs are going up and I am also inclined to believe that is true but we are not seeing the proof of that. The key to unblocking this is a proper book of quantum to which the courts adhere. That will remove the incentive for the solicitor to whisper in a plaintiff's ear and for them both to try to squeeze the insurance company.

Another action that the Oireachtas could take is to introduce automatic number plate recognition, ANPR, which involves a camera in a Garda car or elsewhere reading a registration number which is then checked against a database. This is a mature and well-used technology which operates in Great Britain and in many other countries. In essence, it is one of the key ways to reduce fraud. At the moment, we are still using a paper windscreen disk to determine whether a car is insured. That actually facilitates rather than prevents fraud. The only equipment available to gardaí to check whether a car is insured is a torch to shine on the disk. That is worse than useless. We know, on foot of rising premiums, that uninsured driving is on the increase and that will continue because we are not giving the gardaí the resources they need. It is an unfortunate irony that gardaí already have this equipment. It has been physically installed in around 80% of the cars in the traffic corps. There are other cameras out there that can read registration plates, for example, the cameras on the M50. What is missing is the underlying database of insurance information and that is something that the insurance industry can be compelled to put in place. We already have a database of cars that are taxed so, in the first instance, we should get rid of the tax disk and use technology to track that. If a garda finds an untaxed car, I am willing to bet that he or she has also found an uninsured car. Giving those tools to the gardaí would help a lot.

Members of this committee will probably be aware of the somewhat technical issue of the discount rate which does not lend itself to a simplistic explanation. Broadly speaking, it is an assumed rate of return on a lump of money. If an insurance company has to pay me for a catastrophic injury and the payout is estimated to be €10 million, for example, the insurance company can pay me in tranches and there is an assumption made about how much interest or return that €10 million would make. This has a huge impact on the industry because since around 2002, a court precedent set that discount rate at 3%. That was fine and everyone was working off an assumption that the discount rate was 3%. However, a recent court case in 2014, the Gill Russell case reset that discount rate to 1%. While that does not sound like much, for an insurance company that makes a huge difference to how much it must pay out in a lump sum in the case of a claim for catastrophic injury. The insurance companies collectively looked all across their book, at the 2 million motorists they have on cover, and said the discount rate is not 3% anymore but is now 1% so we have to recalibrate all of our reserves. That is part of what is pushing through into premiums but it can be fixed directly. The Minister for Justice and Equality has the power under the Civil Liability and Courts Act to strike a discount rate or to simply state what it should be. The Minister has not done so. We have engaged with the Tánaiste and Minister for Justice and Equality on this matter and brought it directly to her attention. At the moment, because she has not struck a discount rate, the insurance industry collectively has to assume that it follows the court precedent set recently. They must, of necessity, reserve prudently as a result and that is one of the factors that is feeding directly into the increase in premiums that we are paying at the moment.

Our paper makes some other recommendations and I look forward to having a question and answer conversation with committee members. Rather than read out the entire paper, it would be more constructive to leave it there, although there is one more point I would like to make. We deal with insurance companies extensively and we know their DNA. We do commercial deals with them all of the time. One source of frustration for us is that the insurance industry collectively does not share data. An integrated insurance data system is essentially a data hub. If I want to move from one insurance company to another, I do not have to get a letter from the first insurance company and give it to the second one. Companies can look at a data hub, see who I am, my claims history, my penalty points status and so forth. That, in and of itself, should be in place. It is in place in Great Britain and in Northern Ireland, for example. The same insurance companies that operate north and south of the Border have done it in Northern Ireland but not in the Republic because they argue that it is complicated and that they have data protection concerns. This is very frustrating for us. That database needs to be complete and open to brokers and all actors in the insurance market. The Oireachtas could help by compelling insurers to do this.

As I said, there are a few other bits and pieces in our paper, much of which will be self-evident to members. An obvious issue is Garda resources. The Garda traffic corps has been reduced. Every motor insurance claim begins with an accident but if Garda resources are increased, accidents will be reduced. That is clearly an important measure that does not require much explanation.

My parting shot before I finish relates to Setanta insurance which is leading to uncertainty in the insurance market. We have spoken to insurers who want to come into Ireland.

One of the reasons they will not is that they do not know what their liability is going to be because of the Setanta case. If it is the case that for an insurance company to trade in Ireland part of what it must do is essentially guarantee its competitors against their failures, then this is a real barrier for insurance companies. We spoke to an insurer outside Ireland. Only last week one of my colleagues had a detailed conversation with a representative of the firm. He said the firm was willing to trade here but that the Setanta judgment was one of the things preventing it from supplying in Ireland. That is something that has to be fixed.

Thank you for your patience, Chairman. I hope I have not gone over time. I look forward to the conversation.

We will hear all the opening statements first and then we will have questions.

Mr. Kian Griffin

I thank the committee for inviting me today. Much of what I have to say will be identical to what Mr. Faughnan has said. Primarily, the people I am here to represent are younger drivers. Ireland UnderGround is the organisation I am here on behalf of. It comes from a forum I set up in February to discuss issues relating to younger drivers. Almost immediately the discussion turned to motor insurance. This has always been a major concern for younger drivers but I believe in the past 12 months in particular it has gotten out of hand.

I am consistently getting messages, calls and social media messages from people who are in a state of despair. They do not know whether they can afford to go to work the following morning because of the cost of their motor insurance on top of everything else. One of the most worrying messages I am getting on a consistent basis comes from people who are refusing or who cannot afford to pay for motor insurance. Figures published recently by the Motor Insurers Bureau of Ireland show a 17% increase in claims involving uninsured drivers. Clearly, I need not tell the committee that is part of the problem. We seem to be getting into a rather dangerous cycle whereby the costs are increasing and more people are using that as an excuse not to pay their insurance, or else they simply cannot afford to. This increases the figures and it feeds in to increasing costs on top of that. Judging from the messages I am getting, it does not seem like this will slow down any time soon, particularly in the case of the younger demographic. They are saying they have paid for this year but they know it will go up next year. They say they cannot afford this month's payment and so on. It looks as though it will keep rising.

One of the key problems people have mentioned to me is that their premiums are increasing despite their having had no claims or accidents. It does not seem logical to them that the price should go up when they are doing what they should be doing. They are driving safely and they are not involved in any accidents or claims. They are building up their no-claims bonuses, yet their premiums are increasing. They see this as pure profiteering by the insurance companies. I know these companies have to turn a profit to stay in the market. They will do what they believe they have to do to keep their profits up. The easiest way for them to do that is to increase the premiums to counteract the claims they pay out. I have no problem with private companies trying to stay profitable. The issue is that they are doing it at the cost of the motorist.

I believe we need to try to aid the insurance companies to bring down their expenses in order that they can remain profitable while offering lower premiums. There are a number of ways we could do this at official level. The first would be to bring compensation payouts in line with the EU averages. As Mr. Faughnan said before me, we should compel the courts to adhere to the book of quantum rather than simply refer to it. I am keen to see fraudulent and exaggerated claims tackled more aggressively and possibly the granting of greater powers to the Injuries Board.

Another issue that has been brought to my attention - Mr. Faughnan has touched on this already - is the lack of clarity. When we take our motor insurance, it is to cover the risk of accident, theft, etc. It would seem logical that as people gain experience, their premiums should come down. However, such has been the increase in premiums that those who have been driving for years or even decades without a claim are still seeing extraordinary increases. There seems to be no consistency in pricing. People want clarity. They want to see exactly what they are paying for. I believe it is only fair that when someone is offered a premium, that premium should be broken down. It should be shown clearly to the customer point by point what exactly they are paying for. Using the same line of reasoning, insurance companies are claiming that much of the increase in cost is down to the cost of claims, yet, as Mr. Faughnan remarked, 70% of claims are settled out of court. A motion was put forward by Deputy McGrath and supported by the vast majority of the Dáil at the time calling for the implementation of a claims database, and I support the idea. The companies may claim this is anti-competitive, but I maintain that if everyone wants to disclose their information on out-of-court settlements, then it is a level playing field for all. I believe that would help reduce the cost of claims. If we had the database, we could monitor whether suspected fraudulent claims were not being fully investigated.

The last issue I wish to touch on is a particular issue affecting younger drivers more so than older drivers. There is a refusal by many insurance companies to take on cars older than ten years in some cases. I am driving a 15-year-old car and I was restricted from shopping around for my premium this year. I had to stick with the company I was with because other companies refused point blank to insure a car of that age. This was something of a nuisance for me. I am unsure whether they expect 17 or 18-year-olds to be earning €50,000 per year, but I know few younger drivers can afford to buy a newer car to take advantage of the lower premiums. If a car has a valid NCT certificate, then it should be required by law to be judged the same as a new car in terms of risk. In most countries, the insurance companies assess the risk based on the car or the driver, but here they seem to do both. I do not see why, if I am considered a low-risk insurable driver in a 2010 BMW, I should be considered a higher-risk or uninsurable driver in an older car. Like most people, my driving style will not change based on the car I drive.

The feedback I am getting from younger drivers is that they are besieged on all fronts. There is sense of hopelessness. They do not know where to turn to try to alleviate the pressures they have on their shoulders. We have to contend with a two-tier tax system, high fuel costs and poor road conditions leading to high maintenance fees. Now, we have to deal with the rapidly increasing insurance premiums on top of all that.

The Government has consistently referred to keeping the recovery going. That might be true in Dublin or for the upper class, but I cannot say that I have experienced any recovery, and I think I speak for all younger drivers and drivers in general in Ireland when I say that we need the help of the committee. We are on our knees begging at this stage. We simply do not know where to turn any more.

Mr. Justin Moran

On behalf of Age Action Ireland I thank the committee for its invitation to speak today about an issue that causes substantial frustration to many of our members. In recent months, many have experienced substantial age-based increases in their car premiums.

Frank is a 70-year-old man from Dundalk. He has never had an accident or made a claim. He has a full no-claims bonus and drives less than 5,000 miles per year. Last year, when he was 69 years of age, his car insurance premium was €293. Last week, his insurer quoted a price of €493, an increase of more than 68%. Frank relies on the State pension, and, therefore, his car insurance represents more than two weeks of his income.

In April this year we were contacted by Teresa, who is over 70 years of age. Her car insurance was going up from €470 to €700. She haggled with the provider - fair play to her - and got a deduction or discount of €50. However, it still represented an increase of more than 38% in her car insurance premium. During her conversation with the customer service representative, she was told that the reason for the premium increase was that older drivers were more of a liability. As Teresa pointed out, and as I will outline, older drivers are safer drivers because they have years of experience. However, the comment made to Teresa illustrates a perception held by insurance companies that older people are more likely to be involved in accidents and should, therefore, pay a higher premium. This view is not supported by the evidence. The Central Statistics Office 2013 transport omnibus survey found that 22% of driving licence holders are over the age of 70 years, yet they received less than 9.5% of the total number of penalty points awarded that year.

Professor Des O'Neill, the national programme director for traffic medicine with the Road Safety Authority, referred to the belief that older drivers are more dangerous as a "tenacious and fixed false belief" that is not supported by the evidence. He went on to cite Dutch research which found that children in crashes where the grandparents are driving are at half the risk of injury as where their parents are driving, simply because they tend to be driving at lower speeds. The Institute of Advanced Motorists in Britain also says that older drivers are safer drivers. They point out that older drivers tend to be more cautious and self-regulate by choosing not to drive at times when they do not feel comfortable, such as in poor weather or in poor light conditions. They are also less likely to drink and drive, take illegal drugs or speed. The institute has also produced statistics showing that British pensioners, despite making up 8% of all drivers, are only involved in around 4% of accidents that cause injury. Yesterday, new research from the University of Swansea found that drivers aged 70 were involved in between three and four times fewer accidents than young male drivers aged between 17 and 21.

These arguments are echoed by the Consumer Federation of America's director of insurance, who said, "The focus for insurers should be on driving record, mileage and type of car ... things clearly related to risk ... all the actuarial data I have seen indicates less risk for the older drivers." When Age Action has asked for this actuarial data or any data from Irish insurance companies in the past we have been told it is commercially sensitive. In this regard I echo the points, articulately made by Mr. Faughnan and Mr. Griffin, about the issue of trying to get data from insurance companies.

It is also important to highlight the additional health requirements imposed on older drivers and it would be very useful if the committee could determine whether these are considered by insurance companies when setting premiums. Any driver over the age of 70 applying for a licence needs a certificate from their doctor confirming their medical fitness to drive. These licences are only valid for one or three years, depending on the judgment of the doctor, compared with the ten years to which many of us are accustomed, and older drivers are subject to regular health checks to ensure they are safe to be on the road. This is a level of scrutiny that is applied to no other age group but there is no indication that this is considered by insurance companies.

Age Action also suggests that the imposition of inflated premiums on older drivers may not be compatible with EU law. Committee members will be familiar with the 2011 decision by the European Court of Justice which ruled that Article 5.2 of the 2004 Council directive on gender was incompatible with the EU's Charter of Fundamental Rights. This article contained an opt-out, availed of by all 27 member states including Ireland, which permitted them to allow insurance companies to treat men and women differently in setting premiums where this was justified by "relevant and accurate actuarial and statistical data". The court found that this was contrary to Article 21 of the Charter of Fundamental Rights which prohibits discrimination on the grounds of sex. The same article also prohibits discrimination on the grounds of age.

Finally, we would like to address the impact of increased car insurance costs on older people. Being able to drive is synonymous with independence but it is more than simply a lifestyle choice. For many older drivers it is an absolute necessity and may mean the difference between living independent, full lives in the community or being forced into residential care. Some committee members represent rural constituencies and will be particularly conscious of the challenges facing older people, for example, where there is no public transport system. Older people who are unable to drive face increasing social isolation and must rely on friends or family for transport. Research published earlier this year in the Journal of the American Geriatrics Society found that "driving cessation was ... associated with declines in general health and physical, social, and cognitive function and with greater risks of admission to long-term care facilities and mortality". It also found evidence that the risk of depressive symptoms in older adults forced to stop driving was almost doubled. While most older people who do stop driving do so health reasons, for others the challenge is financial. As with Mr. Griffin, we have had people contact us saying the cost of car insurance premiums are in danger of putting them off the road.

In closing, while Age Action appreciates the fact that the committee is looking at the issue of car insurance on a broad basis, which we welcome, we urge members to address the impact of these rising car insurance premiums on older people.

That concludes the opening statements. I remind witnesses that they are protected by absolute privilege in respect of the evidence they give to the committee. However, if they are directed to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person either inside or outside the House or an official either by name or in such a way as to make him or her identifiable.

I thank the witnesses for coming in. Their submissions have been very informative. I have a few interactive questions. The Minister of State, Deputy Eoghan Murphy, was before the committee yesterday and I am sure the witnesses have read some of the transcripts. He said "the ability of the Government to influence insurance pricing is limited, as insurance companies are required by European law to price in accordance with risk". It is worth our while interrogating further the setting of the discount rate. The rate may be 2% or 3% but the insurance premiums have increased by multiples of that. I assume that is because of provisioning. It would be useful for people watching online if Mr. Faughnan could give them a better appreciation as to why there has been a loading on insurance premiums this year. I am fascinated by the fact that he says insurance companies are narrowing their footprint and cherry-picking customers. Mr. Moran has said that there has been no increase in the risk related to old drivers but they are being told when the go to renew their premiums that they carry a greater risk. I imagine the market is still lucrative so I do not see why they are narrowing their footprint. I imagine the risk is still covered to a large extent. Is it because the underwriters, of which globally there are a limited number working in the motor insurance sector, are deciding the Irish market is not lucrative enough? Are they saying that profit is the ultimate motive over and above that of risk? I would like a deeper understanding of why the witness feels there will be a further rise of 20% over the next two or three quarters.

Are the witnesses interacting with the Minister of State's working group? I get a sense from the Minister of State's intervention yesterday that while there have been meetings, the insurance industry is not really a stakeholder in the process but merely a contributor. The firms give information but are not influencing a potential outcome which would see the necessary reductions in premiums, as called for by Mr. Griffin, especially in the case of younger drivers and older drivers. We all have experience of this issue from our work in our constituencies, whether they be rural or urban. As public representatives, we have seen a massive increase in the cost of premiums. When we see increases of between 33% and 50% in the cost of premiums, we wonder if it is based on the profit motive or something else. Is it only about the book of quantum or the automatic number plate recognition, ANPR, or the discount rate? It seems to me there is something more to it than that. Is there another explanation of the discount rate?

Mr. Conor Faughnan

Yes, we have engaged with the Minister of State, Deputy Eoghan Murphy, and we are trying to participate in what he is doing. We had a very good conversation with him and we are encouraged that, across a wide spectrum of interests, there seems to be a broad consensus among people on the need to get this repaired. We were particularly encouraged by the Minister of State's response around data sharing because that is key. I appreciate that the book of quantum is thorny because it deals with the separation of powers and what the courts can be compelled to do.

Even so, there seems to be a fairly tight consensus around that and it is a good thing. There are a couple of specific questions. One is how big the influence of the discount rate is? There are a couple of sets of data on that which show it is impactful. The State Claims Agency, which is also affected by the discount rate, reckons that the change from 3% to 1% could add about €100 million annually to its bill. That is the sort of scale involved. It might translate in terms of motor insurance premium to approximately 7% on a typical motor insurance premium. That is how big the difference is. In our case-----

Mr. Conor Faughnan

Mr. Colm Carey is prompting me to say that is €50.

There is a legislative provision to do that.

Mr. Conor Faughnan

There is.

In other words, we in the Oireachtas could influence that.

Mr. Conor Faughnan

I believe so. The Civil Liability and Courts Act specifies that the discount rate will be set by the Minister for Justice and Equality. The Minister for Justice and Equality is the Tánaiste at the moment and we have discussed it with her. I appreciate it might not be quite as simple and that there are other technical provisions. A number of court cases are pending which would affect the State Claims Agency. I am not over-simplifying the landscape and saying that the Tánaiste has a pen in her hand that she refuses to wield. Nevertheless we should work this through. It may seem a little bit absurd to say this but from the insurance industry's point of view, it almost does not mind what the rate is once it knows there is a definitive rate. The Deputy asked if it was just the book of quantum and only the discount rate. It is a combination of factors. I will give a potted history in 30 seconds. For about ten years, motor insurance premiums in Ireland fell year on year up to around 2014. They began to fall recklessly and an Irish motor insurance premium was significantly less than a British one. I have said before that, collectively, the industry was rather stupid. It thought it was making money but it was not. It realised as the claims matured over a seven-year claim cycle that it was actually losing money. A couple of things really startled the herd. One was the failure of Setanta which has left behind almost €30 million in debts. Then there were other insurers which ran into serious trading problems. One of the major brand names still trading in Ireland hit reserving problems and had to transfer an enormous amount of capital across from its parent. The industry collectively was like a herd of wildebeest on the edge of the stream. Insurance providers all knew they had to increase rates but they all were competing on price and were afraid to be the one to make the first move. Then the Setanta failure and other issues happened and they all went charging across the stream.

In a sense, insurance providers have gone too far now and it has become excessive but they are taking advice from their actuaries. Their actuaries are having to assume the perfect storm. They are having to assume that Setanta means that they will have to pick up the liabilities if another insurer fails. If another insurer fails, they will have to pay the bill. They have to assume that the discount rate is going to live at 1% rather than 3%. That is 7% on the amount of premiums that they have to claim. They have to assume that the recent rise in court awards, which happened when court award thresholds went up a couple of years ago, is the new normal. If all of those things are baked in as the new normal and there are other layers like Solvency II Directive, which is the European provision around reserving, there is no choice. If they do those calculations, they must increase their premiums or they will not have adequate reserves.

We should do what we can to provide clarity around those numbers, reduce claims happening in the first instance and reduce the cost of those claims when they happen. Those measures all have an effect even greater than their primary number because they reduce uncertainty and make the actuaries less requiring of caution. That in turn will feed directly into premiums.

If Mr. Faughnan is saying that historically premiums were reducing to a critical point where they were not able to cover the costs-----

Mr. Conor Faughnan

That is correct.

-----what is the natural correction? Is there an assessment of a figure of a natural correction because the assumption here is that we will accept a correction-----

Mr. Conor Faughnan

Yes.

-----but it seems there is a loading on that correction which is now moving it into the supernormal profits, if I can incorrectly use that term. In other words, if somebody had paid a premium of €500, for example, and this year it is €800, of the €300 extra, what is the correction and what is absolute supernormal profits? That is why if one speaks to Mr. Kian Griffin's constituency and to older people they are absolutely perplexed. We are all perplexed as to why we are paying so much extra for our premiums overnight. It seems to me that not all the factors that Mr. Faughnan talks about here are contributing factors but that there is a profit loading on that as well. For instance, AA has three underwriters.

Mr. Conor Faughnan

That is right.

Obviously, it is in a pretty secure position because it has three underwriters. Perhaps that is the norm; I do not know. It seems to me that the underwriters, which are big international houses, are influencing the market in little Ireland because it is a small market in global terms. We should interrogate that further because I think Mr. Faughnan is saying that there is hope in terms of some legislative changes and data sharing, which is the European norm. If we can get those things right within this committee and within the Houses, we will go some way to ameliorating the situation but the profit element is something we need transparency on.

Mr. Conor Faughnan

That is absolutely correct. AA is sort of like an insurance broker, although according to the Central Bank that is not the correct technical term for us. We are an intermediary. We have three motor insurance underwriters on our panel and we do business with them. There is quite a bit of commercial tension there. My colleague, our commercial director, will negotiate with them. At the moment, there are three insurance underwriters on our panel. We tender for that periodically. Previously, we had more and we decided to go with three. It is a dynamic thing. We are in constant commercial conversation with them to selfishly try to get the best rates for our customers. That is just an ordinary thing that goes on. The Deputy had a specific question which goes close to the heart of the matter which is that some element of natural correction had to occur but how much is natural correction? In other words, how much of the price we are paying is justified by underwriting criteria as the real cost of accidents? How much is unfair or super profit? How much is shoring up reserves that have been weakened by ten years of poor quality trading? It is perhaps not accurate to term it as unfair but maybe one might describe it as paranoid or excessively prudent provisions being made because they have been stung in the past. This body is not the only one wrestling with those calculations. I cannot claim that we would know definitely but in the last two years, the overall motor insurance premiums were-----

Mr. Colm Carey

They were 70%.

Mr. Conor Faughnan

-----70% over a two-year period. This is just a pure guess. Beside me is somebody with greater technical expertise than me who will probably shoot me for making the guess but as a rough rule of thumb, I would guess that perhaps half of it is explained by underwriting factors, namely, crashes and the cost of the crashes. Layered on top of that there are things such as the discount rate, which is not an underwriting factor, and the Solvency II Directive, which is not an underwriting factor, but again they cannot claim this took them by surprise because it was coming for years and years. I would not attribute the balance to supernormal profits - perhaps that is just a point of view - but to supernormal caution based on fears of having been stung before and fears that the new claims and cost of claims landscape is the new normal. If what we have now in terms of the cost of claims is the new normal and if one hates all our existing insurance companies and wants to drive them all out of the country like St. Patrick with the snakes and bring in a new lot or start a Government one, it will not solve the problem because all of those underlying costs will still be there.

That is why the working group, with political support on a cross-party basis and working proactively with all of the stakeholders, has the potential to get to the nub of this problem.

I thank the witnesses for their presentations. It is very important to hear all the different perspectives. Is Mr. Faughnan concerned about the stability of the insurance industry as it is at the moment? Leading on from the lack of transparency around this, one of the questions since the failures of Setanta and of Enterprise Insurance is who will be next. Consumers need reassurance when they are taking out insurance that in a few months down the line, they will not find that they have paid out this money for nothing.

When 60% of the claims go on legal costs surely we need to legislate to regulate the legal costs. It is disappointing because Mr. Faughnan has made some very constructive recommendations since last year but a year later people have to pay huge sums that they can ill afford and Government has not reacted more quickly. That is the job of this committee, to make sure we have a renewed focus on it and some actions are put in place.

In respect of fraud, I am concerned that the focus tends to be on consumer behaviour. That feeds into our reputation abroad for giving out huge compensation without really teasing out the 60% going on legal costs and we have ignored the International Monetary Fund's instructions to tackle these costs. Why is that not being done? This committee can do that.

Again, in respect of fraud, somebody is not doing her or his job. Mr. Faughnan referred to the police not having resources and that plays a part but the lack of transparency means we do not get proper figures on whether this is anecdotal evidence about fraud. Can we get specifics? That is what we are trying to do here, get down to specifics to get the data and analyse it. It seems that some of the insurance companies do not want increased competitiveness. I am concerned about foreign companies coming here but being regulated in their own jurisdictions when the Central Bank and other actors are not robust enough in respect of the regulations. That needs to be done before any new players come into the market.

The development of the independent medical assessment unit in Britain is a very concrete move and could be done here. The evidence in Britain is that it has served to reduce the medical costs. Mr. Faughnan has made some very constructive suggestions that can be worked on immediately.

I thank Mr. Griffin for his presentation as well. What formal engagement has he had with Insurance Ireland or individual insurers and what was the outcome of those discussions? Many of his suggestions are focused on measures that lay the blame on consumers or on reducing potentially legitimate pay-outs. I am a bit concerned that it goes back to consumers. Why should they be asked to modify their behaviour or reduce their expectations without any explanation of what has changed?

I congratulate him on the work he is doing on behalf of young drivers. I see how in rural communities, in particular, they cannot access employment because they will not get a job within a 10-mile radius of their home. Young people are being forced onto schemes that are often outside their jurisdiction and there is the threat of having their social welfare taken from them if they do not participate in these schemes but there is no public transport to access them. The situation feeds into poverty for young people who have already had their payments reduced but do not have equal opportunity to access employment, training and all the things that young people need to guarantee their futures.

Mr. Moran outlined exactly what I have seen in a rural setting for elderly people. It is one of the biggest contributory factors to the social exclusion of elderly people who have no public transport. If the local post office and shop have been closed down, they need their cars to participate in society and to get their necessities. He has the statistics for the number of elderly people involved in accidents and if that was broken down to show elderly people in rural areas, it would be reduced further. I am gravely concerned about the isolation that the cost of insurance for elderly people, who are often dependent on a basic income of €188 or €200 a week, is causing.

I thank all the witnesses for their contributions. They will feed in to the committee making some very valuable recommendations soon.

Mr. Conor Faughnan

We are concerned about the stability of the insurance market and have warned about it. Realistically, there are only five competitors left in Ireland. Others are retreating and the five left are trying to narrow their footprint. We need foreign competition. The Senator’s point about regulation is strongly made but there was nothing foreign about Setanta. The only foreign thing about it was its brass plate. There were Irish directors with an Irish brand name selling Irish insurance to Irish customers. It was regulated in Malta, poorly. When it went broke, one of the questions we asked, and to which I have not heard a good answer, was why do we not send the bill to Malta. It was asleep at the wheel. It is beyond me why ultimately the Irish motorist should be picking up nearly €100 million in additional costs on foot of the Setanta collapse. The Senator should not let others in the conversation spin that into a notion that we cannot trust foreign regulated insurance companies. These were Irish guys who caused the mess. At the same time, I believe we have to correct the regulatory space. There is an outcome from the Setanta situation which is preventing insurers from coming in and that is the notion that, through the insurance compensation fund, the insurers must pick up the tab if a domestic insurer fails. That is asking an insurer to play Russian roulette with its competitors’ reliability. I have said, by way of analogy, imagine that somebody tells Supermac's or McDonald’s that if a guy selling hamburgers outside Croke Park gives a dozen people food poisoning, he will go broke and they will pay for that because they are also in the hamburger industry. It is just illogical to expect an insurer to come into Ireland and start trading feeling that if one of its competitors acts recklessly and goes broke, it will have to pick up the bill. We know that first-hand from a conversation a colleague of mine had last week with an insurance player which would like to get into Ireland but that hangover from the Setanta issue is preventing it from doing so.

The other strong point the Senator made was about legal costs. I agree absolutely. It is scandalous how much money is being hoovered out of the system by the legal professions involved in motor insurance claims and they are adding no value. The Injuries Board was created to prevent the legal professions hoovering money out of the compensation fund and it has worked only to an extent. The real solution, however, as I have said before, is around the book of quantum. If the book of quantum is done correctly and the courts adhere to it, the incentive to get the lawyers involved fades away. At the moment going into court is like a roulette wheel. If the Injuries Board says an injury is worth €15,000 or €20,000, the person may or may not accept that but the solicitor is probably whispering in the client’s ear that he or she should spin the roulette wheel and see how much can be made in court.

A number of rogue or bizarre court judgments were handed down a couple of years ago that have terrified insurance companies, which I can detail separately if the committee so wishes. For example, in one case before the High Court in County Clare a couple of years ago, the plaintiff's lawyers expected to get €150,000. They tried to settle with the insurance company for €150,000 but the view of the insurance claims assessor was that the claim was worth only €60,000. As they could not come to agreement, they went to court. The award from the High Court was €508,000. The plaintiff thought he was getting €150,000 and the insurance company thought it was only going to have to pay out €60,000, yet the award by the court was €508,000. There are many similar awards, some of which may be overturned by the Court of Appeal in due course. In the meantime, insurance underwriters have to examine their reserving across their back books. They had to look at all of the risks they have on cover with a view to strengthening their reserves. If the €508,000 award is the new normal, insurance companies must increase premiums. The real trick to cutting the legal professions out of this is to get the book of quantum standardised, relied upon and adhered to in court. That pulls the ground out from under them. I accept that there is a tremendous amount of money being wasted in this area.

Mr. Kian Griffin

In regard to what engagement I have had with the insurance industry, unfortunately, I have not had any. The only communication I have had with most of the stakeholders has been around trying to schedule meetings. It is hard for me to get to Dublin when I am working full time in Kerry. I am due to meet Insurance Ireland in Limerick next month. Organising official interaction is quite difficult because of where I am located and the amount of time I am working.

In regard to my comment about consumer behaviour, the point I was making is not that consumers should change their behaviour but that all stakeholders need to look at themselves. Rather than pointing the finger in all different directions, I would like to see stakeholders collectively working together, be that motorists not viewing an accident as a potential windfall, solicitors not telling motorists they can secure windfalls for them, and the insurance companies, in the same way, not pointing the finger and trying to blame someone else. All the stakeholders are at fault to some extent and this is adding to final costs.

Has Ireland UnderGround made submissions to the insurance companies and brought the issues raised to its attention?

Mr. Kian Griffin

Yes. I have communicated with them via e-mail.

What has been their reaction? Are they proactive or interested in what is being said?

Mr. Kian Griffin

To be honest, their reaction has been passive in that there has been no commitment from them to examine any of the issues.

So they see Ireland UnderGround as a nuisance.

Mr. Kian Griffin

Yes.

Mr. Justin Moran

Insurance costs are a particularly important issue in rural areas. Age Action runs an information line through which it is contacted on a variety of issues, including benefits and entitlements. We get more calls from older drivers concerned about car insurance premiums from outside the major urban centres than from inside. A constant concern for me is that people in their late 60s or early 70s will decide to take the chance and drive without car insurance to the village because it is only eight or nine miles and the route is not a busy one. That is a road we do not want to go down.

I echo the point made about transparency. Many of our members are often bewildered by the increase in their premiums. Mr. Griffin made a point earlier about the age of a car not affecting a person's driving skill. Many of the people who contact us are people whose insurance premiums increase significantly when they move from the 49 to 50 years or 64 to 65 years age brackets, despite the fact that they are the same driver they were the day before in terms of experience or inexperience, because premiums are based on age. There are some very unhappy birthdays for people in the context of increased car insurance premiums which are way beyond what they can afford.

What the witnesses have said is very enlightening. Mr. Faughnan said that AA Ireland has three underwriters and it sells insurance. Is AA Ireland a broker?

Mr. Conor Faughnan

The common-sense answer to that question is that AA Ireland is a broker, but that is not technically true, according to the Central Bank. The Central Bank categorises AA Ireland as an intermediary. To the man in the street, AA Ireland is a broker. A broker records a person's risk details and shops around the market to get the best deal for him or her. An intermediary will seek cover from an insurance underwriter en bloc. In other words, if we have 40,000 motor insurance policies, we would engage with an underwriter on the best deal for these policies en bloc.

What is the process for a young driver seeking a quote for insurance cover on the AA Ireland website?

Mr. Conor Faughnan

Assuming our three suppliers are in a position to provide a quote, when the person provides the relevant information, the system generates a choice of quotes from various underwriters. Our agent then usually makes a recommendation to the customer.

So AA Ireland is very much in the cockpit.

Mr. Conor Faughnan

Yes.

How do AA Ireland premiums compare with those of other providers across young drivers, older drivers and so on?

Mr. Conor Faughnan

We are ultimately selling the underwriter's policy. Tesco sells more milk than any other store but that does not make it a dairy farmer. I accept that is not a great analogy.

I am more interested in the price. AA Ireland has a bird's-eye view of how the insurance companies are pricing policies.

Mr. Conor Faughnan

Yes.

What I am interested in hearing is how the premiums quoted to customers by AA Ireland compare with those of other providers.

Mr. Conor Faughnan

For most categories, our prices should be a little better than the average. The Senator will not find that to be exclusively true because, as everybody will know, prices are variable. When a customer is being rated on an insurance engine that is generating a price, account is taken of many factors, excluding gender but including age, car, profession and other standard risk factors. All of this information is processed by the software and a quote is issued, which is then presented to the customer.

In regard to the three underwriters with which AA Ireland negotiates, what are the key components for them of the excessive cost of insurance premiums?

Mr. Conor Faughnan

That question goes to the heart of the issue.

That is the reason I ask it.

Mr. Conor Faughnan

The conversations that AA Ireland and its colleagues are having with insurance underwriters mirror the conversations we are having here. The underwriters say that they are losing money. Collectively, the industry did lose money for a number of years. They are still reporting that they are losing money based on the loss ratio from the risks they have provided to us previously and therefore have to raise premiums.

Are they operating in the UK market?

Mr. Conor Faughnan

Yes, and under the same brand names.

Are they UK-based?

Mr. Conor Faughnan

They would be Irish divisions of international globally recognised brands.

The book of quantum is a set of rules by which the PIAB assesses compensation awards.

Mr. Conor Faughnan

Correct.

Am I correct that it does not have a legal standing with the courts?

Mr. Conor Faughnan

The law provides that the court must have regard to the book of quantum. However, the phrase "must have regard to" does not appear to be particularly strong or useful.

Does Mr. Faughnan believe the book of quantum is fit for purpose?

Mr. Conor Faughnan

No. It is definitely not fit for purpose. One of the primary recommendations in our report published last November is that the book of quantum be updated. It needs to be more granular and modernised.

Who bears responsibility in that regard?

Mr. Conor Faughnan

The lead author of the book of quantum is the Injuries Board, but that is not to say it is its exclusive responsibility.

The Injuries Board, by the way, is the good guy in this regard, as it is trying to do things in a sensible manner. However, the tool in the hands of the Injuries Board, the book of quantum, simply is not detailed enough. While the Injuries Board is tasked with authoring it, that does not mean the board is its sole owner. Ultimately, it may be the responsibility of the Minister for Finance. It certainly is within the gift of the Oireachtas.

If the book of quantum was updated-----

Mr. Conor Faughnan

It is being updated; we have not seen it yet.

I refer to the database that could be provided. Am I correct in stating that at present there is no integration between An Garda Síochána, the insurance companies and the courts? Is there no compiling of data carried out individually between companies?

Mr. Conor Faughnan

It exists but it is inadequate. The hub is something called the integrated insurance data system, IIDS. Axa was the lead manager of this, under the auspices of Insurance Ireland, for a period. It was trying to maintain it and was sharing it with the Garda, which in turn was using it with its automated camera technology. However, the database and the underlying data were so poor that the Garda found it was making errors up to 25% of the time, which is to say that it was unusable. Consequently, the Garda was obliged to stop using it because it was unusable. However, fixing it is something the insurance industry collectively could do quite readily. The industry must do two things in this regard, and we have called it out in this regard. First, it must finish building that database. The same brand names - that is, the same organisations - have done this up the road in Northern Ireland and in Great Britain, but in the Republic of Ireland they state they cannot do it yet because it is complicated and because they have data protection concerns.

Who is saying that?

Mr. Conor Faughnan

That is the collective response articulated by Insurance Ireland. It is the collective position of the major players in the insurance industry.

Who is ultimately responsible for compiling that data?

Mr. Conor Faughnan

The Senator asks who is responsible but, as it is not on a statutory footing at present, it is hard to say that somebody is specifically responsible. However, its ownership is vested with Insurance Ireland. We have made two suggestions about it and this was part of our conversation last week with the Minister of State, Deputy Eoghan Murphy. First, the tranche of work must be completed, but we also suggest there should be some form of independent participation in the database. We suggest that perhaps the Financial Regulator should have access to it and should police the proper population of the database by the insurance companies with their data. Many of the insurance companies are willing in this regard. One of our insurance partners has stated it is quite willing to be fined if it does not do this properly. They would like to see it but it would be useful for a body like the Financial Regulator to have oversight in this regard. Another really important element, which will seem absurd to members but which I assure them is true, is that the insurance industry must be willing to share that data with everybody involved. This includes the brokers and intermediaries and any potential foreign underwriters that wish to come into Ireland to trade. At present, I am afraid they are treating it rather like a gentleman's club and are stating that if one wants access to this, one must be proposed by one of the existing members.

Like joining a golf club.

Mr. Conor Faughnan

Yes, it is nearly farcical. This effectively must be open-source.

Who compiled and who manages the database in the North?

Mr. Conor Faughnan

The insurance industry collectively through its representative body in Northern Ireland.

Is it on a statutory footing in Northern Ireland and the United Kingdom?

Mr. Conor Faughnan

That is a good question. I do not want to guess an answer and be wrong. I know, for example, that it is used by the PSNI, and consequently one assumes it has a statutory status of some sort. If one drives past a police car camera on the road into Belfast, the camera will read the registration number, the registration number will be compared with the insurance database, and the police officer's dashboard will then go "ping."

Mr. Faughnan spoke about Setanta. From what I understand, Setanta's management and control of operations, in essence, were based in Ireland. Am I correct?

Mr. Conor Faughnan

Yes.

However, the company was regulated in Malta.

Mr. Conor Faughnan

It was prudentially regulated in Malta but was regulated for conduct of business in Ireland. However, that was the meat of it, yes.

But the issue here was a prudential issue.

Mr. Conor Faughnan

Correct.

What would give comfort to the insurance industry? If I am correct, what appears to have happened is there was huge competition, in which companies probably were outbidding one another to a level that may not have been sustainable. People now are pulling back, Setanta has folded and many entities are pulling out of the market. Premiums literally have gone through the roof and they are cherry-picking.

Mr. Conor Faughnan

Correct.

Young drivers and old drivers are becoming major casualties. What would give comfort in this regard? What type of regulatory regime should be in place here that would bring other insurance providers into the market, thereby bringing about what would be termed a sustainable level in which insurance premiums for younger drivers, older drivers and other groups would decrease to a realistic level? When responding to that, Mr. Faughnan might indicate whether a comparison of insurance premiums in the United Kingdom - I will not say mainland Europe - with those in Ireland has been undertaken.

Mr. Conor Faughnan

There are a couple of points there. To take the last issue first, namely, a premium comparison between Ireland and the United Kingdom, lots of entities do that. The AA has data on that and has no difficulty in sharing them.

What do the data show?

Mr. Conor Faughnan

I will summarise here but can provide data that will back this up. Broadly speaking, if one winds the clock back approximately 15 years, an Irish insurance premium was between 80% and 100% more expensive than its British equivalent.

Is Mr. Faughnan including Northern Ireland in that comparison?

Mr. Conor Faughnan

Yes, but my concentration was on Great Britain. That was approximately 15 years ago, after which a number of things happened here. The Motor Insurance Advisory Board, chaired by Dorothea Dowling, was put in place. It produced what was then a seminal piece of work that still is immensely useful and that gave rise to the Injuries Board. We also then had the growth in the Irish economy, which drew in a great deal of competition, which meant we then had a highly competitive landscape for a long time. We had a ten-year period during which every year, year on year, the average Irish motor insurance premium fell. On a constant currency basis, it probably has gone a bit silly recently, but at the start of 2014 we got to a stage at which an Irish motor insurance premium was approximately 40% cheaper than its equivalent in Great Britain.

Is that across the age groups?

Mr. Conor Faughnan

Broadly, yes. While we are not the same organisation, our British equivalent organisation produces a motor insurance premium index quarterly and has done so over the years. It produces what it terms a shop-around index, which is an index of competition for switchers, and there are other data in there as well. Moreover, there are plenty of other data that will tell a similar story. However, I would caution that while the British do some things very well and it is worth copying them - they are world leaders in road safety, for example - I do not think they are a best-case example when it comes to motor insurance. They have a legal profession that is even more rapacious than its equivalent here. If members ever find themselves watching British advertisements on daytime television, they will see it features "Injury lawyers for you" and all that sort of nonsense. Moreover, they have a significant problem with claims farming and with a legal industry that is subtracting even more value from the equation.

What has happened from 2014, when premiums were 40% lower, to the present?

Mr. Conor Faughnan

As I did not look at fresh data on this, although I do have them, I will make a slight guess on it net of our recent increases. If we strip out the currency wobbles, I would say one is looking at an Irish insurance premium perhaps being 10% to 15% more expensive than its British equivalent, and, of course, ours is trending upwards.

That is a switch of more than 50%.

Mr. Conor Faughnan

Yes.

I remind the Senator of his timing.

I apologise. Finally, in respect of Setanta and the regulation, what needs to be done to encourage providers to come in?

Mr. Conor Faughnan

There are two different things. One concerns paying for the Setanta mess and any future messes. At present, it is envisaged that this essentially will get paid for by all other insurers. That is a mess and entities will not enter a market that has such a rule in it. If one wishes to trade in Ireland, one must bear in mind that as soon as one pitches camp in Ireland one now will be obliged to pay the bill if one's competitor does something stupid and goes bust. That is not sustainable and must be fixed.

The other question is about regulation, and again, there is material in our document and in stuff we published last November. The Irish Central Bank is inadequately resourced to be able to regulate the insurance industry properly. While the Central Bank gets its guidance on that from the Government, if one wants to employ actuaries and people with significant technical expertise, one must be in a position to pay realistic salaries for that expertise.

If one does not have a budget to do any of that, one will not be physically able to do the amount of work that is needed to watch that property. I said earlier that, collectively, the insurance industry settles about 70% of cases privately. Some form of aggregated data on that is provided to the Central Bank but the Central Bank does not have the tools to be able to do the work that is necessary on that data provided. Additional resources need to be provided to the Central Bank to enable it to employ the expertise it needs to do the work that needs to be done. I have no principal objection to an insurance company that is regulated overseas trading in Ireland. That is all good. We are all members of a Single Market, but if the regulator overseas makes a complete hash of the job and falls asleep at the wheel, I do not know why Ireland Inc. would not sending a letter to Malta which states, "Dear Sirs, please find enclosed an invoice for €100 million reflecting the fact that you did not regulate this insurance entity properly". I still do not know why that has not been done.

What is the single action Mr. Griffin and Mr. Moran would like to see taken for their respective groups, namely, younger drivers and older drivers?

Mr. Kian Griffin

The biggest issue we have had is clarity, therefore, the single issue we would like to see resolved is to have that database put in place so that we can see all of the data on the claims settled out of court. We would also like clarity of pricing so that people can see exactly what they are paying for in that €50 might be going towards the cost of claims, another €50 towards insurance fraud or whatever. We would like to see clarity on all data coming from the insurance companies.

Mr. Justin Moran

We would like to see an end to setting insurance premiums on the basis of age. It should not be set simply because somebody is 65 or 70 years of age if there is no actuarial data to support the fact that older drivers are dangerous drivers or riskier drivers. As I outlined earlier, I do not believe that is in place. The European Court of Justice found that setting premiums on the basis of gender was contrary to the EU Charter of Fundamental Rights.

I thank the witnesses for the presentations, which are informative. To start with Mr. Faughnan and the AA, what is striking, and it confirms our empirical experience and I am sure that of the AA, is the survey which finds that of all the motoring issues car insurance is the No. 1 issue, with 93% of people saying it is the most important issue. Mr. Faughnan used the formulation, which is useful, about car insurance companies trying to narrow their footprint, which gives a certain explanation that premiums have risen in general but then they have risen to a greater proportion among particular groupings. It is clear that is younger drivers, older drivers and older cars. Are there other groupings particularly affected by that? What is the picture of those sectors that are particularly affected by the narrowing of the footprint?

Mr. Conor Faughnan

It is those groupings. Also, anybody who has a claim outstanding for any reason, and anybody with more than one penalty point incident. It used to be the case that if someone had just one penalty point incident it did not affect their insurance hugely but it does now.

There is another smaller cohort about which I have had some conversations with people, namely, returning emigrants, which is a frustrating one because in terms of somebody who has a perfectly good driving history in Canada there is an assumption of risk. That would be another group.

That is also our experience. On the question of the older cars, and we have younger drivers and older drivers represented, what is the insurance company's justification for higher premiums for older cars? I understand there can be a point in terms of older cars not having the same safety equipment - roll barriers and so on - inside the car that newer cars would have. Is that it or is there another reason?

Mr. Conor Faughnan

It is only a part of the reason, and probably not a large part. In our internal conversations it is one of the challenges we have had because it is somewhat counter intuitive. There does not seem to be much logic to it so if I may I will try to explain without defending. In part, insurance companies are not looking at the cars themselves per se but are using them as one of their profiling flags. It is not so much that there is anything wrong with the car but if insurance underwriters look at their books and see that they have about 20% more older cars on them than their competitors, they will want to narrow their exposure to that and will refuse or price themselves out of the older car category to bring them back into line. It is not to do with the car itself, which can be difficult to explain, but they are using it as a profiling mechanism.

Effectively, that profiling is targeting younger drivers and lower income drivers. Is it consciously the case that-----

Mr. Conor Faughnan

I would not think that is consciously the case because why would it be? Even if one's instincts are cynical and mercenary, the one thing one could trust them to do is to act in their own self-interest. Why would their self-interest be served by that because if they are going to collect a premium from a driver, they will be very concerned as to how likely that driver is to make a claim. They are not at all concerned as to the demographic the driver falls into, only in so far as it might help them profile the likelihood or otherwise of the driver making a claim. The Deputy's point is correct, but that is an output rather than an input.

Mr. Faughnan says it is not about the car.

Mr. Conor Faughnan

Per se.

It is about the profile. I understand that. That makes sense, but what is the problem with the profile of people who have older cars? Are they more likely to claim?

Mr. Conor Faughnan

That has probably been the actuarial experience. I find myself having this conversation frequently on radio phone-in programmes and so on. What I give by way of an analogy, and it is a little trite, and I am not trying to be simplistic, is that they are a bit like bookies. A bookie will not give someone the same odds on Dublin as he does on Leitrim, and there is no element of discrimination in that. It is mercenary; it is actuarially calculated. For a car of a given age, for whatever reason, my claims likelihood is X and that is 20% higher than my claims likelihood for a car that is of a younger age. I can price accordingly without troubling myself about the "why". When insurance companies do that, which they do because it is in the nature of how they calculate, inevitably that identifies incidents of unfairness. That is a feature of the landscape.

Mr. Faughnan mentioned also the car insurance companies undermining the Personal Injuries Assessment Board. I presume the figure of 20% used to be higher and that it has come down. How does it work in practice? How do they act in order to undermine it?

Mr. Conor Faughnan

It may not be something they are consciously trying to do. It is as much complacency as being complicit. On whether that figure has diminished, the answer is "No". The Injuries Board was undermined almost before it started. A Supreme Court action was taken to ensure that a solicitor could be involved if the plaintiff wished. At a stroke, that almost compromised the Injuries Board and now 96% of plaintiffs bring a solicitor with them. That 20% figure, unfortunately, has been there for a long time.

In terms of the way it happens, because 70% of this data is hidden - this would be speculation and I cannot claim to have wisdom here but I think it likely, and we have challenged insurers on this - if someone wants to make a claim and the Injuries Board reckons it is worth €20,000 or that is the best intelligent guess as to what it will recommend, his or her solicitor will say, "We will go to the insurance company, tell them we want €40,000 or we will go to court", and the insurance company will probably offer them €27,000 or €28,000 to make them go away. Every time the insurance company does that it undermines the Injuries Board. They are doing that because they are following their own self-interest, and we can trust them to do that. If they knew that there is no element of a roulette wheel in court and if the Injuries Board says €20,000 because that is what the book of quantum says and that is what a High Court judge will say to someone when they eventually get there, then the incentive is removed. As I said earlier, if there is one variable in this that can fix it, it is probably that.

An issue for this committee and for everyone who follows these proceedings is assessing the balance in terms of the causation factors for the premiums increasing.

Obviously, an element of that is profit. According to the blue book, over the past 20 years, something like €2.86 billion in pre-tax profit has been made by insurance companies. It is a lot of money. Clearly, if the profit was taken out, that is a cost, at least in theory, that would not have to be paid by policyholders. Has AA Ireland done any research? I have not met many who have done research on alternative models, for example, in New Zealand, Canada and Australia. Is that something AA Ireland has looked into?

Mr. Conor Faughnan

Those are models that I am aware of. I would be misleading the Deputy if I said I had done deep-dive analysis of this. However, there is one general point I would make. I guess a point of view that one could reasonably debate is whether one is better off having private operators seeking to get profit out of it because, at least in theory, that gives one competitive dynamics and efficiencies that can be played back in and from which the consumer can benefit. That is one school of thought. Alternatively, one might suggest not to have that but to have a system, perhaps like that in New Zealand, or some way, shape or form whereby it is a function that the State performs. In theory, the State does not need a profit motive and, therefore, that is some money that can go back into the pool. AA Ireland would be perfectly agnostic about that but if a State entity was doing this tomorrow in place of the existing insurers, we would still have the same problem. We would be no better off. Such a State agency would either fall on the taxpayers to make up its shortfalls, go broke or charge customers the sort of premiums that we are talking about today in that the fundamental reasons for high premiums are not because there is profit but because of other broken dysfunctional elements in our system.

I thank Mr. Faughnan.

Fair play to Mr. Kian Griffin on the work he has done in trying to mobilise people. What is his experience in terms of getting people together, campaigning on the issue and trying to raise it? What is the response? I can understand that the response of the insurance sector is what it is but what is the response of young drivers, etc.? What kind of success has he had?

Mr. Kian Griffin

In terms of getting people onto the street, we tried to organise a demonstration on Merrion Square on 2 July but it was quite a small turnout.

Is the Deputy giving Mr. Griffin tips?

We share our experiences.

Mr. Kian Griffin

The reaction I am getting is primarily online. It is a sense of hopelessness. In most cases, people have exhausted all avenues in trying to shop around. They have tried to see if they can get their insurance from a company based in Spain. They have tried, for example, to see if they could get group insurance, if they got ten or 20 motorists together, to see if they could get a collective discount. Many people have been sending me suggestions to perhaps try the no-fault system, which they have in New Zealand. I have been sent quite a few documents on that. The feedback I am getting is that people just do not know where to go or how to go about bringing their premium down. It is a sense of hopelessness that is feeding into motorists consciously deciding to drive uninsured, which is feeding into the problem again. It is starting quite a vicious circle.

The basic point is about younger drivers who feel ripped off by the car insurance sector. That is certainly a sentiment. Is it Mr. Griffin's assessment that they are correct to feel ripped off? The Central Bank stated that younger policyholders continue to present the highest average surpluses, that is, for every €1 in car insurance paid by younger drivers, the car insurance companies pay out less per €1 in terms of claims. Is that Mr. Griffin's experience? Is that how people feel about it?

Mr. Kian Griffin

Young drivers have felt ripped off for quite a while because we have always been paying high premiums. My own premium is over €950 this year and some drivers I know are paying in excess of €2,000 for premiums. Some quotes sent in to me were €14,000 or higher. The percentage increase overall is no more or no less than that for older drivers but the end result is a much higher premium, for example, an increase on €900 of 38% is much more than on €200. They definitely feel ripped off for no good reason. Many drivers would see themselves as very safe drivers because they have been driving since the age of 17 and have had five years with no claims. It is just the fact that they are in that age bracket. It is easy to categorise them as a high risk and charge them a higher premium as a result.

Finally, I have one question for Mr. Moran. He presented a clear argument and case that there is no rational reason for the extra that older drivers are paying. What is the position in other jurisdictions? Do older drivers in other jurisdictions also pay over the odds or what is the comparative?

Mr. Justin Moran

It can vary, on age and jurisdiction. For example, in Britain there is a company, Herts Insurance, which specifically targets drivers over the age of 80 because they are seen as safer drivers and they driver more slowly. There are senior discounts available in the United States. That tends to go up to maybe the age of 75 and at that point, the discount goes. There are issues at that point that kick-in in terms of older drivers.

Part of the challenge is trying to understand how the premiums are arrived at and how they are determined. For example, there is a phenomenon called low-mileage bias which was certainly prominent in terms of how insurance premiums were carried. It was basically calculated that for the amount of distance an older person drove, he or she was more likely proportionately to have accidents. This explains why one needed to pay higher insurance premiums. Research discovered in the late 1990s and 2000s that the reason drivers are having those accidents is because they drive less, not because of their age, and that has a knock-on effect in the premiums that are set. When one accounts for age, older drivers are not having more accidents. The fact is that those who drive less, regardless of age, are more likely to have accidents. It is seeing this research and then marrying this with the increases in the car insurance premiums that we find challenging.

I thank the witnesses for their presentations. Apologies for having to leave earlier. I was attending a meeting of the Joint Committee on European Union Affairs.

I suppose we all are here having this discussion for the same reason. We all share the view that there is no justification, at which anybody can arrive, for the current premium increases or for the discrimination in respect of younger and older people, in particular. I would argue it is happening across all spectrums. That is what I am picking up personally and from constituents.

While Mr. Faughnan raised the issue about the book of quantum, the database, etc., I accept that we should be doing everything we can to ensure that premiums are brought back in line with what is affordable and acceptable. However, on the issues Mr. Faughnan and his colleagues raised that need to be put in place and should be sharpened up, I would argue that such might have been the case anyway going back over the last number of years. It is not as if we have just said there is no book of quantum or database this year but there was two years ago. I put it to Mr. Faughnan that the issues that need to be put right, sharpened up or brought into focus have probably existed for quite some time. There is no justification for the premiums escalating at the rate they are. Collectively, we should be doing everything we can to ensure all the measures needed are taken so that premiums are regulated. However, what we need to put in place today was needed for some time but it is only in recent years that premiums have escalated out of control.

The increase in premiums is over 40% in some cases. Nothing has changed in my personal circumstances, of which I am aware, but my premium has increased by 40%. A lady with a full licence in her early 30s who came to my office had to drop her insurance for the past two years as she had no work. She went to get a quote two months ago and was quoted €3,200 for driving an eight year old Mini. Not to discriminate against the Mini - it is not a flash car - but it is not a BMW or a Merc. It is completely unacceptable.

I could understand if one's premium was more expensive than that of anyone in this room because one might have many penalty points, a previous conviction or whatever.

If premiums were higher for individual policy holders based on their individual circumstances, we would not be having this debate because the increase would be related to a particular incident or issue, but this is widespread throughout all age groups in society irrespective of one's history or situation. It is absolutely unacceptable. The people spoken about by Mr. Griffin and Mr. Moran are now socially vulnerable, particularly the elderly on minimum pensions who cannot afford the increase. As a result they are becoming socially excluded. Young people feel victimised, leading to all types of social issues and this is a problem. Shopping around is not an option. I have shopped around and it is like a cartel. A policy will vary by only €50 or €60, if at all. There is no competition. It seems a decision was made - I am not saying this is the case - to go high.

I ask Mr. Faughnan to comment on the following point. My information may not be accurate but I understand claims in 2011 were €1.5 billion and claims in 2014 dropped to €1.01 billion, but this is being used as an excuse for an increase in premiums, which is unacceptable. Approximately two months ago, along with my colleagues I attended the launch by Deputy McGrath of his proposal to deal with this issue. He advocated the return of the motor insurance advisory board. When it was in place it managed and regulated premiums pretty well, bar cases with individual circumstances. Should we focus on reintroducing this? It went out of play in 2013. Should we focus on putting it back in play? Deputy McGrath is very focused on this. It might assist with the current issue, which is very much out of control.

Mr. Conor Faughnan

I will ask Mr. Carey to speak on the cost of claims. Claims frequency is one thing, but the cost of settling individual claims has increased.

Mr. Colm Carey

The claims account overall has decreased in recent years, but the claims cost is heavily dependent on injuries. Injuries make up approximately 70% of the overall claims cost and, unfortunately, this has increased over the past two years. It might seem like a small movement, but it has increased from 0.8% to 1%. This 0.2% movement equates to approximately 5% to 7% in the rate. The average claims cost for injuries is approximately €40,000 and for accidental damage it is approximately €1,500. It is correct that claims have reduced but, unfortunately, the overall claims cost has increased in recent years.

Mr. Conor Faughnan

This is not our data, but data which has been published by the Central Bank of Ireland. I completely agree with Deputy O'Rourke that the insurance industry collectively is pointing to many things which are true but not new. It is true that an Irish whiplash case tends to result in a more generous settlement than is the case in the UK. In Ireland, it is approximately €15,000 and in the UK, it is approximately €5,000. In continental Europe, it is much less again. Unsurprisingly, this means Irish people claim more often for whiplash than they do in other jurisdictions. There is the old joke that we appear to have very weak necks in Ireland. All of these issues have been around for a long time. They go some way towards explaining why insurance is expensive but they do not do anything to explain why it has got so much worse in the past two years and this is a very strong point make.

With regard to the notion of being able to shop round and whether there is a cartel, people are aware this is a criminal allegation and I have no evidence of any type to support it. I do not believe it is true. It is a funny old industry in a way. One sells a product today and one will find out over the next seven years what it cost to manufacture the product and whether it was done profitably or not. It can be slightly false to look at one trading year and state it was a good year and the insurance guys are laughing, because the next year could see claims mature and what was thought to be profit two years ago ceases to be when claims work their way through the pipeline. In 2014, several factors combined to worsen the scenario for insurance companies. We have mentioned Setanta and there was also an increase in the amount of compensation that can be paid by the courts at various levels. This made a significant difference because it increased court awards. When this happened, it made people more likely to go to court. This is slightly cynical, but there was an increase in the number of minor injuries reported. This is not a huge surprise; the courts pay out more for minor injuries and, bizarrely, this seems to lead to more minor injuries happening. These factors occurred in combination. Deputy O'Rourke is definitely right to take a jaundiced view of the industry pointing to factors that are as old as the hills and stating they are what led to an increase in the past two years, because there is clearly a disconnect there.

This is exactly the point. We all accept and agree there is no justification for the widespread and widescale increase which has occurred to the level it is at present. Someone in their early 30s who has had insurance for years and let it lapse can now be quoted €3,300 for a policy.

Mr. Conor Faughnan

There is a mechanism under the declined cases agreement. It is a legal obligation to have insurance and if an insurance company declines people, they can get a letter stating they have been declined. An artificially high quote can be considered tantamount to refusal to quote. There are mechanism to correct this, but evidently the insurance company does not want the business. This comes to us a lot in our engagement with AA members and motorists and, very often, with the sons and daughters of AA members and motorists. We are regularly asked how it can be just because people's circumstances have not changed, they continue to have no penalty points or claims, they drive the same car and are in the same occupation so why has their price increased by 30%. The answer is not particularly pleasant but there is some validity to it. Insurance is a pool of money. Everybody pays into the pool so that when anybody needs to draw out of the pool, the money is there. If the money being drawn out of the pool increases because there are more claims, claims have become more expensive, legal costs have increased or there must be insurance against the failures of others, it means more money is drawn out of the pool. If more money is drawn out of the pool then innocent participants, whose circumstances have not changed at all, will still have to pay more. This is just nature of how insurance works. This is why the recent price rises are being felt not only by individual groupings, but by 2 million Irish motorists.

In terms of scale of the damage, if we consider that 2 million Irish motorists pay premiums at present and if, typically, individuals report their price has increased by €300, and there will be some cases where it is significantly worse and others who will feel as though they are getting away with it, but if we conservatively state it is €300 per motorist this amounts to €600 million per annum, which is an astonishing amount of money. Let us think about what could be done with this money if it were all put in one spot. It is extraordinary. To me this is the size of the prize. This is what can be fixed. We published reform proposals last November and we are still banging on about them. Last week, I discussed them with the Minister of State, Deputy Murphy. Even if the reforms were carried through we may still wind up paying more for insurance than we did three years ago, and we may still grumble about it, but at least all we would be paying for is insurance and not insurance plus fraud plus waste plus lawyers plus a failure to modernise and everything we are paying for at present.

Mr. Faughnan is correct. Until 2014, if people's premiums increased by €30 or €50 on occasion-----

Mr. Conor Faughnan

Or decreased.

-----there was never any big shout about it. The big problem is the huge increases over the past two or three years. There have always been minimalistic increases but not to the extent we have had recently.

Mr. Faughnan indicated that premium increases here were between 10% and 15% higher than in the United Kingdom. How do we compare with other European countries? Have claims increased significantly more here than in other countries in the past three years and, if so, is this reflected in the increase in premiums? I wonder how all this squares.

Mr. Conor Faughnan

On other European Union countries, it is difficult to do a like for like comparison because customers do not always take out insurance against the same thing. In some countries, for example, in cases involving a catastrophic injury, the cost of long-term care for the individual in question and whatever other costs arise are socialised. Given that these costs must be paid in any case, it is merely a question of how it is paid. However, if one has a model in which the state's health service picks up this cost, which is fine, this cost does not need to be paid for by private motor insurance. As the same things are not being insured, it is difficult to have a meaningful like for like comparison for a unit of motor insurance in Ireland versus Sweden, for example.

Unfortunately, the United Kingdom is the country that best mirrors the position in Ireland. I use the word "unfortunately" because it may appear lazy to only look at the neighbours. Moreover, the UK also has problems in the insurance industry. As I indicated, I would not hold it up as an example of best practice.

The Deputy also asked whether there had been anything in our claims frequency in the past couple of years that would mark us out as different from other European jurisdictions. There appears to be evidence that the total number of catastrophic crashes and material damage injuries have not changed significantly in Ireland, whereas the total number of minor injury claims has increased significantly.

Mr. Colm Carey

Whiplash claims account for 80% of injury claims in Ireland, whereas they account for 3% of claims in the rest of Europe. The average pay-out for whiplash is approximately €15,000 in Ireland, whereas it is approximately €3,000 in France and Germany. We have a much higher number of whiplash and minor muscle injury claims and we pay out five times more than other European countries.

Mr. Conor Faughnan

The frequency of minor injury claims has also increased in the past couple of years.

I am conscious that we are under time pressure. Must we conclude this session by 1 p.m.?

Many issues have been addressed and I would like to discuss a number of them. Every one present is in agreement that there is a problem that needs to be tackled by the joint committee, the insurance industry, the working group and the Minister. After six days of deliberations, we will all know what the problems are. While many of them have been evident for some time, no one has tackled them. If there are only five major players left in the insurance industry, it must be in their interests to eliminate fraud and reduce dangerous claims and vexatious behaviour. There must, therefore, be a benefit in sharing information. It is being done in other jurisdictions for a reason, namely, that it is of benefit to the insurance companies. I do not understand why it is not considered to be in everyone's interest to root out the bad people who are costing everybody else money.

I am in the same position as everybody else. My car is getting older, as am I, and I do not drive long distances yet my insurance premium has increased by exactly 33.3%, which is similar to the increases experienced by many others. I use the services of AA Ireland, which are perfectly good, but the quote is always higher than the premium I ultimately pay. I presume that is the case with everyone. The Chairman stated yesterday that it is up to all of us to shop around and telephone our insurance provider to have the data it holds on us reviewed. I am not doing anything different from what I did previously. I have not made claims, nor have I incurred penalty points, yet my insurance premium has increased by one third. I assume many other members are paying similar increases.

I will cite an example that is worse than any of those cited by Mr. Faughnan. I know of a person who was paying an insurance premium of €800 and was quoted a premium of €1,360 having turned 80 years. This is an increase of 70% on what was already a relatively high premium. The person in question did not make a claim in the previous 12 months and rarely drives in the evenings, on motorways or for long distances. This individual makes short trips of between one and three miles in the local area. Insurers were required to stop discriminating between men and women. I do not understand why the relevant legislation permits discrimination on the basis of age. Why can this not be challenged? If one cannot discriminate on the basis of gender, why can insurance companies continue to discriminate on the basis of age, even if there may be statistical reasons for doing so?

I congratulate Mr. Griffin on the work he is doing on behalf of younger drivers. We were all younger drivers once. Motor insurance for younger drivers featured very strongly in the 1997 general election campaign during which I helped a certain Deputy. The issue was all over the "Liveline" programme which was hosted by Marian Finucane at the time. The costs of premiums for young drivers were phenomenal at the time. We thought the issue had been addressed subsequently but it has now re-emerged.

Every uninsured driver puts himself, herself and everyone else at risk. I am also concerned that the sum uninsured drivers should pay for insurance, however significant, is not being put into the pot, which results in premiums increasing for everyone else.

Mr. Faughnan made the point that insurance companies are being asked to pick up the tab for other people. I assume any company that enters a market will try to win customers from its competitors. By default, therefore, a new entrant will damage the business of other companies in the industry.

Mr. Conor Faughnan

Yes.

These companies become more vulnerable because the new entrant, which may have a similar cost base and overheads, is trying to win some of their business. If Ryanair went bust, Aer Lingus would not be expected to pay the cost and vice versa.

Mr. Conor Faughnan

If Aer Lingus traded recklessly and ruined its business by making stupid financial decisions, Ryanair would not be expected to pay the bill.

That is exactly the point I am making. A commercial entity will enter a market that has not significantly expanded. Car sales may have increased but new cars by and large replace older cars. They are generally not all bought by new drivers. Although some people turning 18 years of age will join the market, people at the other end will also leave the market. We have a long history of insurance companies going wallop. Cases include PMPA, ICI, Quinn Insurance and Setanta Insurance. Everyone else is expected to pick up the tab when companies fail. Ultimately, however, the people picking up the tab are not the insurance companies but drivers with an insurance policy.

Mr. Conor Faughnan

Correct.

Mr. Moran and Mr. Griffin come to this issue from a particular angle. Insurance companies state clearly that increases in premiums are justified because insurance awards are higher. While the number of claims may not have increased, they have become more expensive. We have transparency in cases that go through the system but we do not know whether legal costs account for 90% or 40% of the cost of claims settled outside the courts system.

On an annual basis and expressed in percentages, what proportion of drivers make a claim? Is it 5%, 15% or 25%? What is the average cost of a motor insurance premium? I accept that averages are simplistic.

Mr. Colm Carey

The average claim percentage is 8%.

Does that mean 8% of people with an insurance policy will make a claim in any given year?

Mr. Colm Carey

Yes. Approximately 1% of insured drivers will claim for injury, approximately 3.5% will claim for accidental damage and a further 3.5% will claim for third party damage. The average cost of an injury claim is between €35,000 and €40,000, while the average cost of accidental damage and third party damage cases is approximately €1,500. The average premium is approximately €750.

Mr. Conor Faughnan

Senator Horkan pointed out that it was surely in the interest of the insurance industry to share data and prevent fraud. That is what one would think.

That is what I think.

Mr. Conor Faughnan

There are people in the industry who do not like me because of some of the things I say. In this regard, one must consider where the insurance companies are incentivised. They are acutely incentivised to understand how much fraud costs and they are certainly incentivised to ensure they are not more exposed than their competitors. However, provided they can put a number on it and charge the punter, they are not incentivised to fix the problem.

If one understands the problem very deeply, but one's potential competitor from overseas has not got a clue, then one is still less incentivised to fix it. I would take the view that the industry is not being cynical, it is just following its self-interest, but it is acutely aware of how to cost this. For reasons of genuine citizenship and frustration with the whole thing, it does share many of our broad concerns and would like to see it fixed if handed a wand, but it is not actually incentivised to fix it. That may be part of the problem.

On the other issue, which may or may not be heretical, in the context of using age as a weighting factor, the AA took the view that the gender directive as regards motor insurance was a mistake. It has probably been one of the factors pushing up prices overall. Sometimes in this country the words "equality" and "fairness" get used as if they mean the same thing. They do not mean the same thing and are often mutually incompatible. Insisting that there is no such thing as gender is actually unfair to females, particularly young females, because the long-term consequence of it is the systematic overcharging of young females to fund the systematic undercharging of young males. While both groups are going up to an unacceptable extent, gender bakes in an unfairness.

Does Mr. Griffin have any idea - obviously, it must be anecdotal - what percentage of drivers he might represent are uninsured? The idea that there are lots of people deciding they cannot afford it and taking a chance is frightening. They are not just taking a chance one-off basis, they are doing it all the time. Every time they get behind the wheel, they are taking that chance.

Mr. Kian Griffin

I do not have any specific figures because all the messages I receive are very informal, through Facebook, Twitter, and so on.

Is it a significant number of people?

Mr. Kian Griffin

Not as significant as it is going to be. There are quite a few. The MRBI figures show it has gone up 17% overall. I think it went up 36% in Kerry, my own area, alone.

If it is 0.5% and it goes up 36%, it is not a large number of people, relatively speaking. One is bad, but do we know where it is coming from and where it is going to in terms of a percentage of the total?

Mr. Conor Faughnan

Excuse me. It is actually very difficult to get that data. We have looked. I have read estimates that put uninsured driving in Ireland at around 6% to 8%, but that is not data. I cannot point to a proper data set that would be convincing - they are just rough estimates. It is chunky, for sure. It is not 1% in any event.

Mr. Kian Griffin

The MRBI data just shows claims involving uninsured drivers. It does not give the full figure of how many are driving uninsured, it is just how many have been involved in accidents.

Mr. Justin Moran

I will add one point, because the Senator is asking for specific issues and we have already discussed the EU law issue. He quoted an individual who had come to him, who had gone from the age of 79 to 80. One of the issues that is constantly raised by our members is that over the age of 70 they are going for a medical test every year. They are paying for a medical test every year to ensure they get a certificate from the doctor saying that they are fit to drive. They do not get any feedback from insurance companies that this is factored in. There is a group of people who are getting tested medically every year to ensure they are safe to be on the roads. I would have thought, although I do not have the technical expertise possessed by some of the people here who are in the industry, that if somebody is getting tested every year like that, it would have a positive effect on their premium, which our members are not seeing.

Mr. Kian Griffin

Based on what was said about contesting age discrimination, I agree with Mr. Faughnan on the gender issue. That was a mistake. As a young male driver, I would be the one to be targeted. That was a mistake because they are pricing young female drivers in the same way as young male drivers. We would have the same issue then if we challenged the age discrimination - they might price older drivers as having the same risk as younger drivers - so I am not confident that this would be the ideal way to go. Some of the people I represent would probably not like me saying that, but targeting it across the full spectrum would not be the ideal way to go.

There is anecdotal evidence that the insurance policy increases are there to shore up bad investments made by insurance companies. They took their premium money, they invested it badly or unwisely, it lost value and we are now being asked to stump up for it. Is there any data to suggest whether that is the case?

Mr. Conor Faughnan

It is not that they were unwise. There are regulatory rules around what one does with investment income. If an insurance company takes €500 or €1,000 off me for a premium, it has to reserve that and must invest it prudently, so it cannot go and play the stock market with it. The return on those investments has diminished very significantly, as did the rate of return on all sorts of investments, a bit like with the discount rate, so Government bonds and so on-----

The profits that were being made there were probably slowing the rate of increase or funding the decreases.

Mr. Conor Faughnan

Yes. Investment income was always one portion of profit that an insurance underwriter made, as well as underwriting income, but it was always relatively small, was it not?

Mr. Colm Carey

It was 3%. It had to be very liquid, so it was typically Government bonds, which usually have a 3% return. That can now be negative.

That would effectively undermine the suggestion that we are all paying more because insurance companies gambled with premiums and lost.

Mr. Colm Carey

That is not gambling. That is-----

That is not what I am saying. I am referring to what is being said out there, namely, that these companies were going around investing money willy-nilly and it did not perform the way it used to perform. However, Mr. Carey is saying that, by and large, that the money insurance companies take off consumers is invested in very low-risk stuff in the first instance and the very low-risk stuff is now paying an even lower return than it used to pay.

Mr. Colm Carey

Yes, exactly.

In terms of the general debate going on now, one could say it is the same type of debate that has gone on since the collapse of PMPA. There was a debate going on around insurance costs during that time. The witnesses have so much data and others before them had the data for their time. What are the different elements of this that are actually preventing anything from being done?

Mr. Conor Faughnan

That is a big question. We had a crisis in the late 1990s, which led to the Motor Insurance Advisory Board and then the Injuries Board. In a funny way we never truly solved the problem, but the enabling sense of crisis disappeared. Incomes rose, the economy prospered, the total number of policies went up. Then we had very intense competition, which became hyper-competition, which became stupid competition, which then went broke. Through all of that, we never really solved the problem.

What was done around the same time, and the other big issue I have been lobbying on in my professional life, was road safety. Huge strides were made in that respect over this period. We had our first road safety strategy and millennium goals and all the things we are now familiar with, such as penalty points, the Garda traffic corps and blood alcohol tests, modern roads and speed limits and that sort of stuff. All of those improvements came on stream, which organically reduced the cost of claims. Road investment in motorways led to a reduction in risk per mile travelled. Many factors swung in our favour.

Back in the 1990s, the problem was actually diagnosed. A solution was put in place via the Injuries Board. The solution was undermined. It never truly worked, but a whole host of other factors swung in our favour and it ceased to be the crisis that it was. What we are now discovering, as the tide goes out, is that problems we correctly identified 20 years ago were not fixed. There is still an insane amount of legal cost in the system, there is still too much fraud-----

Is Mr. Faughnan talking about the Injuries Board being undermined?

Mr. Conor Faughnan

Yes.

In what way?

Mr. Conor Faughnan

It only actually settles about 20% of personal injury claims.

What is the cause of that?

Mr. Conor Faughnan

Of the personal injury claims that are settled, 20% are settled by the Injuries Board, 10% go to court and 70% are settled directly by insurers.

I understand that.

Mr. Conor Faughnan

What was envisaged regarding the Injuries Board was that if there is no dispute as to who is at fault, one should never need a lawyer and never need to haggle directly with the insurance company; it should all just come through the board.

I will come back to that because that is where I want to go next but I just want to finish off the other question. This is not just recent. This is not a new thing that has happened. Who is not listening to all of what you have been saying? I have heard Mr. Moran speak. This is our first time hearing Mr. Griffin. His is a new voice on behalf of young people and it is welcome. Mr. Faughnan is well known in the industry for voicing his opinion. However, who is supposed to be listening? Is Mr. Faughnan disappointed that there has not been a greater response to this until now, and can he put his finger on why that is the case?

Mr. Conor Faughnan

Yes, I would certainly express disappointment. It is hard to put one's finger on it, but I would compare it to the road safety critiques that we were making in the past. One of the problems with road safety at the time was that it did not have a single owner; it had multiple actors. There were those responsible for road engineering, the National Roads Authority, NRA, the Garda, the Department of Transport, Tourism and Sport and the Department of Justice and Equality, all of which were stakeholders. Everybody was full of opinions as to what the other guy needed to do, but there was no one person in charge. There was not at that time a Minister with Cabinet responsibility for road safety with a set of goals and actions stapled to the brief. That is one of the things that was improved and one of the real reasons progress was made. If one compares that to motor insurance, there is a similar set of issues. There are 2 million stakeholders, but in terms of the actors who affected it, this committee is talking to 22 or 23 different voices. They are all relevant. The document that we supplied to this committee is an evolution of a document that we published in November of last year. We have identified actions under five different headings, but there are different people who have to take those actions. There are some things that the Minister for Justice and Equality can do, there are some things that the Garda can do, there are some things that the Department of Finance and the regulatory regime can do and there are certainly things that the industry can do, but one of the central problems is that there is no one owner who has to deliver each of these actions.

Could that be a regulator?

Mr. Conor Faughnan

There are things for the regulator to do as well, but it depends what one wants the regulator to achieve.

If one empowers the regulator to call this as it is and to demand actions from the various relevant actors, does that in some way point the finger at who might be at fault if the action is not taken?

Mr. Conor Faughnan

That is a very fair point. I am not sure if it is necessarily the regulator. However, I think many of the actors involved have expressed willingness to make the changes that are needed, so it is something that Government must lead. Having said that, there are some relatively simple actions that could be taken. We do not have to wait-----

Could I stop Mr. Faughnan-----

Mr. Conor Faughnan

-----for a grand strategy.

In terms of the database, for example-----

Mr. Conor Faughnan

Yes, that is a good example.

There is no difference between the companies here and the companies abroad.

Mr. Conor Faughnan

Correct.

They are all under the one interactive name.

Mr. Conor Faughnan

Yes.

They do it in the North and in Great Britain, as Mr. Faughnan said. What is so complex about the market in Ireland that allows the companies to say it is very difficult? Whenever anyone wants to get away from a problem, even in these Houses, he or she will mention data protection.

Mr. Conor Faughnan

Yes, absolutely.

That suddenly puts the frighteners on everybody. However, if they can do it in Britain and Northern Ireland, why is it not being done here? Why do the companies not do it?

Mr. Conor Faughnan

Absolutely. As we said - and I totally agree with the Chairman - data protection just seems to be an excuse for inertia. However, the other European jurisdictions, including our British neighbours, are obeying the same data protection principles as we are, so if they can do it, why can we not do so? I cannot give the Chairman a good answer to that but I believe that it can be fixed. I believe the companies can be compelled to do it and, as we said earlier, what I would like to see specifically as regards the database, and what the AA would like to see, is definitely for the regulator to be involved there and to compel all of the insurers to properly put their information onto the database, which is not terribly hard, and fine them if they do not. One of our underwriting partners has said that it is willing to be fined for not doing it-----

Again, therefore, it is a question of empowering the regulator-----

Mr. Conor Faughnan

On that specific action.

-----to be able to compel the company in that particular action.

Mr. Conor Faughnan

Yes.

We will move on then to the Injuries Board. In the beginning when the Injuries Board was set up, it had a major impact on the settlement of cases. I think that is fair to say, is it?

Mr. Conor Faughnan

Yes, by influence as much as settling cases directly.

Why, then, is it that when claimants come to the Injuries Board, they must bear their own legal costs? If solicitors or legal representatives working through the Injuries Board were able to get their legal costs there as part of the settlement rather than the claimant having to pay, if it were all part of the settlement, would that not encourage them to settle through the Injuries Board rather than encouraging a client to go further with barristers and everything else, thereby adding substantially to the legal cost?

Mr. Conor Faughnan

The Injuries Board was originally conceived as a lawyer-free zone, so there would be no legal costs because there is no question as to liability. I have rammed the back of your car and you have an injury. I have no dispute in this. All we need to establish is the appropriate level of financial compensation. For no-fault cases it was envisaged that there would never be a lawyer involved. I am not sure if it was the Law Society or an individual but, in any case, a case was taken disputing this and insisting that a client could bring his or her solicitor if he or she wished. That case happened in the opening months of the Injuries Board's existence and was successful in the Supreme Court, which found that if a person wants to bring a solicitor with him or her, he or she must be allowed to. The Injuries Board's response to that was to state that one can bring one's solicitor if one wishes but that in a no-fault case the position is that legal representation is not needed and if one wishes to bring a solicitor, it is one's prerogative to do so but is also at one's own expense because there are no legal costs incurred in the Injuries Board. That is its position. However, as I said previously, the fix to this is to take away the incentive to ignore the Injuries Board. The reason people ignore the Injuries Board is that there are more goodies available elsewhere. One can go and haggle with the insurance company-----

One starts with that, then.

Mr. Conor Faughnan

Yes. If one removes the incentive and if we have a book of quantum which is the same whether one tries to haggle with the insurance company or tries to have a go in court, one will still only get what the book of quantum says. In that scenario, I think we will then see people using the Injuries Board.

The book of quantum was first put in place under the Personal Injuries Assessment Board Act 2003, and independent consultants were appointed to manage it at that time.

Mr. Conor Faughnan

Correct.

Independent consultants have now been appointed to carry out a review of that and present a fresh book of quantum, but the revised version is based on 2013 and 2014 statistics. Is that acceptable?

Mr. Conor Faughnan

It would be a very significant advance on where we are now, but the book of quantum will probably have to be a living document of some sort. Whether one would do something as crude as applying the CPI to it or whether there are other metrics and correctors one can put in, it would probably have to be a continually reviewed living document. What is of critical importance - we said this earlier - is that one cannot compel courts to do anything in the democracy that we have, but it will be as an outcome absolutely vital for courts to abide by the book of quantum because the moment they deviate from it, it undermines the entire mechanism.

Regarding the question of the broker versus the insurance company, what is the profit markup?

Mr. Conor Faughnan

It would be very variable, but one of the things that a broker does by being present in the market is to facilitate and provide competition. What is a standard broker markup? Do we even have a figure for that, Mr. Carey? I do not think that we do.

Does that broker provide competition?

Mr. Conor Faughnan

Yes, I believe so.

It provides competition at that level, but do the brokers not all go back to the same set of companies on top?

Mr. Conor Faughnan

The underwriter ultimately supplies the product, so to speak. The imperfect analogy is the sale of milk. Tesco sells milk, as does the corner shop, and the milkman will deliver it to one's door if one wishes. None of them is a dairy farmer, but there are different ways in which one buys milk.

If the only way one could buy milk was through the dairy farmers' cartel, I do not believe one would enjoy the experience or think it was properly competitive. We believe all brokers should have access to the integrated information data service data hub, the IIDS.

Do we know the margin of profit?

Mr. Colm Carey

It would be closed. A rating structure for an insurer is not the same for, say, the AA. We add extra data to the equation. For example, we would tell our members how often they break down and what cars they have. We add extra information which allows an insurer to give a more accurate price. Accordingly, there will be different prices for someone who goes to the AA and to the direct players. In many cases, the AA will be cheaper than the direct player. It is not a profit margin equation. Where we add our value is that we have much more data.

How does a broker make a profit? One can look at how prosperous a broker is and say he or she is doing okay.

Mr. Colm Carey

In those cases where we have additional data, the person can be charged less. A person could be charged €700 by a direct player but with the AA they could be charged €650. We can then add a commission layer on top of that to service our collection of data and policy. Every direct player will have a certain set cost on top for servicing the policy. We try to deliver that cheaper and then a cheaper premium to the customer.

I was not examining the AA’s specific case. I am more looking at the general idea of what kind of profit the broker would make in motor insurance. There really is not a figure for that.

Mr. Colm Carey

A typical expense ratio for an insurer would be in and around 20% to take the calls and documents. Our average commission would be 10%. That is where we can add value and data. We believe we can charge less in terms of an expense ratio to the customer.

Mr. Conor Faughnan

The presence in the equation of the insurance broker in a typical rural town with a whole host of customers is reducing some of the costs the insurance company has to pick up. He is adding value in that regard. I am not sure if there is one answer as to what is the standard commission rate for brokers. It is a variable number.

Did the insurance database operated by the Garda cost €6 million?

Mr. Conor Faughnan

No, that was the hardware cost for the cameras. That was the cost of equipping the Garda fleet with the cameras and the physical capability of polling the database. The underlying enabler for that is obviously the quality of the database itself. There is no point in providing the Garda with a tool that gets it wrong 20% of the time. They cannot use that.

There was no sanction against the insurance companies for not providing the data.

Mr. Conor Faughnan

No. Again, I believe if we had the regulator involved, it would be helpful. That information is sitting somewhere. Every time one drives past a Garda car, his dashboard should go “Ping”. There is no good reason that this is not the case. The windscreen discs are actually counting against this. They are actually facilitating fraud. We have more fraud because we have windscreen discs. We are kidding ourselves with windscreen discs to demonstrate a car is insured. It is actually causing uninsured driving.

I thank the delegations for attending the meeting. Mr. Conor Faughnan, Mr. Colm Carey, Mr. Kian Griffin and Mr. Justin Moran gave us much information. Their submissions have been significant and will form part of our consideration of this issue. The argument about young drivers and older drivers has gone on for yonks. It keeps on coming up in different presentations but is the same issue. It will be part of our consideration after the hearings.

Sitting suspended at 1.25 p.m. and resumed at 2.30 p.m.

We are in public session. I welcome the witnesses, Mr. Dermott Jewell and Mr. Raymond O'Rourke, from the Consumers' Association of Ireland. I remind you that you are protected by absolute privilege in respect of the evidence you are to give this committee. You are directed that only evidence connected with the subject matter of these proceedings is to be given and you are asked to respect the parliamentary practice to the effect that, where possible, you should not criticise or make charges against any persons or entity by name or in such a way as to make him or identifiable. That is a bit of housekeeping. I propose that the witnesses give an opening statement and then members will have some questions. We will take it from there.

Mr. Dermott Jewell

It is a pleasure to be here. It is wonderful to be able to contribute because this is such an extraordinarily important area. We are really glad that the committee is focusing on this.

Over the past 18 months so much has been written outlining the difficulties, the causes and the background issues, yet very little of it is substantiated by pure data. This was a case some years ago. The fact that there is no independently verified data or detail makes this a great difficulty. I am very conscious that every member here will have heard and read much about the difficulties experienced by motorists. I will introduce our position on this. We have been trying to create a level of interest in it since early 2013. We wrote to the Minister for Jobs, Enterprise and Innovation in 2015. The reason we wrote to that Minister was that his was the Department that initiated and established the Motor Insurance Advisory Board. Members can see where we were going with this; we were trying to point out the very significant - at that time, double-digit - increases that motorists were experiencing. Even then it was proving to be something of an affordability issue as well as a question of value for money.

In 2015 providers across the industry were making the point that increases were a necessity because, as is generally suggested, it was to do with the cost of claims, the cost of legal practitioners' fees, the level of court awards, and the age and condition of the vehicles. It was everything except anything to do with the industry. That is not to say that it is, but it still raises the question: "If you are going to say that, can you not please provide the clear, clinical data to allow us all to understand this?" That has been the main thrust of where we were.

The Injuries Board, in its 2015 annual review, outlined its concerns about the cost of claims. It made the point that it was very far from its comprehension of the market and the statements from the industry did not in any way indicate a necessity for increases resembling those that were coming forward. An Garda Síochána was reported to have indicated that there was a higher risk to road safety from older cars. The Injuries Board made the point that that did not match its evaluation of the situation. Motorists or consumers then started to question the validity of the national car test because they were spending significant amounts of money to maintain their vehicles, putting their cars through the national car test and passing the test, yet they were told they were not viable vehicles to insure any longer. There is a great loss to the consumer there.

In our letter, we referenced the Motor Insurance Advisory Board. In 1984, the then Department of Industry, Trade, Commerce and Tourism established the Motor Insurance Advisory Board (Establishment) Order, which formed the basis for the 1998 formation of the Motor Insurance Advisory Board. We then quoted extracts from the Act to indicate that they are totally fit for purpose today. They work; they give the power, they give the strength, and they ask for the independence to do what is necessary to understand this market. As a result of that, many good things came in the 2002 report of the Motor Insurance Advisory Board. There were 67 recommendations, most of which have been implemented. It was due to the work of that board that consumers for the first time got a renewal notice well in advance to allow them to look around the market - to shop around. That is what made that possible. They could not do it previously. They struggled even to get a renewal certificate and certainly a no-claims discount certificate. Much has changed since then, and a new approach is needed. To bring it right up to date in 2016, we have made the point that there is a need for re-establishment of some form of board resembling the Motor Insurance Advisory Board, because it was an independent structure. It had representatives, literally, from every agent and actor engaged in the provision or purchase of motor insurance, and it was excellent. Good people came around and figured out what the problems were. I am not saying it is not in train at the minute, but it needs to be taken into a greater context.

Not much happened because the Department of Jobs, Enterprise and Innovation is not responsible for transport now, and our letter was sent to the Department of Transport, Tourism and Sport, but there was a change in government and everything got pushed aside and delayed; we acknowledge that. The point was made to us in a response from the Department that the Competition and Consumer Protection Commission issued a report indicating that there is plenty of competition in the market. We acknowledge that there is plenty of competition in the market, but at outrageous and ever-increasing rates that many people just cannot afford. The key element of this is that this insurance is legally required; one must have it. It is not logical to say to anybody that one must have something regardless of how expensive it might be. It is certainly not what would be, even in good governance circles, an honest message to pass on to a citizen.

So, where are we? We have got the worries about that. Many consumers have gone for cheaper alternatives. The problem is, as much of the media has reported in the past two weeks, that many consumers who are seeking to get the best deal they can have approached providers that are not resident in this jurisdiction. For example, Gibraltar is home to 11 of 24 foreign insurers operating in the Irish motor market. We have already had difficulties coming through a number of those companies, and that is just at the early stage. Most recently, one of them announced it would not take any new business. There is a problem here. The problem is in the cost of claims. If we are to take that on board, it is fair enough. These organisations are allowed to trade in Ireland if they have a compensation scheme, but they do not operate one. There is a reliance on us to provide, and the motorists who are already experiencing additional costs from the cost of claims and everything else will now potentially be asked to foot many more bills for claims from companies that just walked away, went back home and left the Irish motorist in a very poor condition.

In the past ten or 14 days, another issue of significant concern in this market was reported to us. It was pointed out to us that certain members of Civil Service employee unions were in receipt of significant discounts. To have that level of discount challenges the market that was already challenged when it came, for example, to giving lower rates for female drivers. The European Commission stepped in to stop that.

Where insurance is a legal requirement, subsidisation like that must be reviewed without delay because it is discriminatory. It is entirely separate to a no-claims bonus, to which everybody is entitled. If we cannot all access the same discounts, then there is a very real problem that is open to both appeal and sanction.

I am sorry to interrupt but do you have any evidence of that?

Mr. Dermott Jewell

Yes, I can provide evidence. I was contacted by an ex-employee who is now a member of the journalism fraternity who was shocked to find that, having changed jobs, she was at a significant disadvantage because she could not access the discount. The increase in her insurance premium, to the best of my memory, was just under €300. It was pointed out to her that the increase would only be €73 had she still been in the union.

This presumably was negotiated by the union on behalf of its members.

Mr. Dermott Jewell

Yes and I acknowledge that but if that is the case, who is negotiating on behalf of all other motorists? Why is it that they are subsidising discounts like this?

Mr. Raymond O'Rourke

Why do farmers not get a discount, for example? The IFA could negotiate on their behalf.

Just to clarify, is Mr. Jewell talking about a group scheme? There are various public sector organisations, as well as associations involving, for example, chartered accountants and so forth. There are various groups out there. Is that the kind of scheme to which he refers?

Mr. Dermott Jewell

It seems to be. I raise it because it is another factor that must be examined by an independent body to determine whether it is reasonable. It must be looked at because many motorists are at a disadvantage in the sense that they do not have access to such schemes. If one takes the example of health insurance, members of group schemes are entitled to a discount but individual consumers are also entitled to ask for that same discount and can receive it from insurers. In that context, it makes sense to bring a review body together, similar to the Motor Insurance Advisory Board, MIAB, for a fixed term of no more than 12 months. A lot could and should be done in that period, particularly by picking up threads from others who are currently working on and engaged in this area. The body should be able to look at any and all increases in premiums.

Access to information is vitally important. What happened with the last MIAB was that all of the data from the insurers was anonymised. The data was then provided to an individual who was able to analyse it and come up with a set of statistics, based on pure data, on costs and problems. If a new analysis of the data were to find that the problem is indeed the cost of claims or the age of vehicles, that would be great because it would restore confidence in the market, something which is missing right now among motor insurance customers. It would also enable those in the industry to say that they are doing their best and to ask what else they can do. An independent analysis will allow for a better understanding of all of the factors giving rise to increased motor insurance premiums.

While I am consistently referring to the MIAB, I must point out that I am just using it as an example of a body that could be reconvened. The legislation can be re-enacted, made workable and moved upon.

Thank you Mr. Jewell. I now invite members to ask questions.

I thank Mr. Jewell and Mr. O'Rourke for their attendance today. I found their contribution very interesting and welcome the submission they made to the committee. It is a welcome tonic in the face of some of the absurd claims that are being made about the reasons behind the hikes in insurance costs. The witnesses have made a powerful case that the insurance industry has many of the characteristics of a cartel. It does not share information, it has been censored by the Competition Authority for signposting increases and has been accused of exclusionary tactics. Do the witnesses agree that the industry displays some of the characteristics of a cartel?

Do the witnesses think that the Financial Services Ombudsman should be playing a more proactive role in this? In a report published last year, the Law Reform Commission proposed a number of changes to protect consumers entering into insurance contracts. Is there a legal way to empower consumers from day one when signing on the dotted line? Is there currently an imbalance in favour of the insurer in standard contracts?

We all agree that the data issue must be fixed as soon as possible. Where are the blockages in that regard?

While this committee is looking at motor insurance, it will not have escaped anyone's attention that house and health insurance premiums are also on the increase. My party believes that the increase in motor insurance prices is mainly due to changes in the investment environment. If so, it is only a matter of time before the other insurance sectors catch up. Have the witnesses looked into that issue?

Before the witnesses answer, I must apologise as I have to leave now to attend another meeting.

Senator Gerry Horkan took the Chair.

We are using a slightly different format for this part of the meeting. This morning we were allowing witnesses to respond to each individual committee member in turn rather than to a number of members. If the witnesses would like to respond to Senator Conway-Walsh now, they may do so.

Mr. Dermott Jewell

The term "cartel" has been applied previously to the insurance industry and that will continue to be the case until the data issue is resolved. As long as the industry continues to refuse to share data, it will remain open to the charge of operating like a cartel. I know it is an exceptionally serious claim to make against any industry or sector and I would be concerned that such a claim might result in the attitude of the industry becoming even more entrenched. That said, access to data has been an issue since the beginning of this century and in that sense, the industry must take the criticism on the chin. I would consider the attitude of the industry to be more than a little entrenched at present and a strong regulatory approach may have to be taken.

On the question of the involvement of the Financial Services Ombudsman, I must first state that I am the chairperson of the Financial Services Ombudsman Council. The Senator's point is well made but the ombudsman's office can only accept claims when all other avenues for resolution have been exhausted. Furthermore, it can only act on receipt of a complaint. Consumers can complain about the cost of insurance premiums but must also have a basis and foundation for such complaints and as I have already said, access to data is key. The Financial Services Ombudsman does not even have access to the data, which is a matter of concern. The issue is not how much consumers are paying but the underlying reasons for the increase in the amounts they are paying and none of us knows what they are. We will all go home this evening and still not know the underlying reasons.

The Senator is entirely correct with regard to the Law Reform Commission and we must acknowledge the value of its report. However, as is the case with so many reports, its recommendations have not been acted on and it is lying on a shelf somewhere. Indeed, many reports have fallen off the shelf and into a bin. Too often we do not see the action that is needed on foot of reports. We have an opportunity now to act, particularly with regard to motor insurance.

The Senator is correct about the imbalance because at the moment, the entire emphasis of the providers is on bundling.

This approach confuses the price the customer is paying. Is one service very cheap and the other very expensive? It is very difficult to tell whether this is a way of clouding the matter. It is problematic. I will hand over to Mr. O'Rourke now. We are worried about everything that has been said about the cost factor, and particularly what has been said about organisations moving in, selling the businesses and moving out.

Mr. Raymond O'Rourke

I am a barrister by profession. As I served as the chair of the Financial Regulator's consumer panel some years ago, I have a little experience in this area. I was appalled to learn that 11 of the 24 foreign insurers come from Gibraltar. We have had problems with Malta as well. When I investigated this, I found that the issues with Gibraltar are arising in much the same way as some of the issues we are hearing about in the context of Brexit. I refer, for example, to the passporting issues that enable people to come into the UK in a kind of roundabout way. Members will be familiar with EU law. I am also involved in the food area, where there is total harmonisation. The law starts in Brussels and that is it. The consumer area has never been like that. Some countries, including the UK and the Scandinavian countries, have higher consumer protections than southern member states like Greece and Spain. There is always a kind of compromise. The basic things have to be done. I will explain the basic things that happen when a product comes from Gibraltar. I am trying to recall a commercial business term that is applicable in this context.

Mr. Dermott Jewell

I am sorry, but I do not know it.

Mr. Raymond O'Rourke

Normal businesses that are selling and trading have to follow European law, but all the establishment and everything is really up to member states. I think the committee could make a statement in this area. My mother was an insurance broker many years ago when PMPA went to the wall and a compensation fund had to be introduced. The legislation in Ireland is very strong. The committee could argue that it wants this to continue and therefore could propose that any business which operates in this country, regardless of whether it is passporting, must link in with a compensation fund. Gibraltar does not have such a fund. There are issues about whether it should link in with the fund here. The committee could propose that nobody should be allowed to sell insurance in this country without being able to demonstrate that it is linked in with a compensation fund. Members might be concerned that Brussels would not allow such an approach to be pursued, but I am of the view that Brussels will allow it as long as people are not locked out of markets and the rules of the Single Market are respected. Nobody will be locked out if the approach I am suggesting is chosen. Ireland gives an extra protection to its consumers because there is a history in the Irish marketplace of companies going to the wall.

I am always amused to hear public bodies emphasising the need to shop around. The Financial Regulator used to say this and now the Competition and Consumer Protection Commission is saying it. Consumer lawyers think shopping around is great because it allows people to get the product, etc., but one does not find out whether that product is worth what it should be worth until things go wrong. That is the sad thing about a large number of the 11 Gibraltar companies and the Malta companies that have come in. When a company like that comes in, it is great for a while because it gives people cheap insurance or does stuff for farmers, young people or women. When it suddenly hits the fan, everybody stands back and says nothing can be done because the matter is so complex. I suggest that something can be done by demanding that there is always a compensation fund for motor insurance companies in Ireland. That should apply regardless of whether the company is Finnish, Swedish or Greek. We need to provide that when an insurance company comes into the Irish market, it needs to have a compensation fund. I do not believe such a requirement would cause any problems in Brussels because its aim would be to protect consumers.

I would like to ask another question about the data that are available. The necessary actuarial expertise does not seem to be available to the Government or the Central Bank to facilitate a proper independent analysis of this area. Do the witnesses think it would be worthwhile to invest in such expertise?

On the same point, does Mr. O'Rourke have evidence or data to support what he was saying about foreign-owned or foreign-based companies that are operating in Ireland, or was he speaking on the basis of anecdotal evidence and his own experience?

Mr. Raymond O'Rourke

It is kind of anecdotal. I was surprised to read in The Irish Times that 11 of the 24 companies are based in Gibraltar

I do not mean to cut across Mr. O'Rourke, but I should mention that Mr. Conor Faughnan and others told us this morning that just five players are really left in the market. Now Mr. O'Rourke is telling us that there are 24 companies, 11 of which are based in Gibraltar. The committee heard this morning that there are five players, but Mr. O'Rourke is saying there are 24 players.

Mr. Raymond O'Rourke

There are 24 players.

Are some of them very small?

Mr. Raymond O'Rourke

They could be. Some of them would be based online. This is the issue. Mr. Conor Faughnan is probably referring to belt-and-braces companies that are based in buildings when he says there are just five players in the market. Many companies come into the market in other ways. I am aware from my brokerage background that they may be sold in certain brokerages rather than in the high street. This is how they come into play. Maybe they concentrate on certain segments of the market, such as farmers or hauliers.

Do we have any data on the percentages involved? Do the five biggest players control 85% of the market? Do we have any idea of the relative strengths of all the players in this market? We are on the second of six days we are spending on this topic. We are hearing similar things from everybody. Everybody seems to identify the problems, but we have not really got any solutions. It is all about data and the lack of them. Everyone has stories and anecdotes about stuff, but we do not know if it is factually correct. We have been here before in 1984, 1992, the late 1990s and the early 2000s. It is very frustrating for us as we seek to act on behalf of our electorate and the country. We kind of sort it and then it all seems to go awry again. We hear that legal costs and medical costs are increasing or that there is more whiplash here than anywhere else. The recommendations in the assessment of the Motor Insurance Advisory Board sound very positive. What do the witnesses hope will happen after we have identified all the problems? Nearly all the 67 solutions were implemented the last time. What solutions need to happen this time? What needs to be implemented if we are to bring about a reduction in the rate of increase or, ideally, a drop in insurance costs?

Mr. Dermott Jewell

I would like to begin by coming back to the issue of data.

Mr. Dermott Jewell

It is always about the data. We have the capacity and the expertise. It is not that long ago that I was speaking to the actuarial individual who took all of the data. He is more than happy to do it again. He just needs to be given the data and he can deal with it. This will not happen overnight because it is not an easy task. There is a mountain of figures, but he can do it. We have the expertise. The Chair is entirely right when he says that if we brought someone in to ascertain what exactly the underlying element is - bringing in a team of people would probably make it quicker - it would be money very well spent.

I would like to give a direct answer to the Chair's requests. He is entirely right. It is all very fine hearing all the problems. We know them. What can we do? It would be better if we knew what to do. A great deal has changed. There was a difficulty with the reserves many years ago, as the Chair has correctly mentioned, but that improved. Then we had another difficulty and now the reserves are not good for the industry providers. There is no question about that. It is the same all over. We acknowledge that interest rates are appallingly low. We have to wonder whether they are trying to rebuild their reserves. They are open to being told, "You must be rebuilding reserves, as opposed to the cost of claims, until you tell us that is not the case, but you will not tell us that is not the case because we cannot understand and you are not even trying to help us to understand." It would be helpful if we could see the underlying costs. That might give us an opportunity to approach the matter in the sense of a designed level of cover for a particular individual. In such circumstances, at least we could eliminate the phenomenon of drivers not being covered.

Almost without exception, there is cover for third party, fire and theft or comprehensive. There used to be another basic level of affordable insurance that anyone could have so that he or she could drive a vehicle safely, but that does not seem to be there anymore. The market needs to change to ensure offers are understandable and offer value for money and, importantly, allow a vehicle that has been approved by the State to be safely put on the road to be driven affordably by someone who must legally have insurance.

Without question, we must examine the way in which claims are paid. An approach is taken in the UK and there is an attempt to do the same in Ireland. Rather than a large lump sum, an insurer would pay for someone's care until he or she was well. There is much credence and sensibility in this, but we must bear in mind that we cannot just go from one to the other. It is fine to be able to pay a doctor if one is ill, but one needs to be able to live as well. Some form of support is required, but it needs to be managed and reasonable.

I have never heard anyone say that he or she would have a word with the Judiciary to get its view. A book of quantum is about to be restored and reviewed, but is it not the case that we cannot ask the Judiciary whether, since everyone is shamefully blaming it for the cost situation, it can do anything about it? The Judiciary would not be impressed. Neither would I were I a judge and someone told me that this was my fault. It cannot all be the Judiciary's fault. It is down to the lack of information and sharing, which is why I will refer to the MIAB. There is no need for everyone to meet around the table. That would be ridiculous. I was a member of the MIAB. It was difficult work.

The committee could determine to engage with every member, but not just in finite terms. In other words, its invitation was fantastic and appreciated and there would be no problem with the invitation being issued again, but to a meeting of a different format where information, details, statistics and data on this, this and this were requested. Hopefully, we would then start moving in a direction and the committee will have materials to compare.

I thank Mr. Jewell. Have Senator Conway-Walsh's points been addressed?

I thank the witnesses. I wish to raise a number of issues. Were I sitting at home watching this on Oireachtas TV, I would be as disheartened a member of the public as I am a politician. It is disappointing for people who have experience of this matter every day of the week. As has been stated by the Chair, we know the problems. No one disagrees that the situation is unacceptable. What must we do to bring it under control? The increase in premiums is not sustainable.

Year on year, we are considering how to give more back to people in their net incomes, for example, by removing people from the USC net, giving tax breaks and so on, in order to compensate them for the difficult years through which they have gone. However, there is no point in trying to improve people's quality of life if an insurance company or the like is waiting to take 40% more from them. We must ensure that something is done and that this committee is not just a talking shop. A solution must be delivered for those who need reduced premiums.

When Mr. Faughnan and his colleagues from the AA attended this morning, I mentioned that much needed to be done if we were to make the situation more transparent, accountable and better. I will discuss the MIAB in a moment. We have been told that books of quantum, data and so on need to be put in place. I accept that. This morning, Mr. Faughnan agreed with me that all of this information did not vanish off the cliff in the past two or three years. The need for better regulation, data and accountability has probably always been there. This situation has not just happened, but the premiums at the time were not increasing as drastically as they have been in the past three years. We should not be looking for excuses or reasons in this forum for justifying the increases. They are not acceptable. End of story. We should be doing everything possible to make the system more transparent and accountable so as to ensure that this issue does not continue, but we should not be using the situation as a reason for the 40% increases of the past year or two. There is no excuse for that.

This morning, I used the term "cartel". I have no problem using it. I am not accusing anyone of operating a cartel, but one could be forgiven for believing that there is a cartel. Competition has been mentioned, but there is none. As is the case with every other public representative, constituents attend my clinics weekly or I speak with people on the street. I know from them and personally that there is no competition. One shops around insurance companies and the difference in premiums is €30, €40 or €50. It is not worth the hassle of changing a direct debit. Competition does not exist.

The Chair asked what more could the MIAB do now, but when it was in place, it stopped premiums increasing at such a rate. This has been pointed out to me by a number of legal and general experts in the business. According to them, bringing the MIAB back into play would be of assistance. The same issues obtained while it existed, but the increases were not as out of control as they have been in recent years. I am substituting for my colleague, Deputy Michael McGrath, who is trying to have the MIAB re-established because he believes that it would have some worth. Given Mr. Jewell's comments to Senator Conway-Walsh, he probably thinks the same.

We are discussing out-of-control 40% increases in premiums, but companies are also cherry-picking. If cars have valid NCT certificates, it means that they are roadworthy irrespective of whether they are five, ten or 15 years old. A certificate of a standard, it deems to the best of the tester's ability a car as being roadworthy until the next test. In roadworthiness terms, it is as good as a car that has just come out of a garage, having undergone a forensic test, but insurance companies are being allowed to refuse to consider it because it is X years old. That is scandalous.

Mr. Dermott Jewell

Ridiculous.

It should not be allowed. There must be some level of engagement with the companies and they should be made accountable for this. What is the point in taking a car that is over a certain age, for example, ten years, to an NCT centre if some insurers will not even offer a quote on it in any event? That is ridiculous.

The witnesses mentioned discounts. I know someone who recently received an insurance quote for a car. When the person took out a package through a union with the person's partner, the same policy was provided for €250 less. The only difference was name X rather than name Y.

Mr. Dermott Jewell

Right.

This is a fact. I am frustrated at the prospect of our even trying to square everything. How can this be squared against what the companies are claiming are the reasons for increasing a person's premium? If it has increased for one of the unacceptable and ridiculous excuses that the insurers have been trying to give in recent years, why are they able to offer a premium of nearly €300 less for another member of the same family? It does not stack up because it is not true or transparent. The companies are operating in this way because they believe that they have free rein to charge anything they want, which they are. I am happy to be challenged on this in any way.

Mr. O'Rourke stated that there were approximately five main insurance companies operating in buildings.

Many people now operate businesses online and that is fine. There is no issue with that. If it brings about better competition and insurance rates, bring it on. I have strongly advocated that we should be opening up the insurance market and doing what we can for European countries coming in to give the customers a better deal, as they are being absolutely conned now. I will not use another word but what is happening is unfair. Surely the country of origin of those companies should have compulsory regulation of the companies. If they get many customers here over the course of a year or 18 months and leave a legacy, there should be some clawback. Is such a system in place and what can be done to ensure it is in place? It would certainly help in opening this to the European Union.

Mr. Dermott Jewell

Thanks.

I am not even finished. We have time to kill anyway.

We do not have time to kill but if the Deputy has another point, he might make it. If he concludes his remarks, we can bring Mr. Jewell back in.

What about some sort of formal regulator to consider the cost of insurance and price increases? Perhaps it is there already. The Motor Insurance Advisory Board, MIAB, could be reintroduced, even under a different name, as it worked well. The area should operate like utilities as there cannot be an increase without vetting and approval. Would something like that be of worth or importance? Is it something we should consider as well? Perhaps it is there but if it is, it is not working, that is for sure.

Mr. Dermott Jewell

The Deputy is entirely right in everything he says. I apologise to anybody watching this if I am affecting an already disastrous day which has seen difficulty with transport. The committee has heard from Mr. Faughnan and the brokers' side. We can look at everything that is going on. We have a small market, as the Deputy mentioned, with the big five working down and out to the brokers, with an underlying few companies from other member states.

We must discuss who is settling the claims. Many of the claims, either sold through a broker or one of the main companies, are sorted by the insurance company. The person is asked not to accept liability but to leave it to the companies. There is a problem in there somewhere. The companies resolve the problems and make significant payouts to the great detriment of people who have already paid a very significant level of insurance premiums over years and who will then be guaranteed to pay an ever-increasing premium for four, five or six years until what was paid for a claim is ultimately discharged. The people have no say, hand, act or part in the process. Very many people might argue they did not cause an accident, although they would acknowledge problems. They should have some say but there is no opening for that. It is an issue that should be examined to start with.

Mr. O'Rourke is right in that one way of getting the data - perhaps a short cut - is to go to the Competition and Consumer Protection Commission and say that we believe a cartel is operating and it should prove otherwise. It must have access to data to do so. Perhaps it is a way of short-circuiting or moving that rapidly forward.

We need to do that.

Mr. Dermott Jewell

I think it is a way of doing it.

We have heard much from the European competition Commissioner in the last while.

It is certainly a way of tackling issues from a peculiar angle.

Mr. Dermott Jewell

I have not mentioned the term "profits" as it is way out there. We must understand what are the profits and, most important, just how well the money is being managed and spent. Is there an overspend to the degree that it is another factor in the ever-increasing cost, with too much being paid on commission, bonuses, salaries, rents, rates and marketing - such as having a name on a stadium - as well as a variety of other things? We need to find out the outlay and reverse it if necessary. If the State determined tomorrow that we cannot manage this as it is a disaster and if it wanted to set up its own insurance operation, there would have to be a set of guidelines relating to cost-effectiveness. The Department of Public Expenditure and Reform would be great at running an insurance company. Thinking about how to do this is a way of finding out what exactly we are missing that we are not being told. Underwriters and actuaries will tell us very quickly where are the gaps.

I am unsure as to whether Mr. Jewell saw any of this morning's contributions but one of our committee members asked about a nationalised or State insurer. I do not mean to keep coming back to Mr. Faughnan, who was speaking more as a representative of the Automobile Association on behalf of motorists than a broker - he would have experience as a broker as well - but he argued that even if the State did it, much of the cost would remain. He indicated that we should tackle the settling of claims and the lack of information about how they are settled. We do not even have data on the settling process, such as whether the legal costs are 90% or 10% of the total. We never see that process. Much of it avoids the Injuries Board and ends up in the courts, with costs involved. Mr. Faughnan was quite negative and I get Deputy O'Rourke's argument that we have been through all this before. It is my view as well.

We are not the only country in the world that has motor insurance. We are a small country and we do not have a road network all that different from many other places like Scotland or Scandinavia. We could argue that there are more rural areas than places like Germany, the UK or France but, equally, many places are more rural than we are. I would like to leave this third session of public hearings by saying if we can do A, B or C, we will either stop the price increases or, ideally, get a drop. We have discussed this for the guts of an hour at this stage. Is there anything that could be done to get a quick fix, although that may be oversimplifying the matter? We can look at marketing budgets, rent and rates. One gets the impression the money is all going out on claims. It would be interesting to find out the cost of overheads as a percentage of premiums. Is it a factor that the Aviva Stadium has that title? I presume that is what the witness was alluding to. Is it that one judge would give €15,000 for a claim but another would give €75,000 for pretty much the same type of claim?

I heard during the week that insurance companies have people in the courts and when they discover a certain judge is hearing a case, they are willing to go to court, but if there is a different judge around, they try to settle, even for double what they would initially have sought to settle for, as it would still be cheaper than dealing with the judge. This goes back to the book of quantum but if it is a case of only "having regard" to it rather than having it as a bible, the process might need to be considered more than insurance overheads. Are there two or three actions that could be taken that would go a long way towards trying to tackle the problem?

Mr. Dermott Jewell

Yes. Without any doubt, one of the first actions would be to utilise the regulatory body that is there. That is not to say there could not be another regulator but we should use the existing authority, the Competition and Consumer Protection Commission. If we are talking about a legally required insurance product, it could be the body to investigate the issue. It should not report five years down the road and it should have a defined period in which to work, probably of five or six months. That, in turn, would allow the body to recruit whoever it needs in the short term to put as much pressure as it wants on the big five insurance providers. Let us put pressure on those five companies and see what is driving the cost, no pun intended.

We want to know and we are entitled to know. If they do not tell us there will be a penalty, so a penalty should be introduced overnight for a lack of provision of clear and transparent information. Penalties would help at this stage and perhaps we need to announce a whistle-blowing period to allow anybody from any sector of the industry to come forward.

Has Mr. Jewell managed to engage with Insurance Ireland? As the representative of the Consumers Association of Ireland, has he had a sit-down meeting or dialogue with the insurance companies, saying, "Look, we're the Consumers Association and we represent the consumer, in this case, the motorist"? I do not think any sector in the country has seen price rises of 37% or 38% from one year to the next.

Mr. Dermott Jewell

No.

It is staggering. We heard this morning that 8% of insured people are making claims and therefore 92% are paying in and seeing nothing except price rises. They are doing what they are legally required to, and they have to.

Mr. Dermott Jewell

Yes.

However, it is not 60% of people paying for 40%, it is 92% paying for 8% and the administration of that.

Mr. Dermott Jewell

Yes.

Has Mr. Jewell had a proper dialogue where an insurance company has said that it acknowledges the association's role but the reasons insurance costs are going up include claims, that it is historic, that it is paying for Setanta, Quinn and whoever, and that the company was historically under-charging? These are all the things we are hearing, but we have not yet heard from individual insurance companies and I am not sure that we will. I would like to know if the Consumers Association has managed to obtain some level of engagement with the people who are providing the policies.

Mr. Dermott Jewell

It would probably have been six months ago that I made contact with a number of former member organisations of what was the Motor Insurance Advisory Board. I sent them an e-mail, which I am happy to copy to the committee, which outlined that there was a crisis, an urgent problem, and that I would be shocked if they were not as concerned as they had been back when MIAB was in force. I sought a couple of independent meetings to get a sense of what was their concern. I met with four of the organisations.

Were they insurance providers?

Mr. Dermott Jewell

No. They were all agents in the service of those who rely on motor insurance. However, the point after the end of the first meeting was that we have got to have-----

The data.

Mr. Dermott Jewell

No, that we have to have Insurance Ireland here. The Acting Chairman asked about that. I contacted Insurance Ireland and, positively, it said: "Yes. Let's meet." However, literally within 24 hours, it was announced that a body was to be set up to review motor insurance. Therefore, we took the decision to back off and do nothing. We have tried and it has agreed, but I am disappointed that we did not go ahead with it. It, of course, believes that what it is saying is quite correct, that it is the cost of claims. However, if we are to be honest, I have to prove how much. If I say something, I need to prove it and many people are the same. I do not see any problem with the need for proof and I do not know why it will not provide it. If it does not, there is a problem.

We will have Insurance Ireland in later on in the session-----

Mr. Dermott Jewell

Great.

-----but perhaps not the individual companies.

Mr. Jewell was talking about the cost. Figures from the AA this morning show that 2 million motorists on average are affected. If one looks at an increase of €300, or even picking a more conservative figure, across 2 million people, one can calculate what it has netted per annum in insurance premiums. Are we saying that a consequential amount, pro rata, has been paid out in claims?

Mr. Dermott Jewell

No.

I do not think so. That is my personal view. As regards claims and payments, as the Acting Chairman said, is it related to one judge awarding a certain amount and another awarding a different amount for a particular accident? My view, while it may be wrong, is that has always been the case. Some 25 years ago, I knew of two families involved in a car accident. They both claimed off their insurance, yet got different sums of money for whiplash injuries. That was a long time ago. If we drill into it, they were nearly justifying it. We should not even be attempting to do that, however.

What is happening now with claims being paid out and differentials in awards by judges, or however it is done, has always been the same traditionally down through the years. That still does not give any reason, excuse or justification for the increases, which should not be accepted. The problem is how does one get accountability and delivery. It is when one employs a consequence and a penalty in any cross-section of life.

Mr. Dermott Jewell

Absolutely.

The reality for these companies is that there is no consequence or penalty. There is something that could be done tomorrow morning. For example, there should be an automatic penalty for any insurance company that refuses to give a quotation to any person who has a valid NCT certificate showing that the car is roadworthy, irrespective of its age, because otherwise that is discrimination. There is no such penalty, however, and that is absolutely wrong.

The Acting Chairman asked what could be done. I am suggesting that, as Mr. Jewell said, the Competition and Consumer Protection Commission should immediately carry out a thorough audit and investigation of what is going on because there is no justification for it. No matter how the figures are presented, it will not change my mind because it does not make sense. This is not new; it has been around for some time. A new motor insurance advisory board, or its equivalent, should be established. Those things should be done immediately.

If Mr. Jewell was sitting in our position next week when we will be dealing with Insurance Ireland, what questions would he put to the representatives or what questions does he want us to put to Insurance Ireland? We will obviously have lots of our own questions.

There is a huge issue concerning returning emigrants. If I go to other countries, I can get a no claims bonus letter from an insurance company here, which is recognised abroad. It is even recognised in other countries by some of the insurance companies that operate here, yet in this country they will not recognise such a letter from a company abroad. What is the explanation for that? Huge amounts of money are being demanded from returning emigrants for insurance cover here. How can we force insurance companies to operate in the same way as they do in other countries? That shows us that the difficulty lies with the regulations here, rather than with the insurance industry itself which is operating under one law abroad, while the same company here might operate otherwise.

Mr. Dermott Jewell

It is a very interesting question because it will always be about the risk. The no claims discount suggests a history of the driver. In other words, he or she is a safe driver and has not had a claim. If there is such a history, it makes logical sense that it should be accepted. If such no claims bonus letters are not being accepted on a regular basis, then it needs to be challenged. I would like to think that it could be challenged here at home, but we are all members of the European Union so it should be easy to seek a quick review and response as to why foreign no claims bonus letters could not be accepted in this jurisdiction. What makes us so special that companies do not want to do so? I would have thought that under EU law they should be required to accept such letters. I am surprised that they are not accepting them. I must put my hands up and admit that I am unaware of the background, but I look forward to finding out about it. I will certainly come back to the committee in any way I can. That practice is wrong, however.

On the questions to Insurance Ireland?

Mr. Dermott Jewell

"Why are you here, for a start, if you're coming with your hands hanging?"

Mr. Dermott Jewell

I would ask another simple question. We are sick talking about this. I would ask why it had not provided the data and when it intended to do so. I would only look for answers to those two questions.

Mr. Raymond O'Rourke

What I would ask is whether one sector of the insurance industry is cross-subsidising the other, and whether Insurance Ireland had any evidence of this. One of the views in the past was that motor insurers were not making any profit and that was why premiums had to be high - because it was basically a dead-end business for them. I do not think that is the case, but I would ask where the insurers look at motor insurance in terms of their overall business and, if they are making a particular level of profit, whether that subsidises house insurance, liability insurance or whatever. There is a lot of that with insurance companies, and that is what we do not see.

The points made by Senator Rose Conway-Walsh and Deputy Frank O'Rourke have been addressed by both Mr. Jewell and Mr. O'Rourke. Unless anyone else has a particular point to raise on this side, we will finish up. On behalf of the committee and on my own behalf, I thank Mr. Jewell and Mr. O'Rourke for participating in this meeting and for the material they supplied in advance.

Sitting suspended at 3.42 p.m. and resumed at 4.10 p.m.

I welcome Mr. Mark Fielding from ISME, Ms Patricia Callan and Ms Linda Barry from the Small Firms Association, and Mr. Neil Walker and Dr. Michael Gillen from IBEC to this afternoon's session to discuss the rising costs of motor insurance.

I have a small notice regarding privilege which is a bit like the air hostess notices on aeroplanes. I draw the attention of witnesses to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.

We will start off with Mr. Fielding. We will hear opening statements from the three organisations and go into a question-and-answer session if that suits.

Mr. Mark Fielding

I thank the committee for inviting ISME to address it on this issue, which is, obviously, an important issue for business. I am old enough to remember that this is almost a case of déjà vu because we were here in 2002 for exactly the reason. There is very little that is new. The crisis in the motor insurance industry is not new nor is the fact that premiums are rising. The fact that insurance companies have lost money on their investments is not new. Insufficient data from insurance companies, defaults from insurance companies and the fact that policyholders have to carry the can for much of this are not new. The lack of competition in the marketplace is not new nor are the arguments between insurance companies and the legal profession with each blaming the other and delays in the system. The fact that insurance companies are settling cases without recourse or referring back to their clients is not new. The fact that we have an Oireachtas committee investigating the horrendous increases we are suffering is not new.

In 2002, there was little or no public information available relating to overall numbers and costs of claims for personal injuries and the only figures that were made public did not contain any information on the costs of directly settled cases. Without access to that information, a full picture of the impact on personal injuries was difficult to establish back then. Nothing has changed. In 2002, some 90% of the 35,000 cases that did not proceed to trial lacked visibility. In 2014 and 2015, of the 31,000 or 32,000 injury claims registered, only 9,000 went to court or were finalised by the Personal Injuries Assessment Board. Again, we are talking about 71% of the cases having no transparency so we are back into exactly the same position. The industry said that it made a loss of €198 million from underwriting insurance and we know that it has been badly hit on its investments. Again, there is nothing new about that but back in 2002, the Motor Insurance Advisory Board, MIAB, discovered that, among other things, the profits relative to premiums for Irish insurers were many multiples of their English counterparts. Again, we know that it is the same. From 1998 to 2002, the same group of insurance companies were found to be less than forthright with their figures to MIAB. The last investigation by MIAB led to significant and dramatic savings over the following 12 or 13 years. CSO figures show that the cost of motor insurance reduced by about 40% over that period but things have changed since 2014 so we are back to the same thing. MIAB reduced the length of time it was taking through the introduction of the Personal Injuries Assessment Board and brought it back down from three years to seven months. MIAB made 67 recommendations, some of which were not followed through. I will return to that point.

Claims numbers have increased only marginally in the past year, more than likely as a result of economic activity. There has been a 6% increase compared with 2015 but, again, we can see that this is slowing this year. The average awards have remained relatively static over the past five to six years. If one looks at the Personal Injuries Assessment Board figures, one can see that in 2009, the average claim was something like €23,000. In 2015, the average claim was €22,800 so, again, there has been very little change. There is very little evidence that the claims are increasing through the Personal Injuries Assessment Board.

We have a continuous line of complaint from our members regarding the handling of what they would regard as questionable claims and the fact that insurance companies continue to settle without the consent or knowledge of the insured businesses. In the opinion of many SME owners, this adds to the fraudulent claims culture that is there.

There has been plenty of talk about the book of quantum. We are still waiting to have the latest version of that. To wait 12 or 13 years for a revision of that is not on and we hope that from now on, there would be a more regular review of the book of quantum.

The poor regulation of the insurance companies that are regulated outside Ireland but which operate in the market also drives up the cost of premiums. We know that the legal position is that many insurers must reserve against the risk of future market failures of other companies. This, obviously, does not help the SME sector. We must take into account the assertions from the legal profession that it is not its fault and the insurance companies' assertions regarding part of the information and part of the reason for increased costs. We know that back in 2002, a large amount of the awards were going to professional fees to the legal profession and others.

ISME thinks that part of the answer to this lies in a reforming of the MIAB with a similar task to the previous one. As part of that process, we would need a review of the 67 recommendations and the reasons that some were implemented while others were not.

We would like to see totally aggregated figures made available on the number of claims, the value of claims and the associated legal and professional costs for processing these claims. That information gathering exercise must also include estimates of fraudulent claims and a continuing review of the book of quantum. It would be preferable that the insurance industry itself should develop a common reporting matrix which could and should be aggregated by an external agency because the industry keeps on talking about competitiveness and competitive information. It could work if we could anonymise and pool the information through an external source. In the absence of an agreement from the insurance businesses, I believe the Central Bank must insist and must get involved. The Central Bank must impose stricter reporting obligations. At the moment it seems that the Central Bank's main job is to ensure it looks at the matter from a prudential point of view. Obviously the bank does not want to see insurance companies going to the wall, but the Central Bank would not see the issue of increased premiums as part of its job.

The type of information which the Motor Insurance Advisory Board, MIAB, required for investigation back in 2002 was essential to identify the main contributors to the massive rise in motor insurance premiums. We are back at the same point now, and if we can get that information, it could be weighted accordingly to find out who and what are the actual contributors to the increases in premium. We hope that the new edition of the book of quantum would be reviewed by the Court of Appeal prior to publication and that there would be a certain amount of training. I am loath to mention that the judges need training but they certainly need training in how to use and implement the book of quantum. We hope there would be a consistent application of the book of quantum across all awards in order that the awards would be predictable and certain over a period of time. If the book of quantum is accepted, it would be crucial to reducing the need for taking costly litigation. All awards should be benchmarked internationally in order that we can see what is happening in Ireland and in comparison with our competitor countries.

Ms Patricia Callan

The Small Firms Association, SFA, represents 8,500 companies, all of which employ fewer than 50 people from all sectors and regions of the State. Whether they have one business vehicle or multiples, their message coming back to us is very clear that there is now a motor insurance crisis and it is affecting the costs base of their companies. In 5% of members' cases they are actually saying this crisis could put them out of business. We welcome the attention the committee is giving to the issue. When all the different stakeholders come to the committee, there will be broad consensus about what needs to be done, and it is to be hoped we will see some action.

The SFA conducted a survey of members just last week to gather some contemporary data to share with the committee. It shows premiums have been increasing steadily over recent years. There was a 6% average increase from 2012 to 2013, followed by an increase of 9% in 2014 and 13% in 2015. However, in this past year things have actually skyrocketed, with most companies seeing premium price increases of 35%. We expected to see a difference between companies that had experienced claims and companies that had not, but even companies with no claims have seen premiums increase by 34%. Therefore, we know that the market is fundamentally not working in the State and there are a number of factors the SFA believes would help.

When we asked about the implications of motor insurance as an issue for our members' businesses, 20% of our survey respondents said they had reduced their number of vehicles because of the cost base, which means they cannot do as much work. They are reducing the scale of their operations and the employment that goes with it. This is an issue. Another 20% of our respondents have reduced their level of cover, leaving their businesses at greater risk of exposure, which is also a concern.

We have discussed these issues with our member companies and we have summarised our findings into five areas upon which the committee could focus its work: introduce a new book of quantum, which we understand is a work in progress; move to a care not cash approach, in particular for whiplash cases; increase competition in the insurance market to ensure there are a sufficient number of companies providing cover; combat fraud; and review the powers of the Injuries Board.

Businesses accept they have a responsibility to ensure the provision of proper safety management in their workplaces and to give their staff every training necessary. The SFA has been working with companies in this regard. That we have a responsibility for this aspect is a given. We know the book of quantum is being re-worked and will probably be published in the next month, and I have been around long enough to remember the previous crisis. However, our concern is the way the book is calculated which is based on actual court awards. At the time of the previous book of quantum the awards were already super-inflated because the judgments were too generous. That is the book with which we have worked all these years. If the same methodology is used and if it is based on the more recent awards, it will not act in our favour as it will actually increase the levels of awards. In the review of the book of quantum it is very important that we are not merely reflecting awards that have been given out in recent years but that we incorporate a system around what an injury is actually worth and do the benchmarking analysis internationally. Our analysis shows that court awards have increased by over 30% in 2014 alone. The book is one thing, but getting the book right is another. If we are going to have a book of quantum then it should not just be the Injuries Board that follows it, the courts should certainly follow it. Award levels should not be a discretionary matter to a given judge. The SFA has found and the insurance companies we regularly meet will tell us that everything goes to the steps of the court because it depends on which judge one gets on the day. That is not a good, fair or efficient system for dealing with this. Many costs could be removed if there was more certainty in the system.

I will now turn to the system termed "care not cash". This system has been trialled in the UK and is working well. Essentially it means that people who are affected by accidents will get all their hospital costs and their care looked after but there would be no financial compensation element to the award. That is what is important in this. It removes the fraudulent element from the situation. If one takes the awards for whiplash, for example, in Ireland the average award is almost €15,000 while in the UK it was £5,000 but now it is zero because of this new model. Getting those multiples of incidents out of the marketplace to begin with would treat people fairly and well and would also remove that noise from the system.

With regard to competition in the insurance market, the SFA met many insurance companies to discuss the issues. The SFA has a group insurance scheme and our companies would tell us they accept there is a cyclical element to it and their businesses may be in difficulty as well. However, I believe it is the legal underpinning which is essential for these companies. There are 1,000 insurers across the EU. Why can more of these not be brought into the Irish market? Those insurers will tell us that it is because they literally do not know what it is they would be underwriting. If an insurance company fails in Ireland the wider industry must pay out on its awards, which comes back to all of us as policyholders. The Setanta Insurance ruling has been particularly damaging and the SFA would ask for a lot more clarity around that. We should not tolerate a position where people operate in the Irish market while being regulated overseas but if they collapse then Irish policyholders are held responsible for that. We know from experience in the cycle that we have all benefited by tremendously low premiums at various points in time, but we would prefer not to do that. We would prefer to have a normalised cost base and not have people behaving irresponsibly in this marketplace.

It is estimated that fraud costs the industry €200 million annually, of which €100 million relates specifically to motor insurance fraud. Periodically the insurance companies step up their anti-fraud campaigns but we believe a lot more should be done on that front to raise public consciousness around not tolerating people claiming when we, as individuals, know these claims to be unfair. There also need to be harsher penalties when it is proven that people have taken fraudulent claims, including custodial sentences. The area of fraudulent claims has been growing and if we become serious about it, it could remove an estimated average of €30 from the cost of every premium, which is the cost to cover these fraudulent claims. That would make a significant difference straight away.

The SFA strongly supported the establishment of the Personal Injuries Assessment Board, now known as the Injuries Board. In its early years it certainly solved the last crises and it was working very well. We know the board was not welcomed by the legal profession which, I believe, has been trying to undermine the board since its establishment. We need to look at that situation and figure out how this blend can work. It was believed that the Injuries Board process would remove a lot of the costs from the system.

Yet now, if we look at what is going through the Injuries Board, 90% of claimants have legal representation and in 40% of cases awards are rejected. If it is simply something that people are going through to get to the other end and if they are not really serious about it, then this is wasting the time of the Injuries Board and everyone else. Moreover, it is simply adding more cost. We need to review the functioning of the board. In terms of reform we believe that, for example, a request to attend a medical examination organised by the Injuries Board should be compulsory. Furthermore, we believe that if people reject the Injuries Board awards but do not get a higher award in court, they should be penalised. This would help to get the message out that this is genuinely an important part of the system and cannot simply be disregarded. At present, it is not working at it should be. As a model, we are confident that it is the right course of action and that it should be successful.

I will set out some broad points in conclusion. Small companies have had many issues to deal with during the recession, including issues around finance and public procurement. However, we are hearing from members now that costs are the most important thing, in particular, rising business costs and competitiveness. This is the case more than ever in the context of Brexit and our competitiveness with the United Kingdom. This issue is second only to labour costs - a staggering reality. We might think the bill will not be significant but for many companies this is definitely reminiscent of the early 2000s. At the time I knew of companies going out of business because they could not get any cover. At the time premiums eventually reached 100% or 200%. Were it not for the group scheme we operated, our members would not be still in business today - and these are good businesses. I do not want things to get to that stage and, therefore, intervention at this point in the cycle is important. In the context of dealing with this issue in the early 2000s, we probably rushed through legislation and the establishment of the Injuries Board. Then, when the crisis passed it was not revisited. If we revisit what we have, strengthen and empower it and change our legislation - something within the remit of the committee - then I believe we can go some way to solving some of the problems.

I call on the IBEC representatives to make their opening statement.

Dr. Neil Walker

IBEC is the national voice of Irish business on a wide range of policy issues, including environment, health, safety and related insurance. Some of the factors driving up motor insurance premiums in Ireland are impacting on other forms of insurance as well, notably employer liability, EL, and public liability, PL. This is to be expected given that the third-party element of every motor policy is essentially covering public liability risk. Since the underlying cost drivers are similar, the remedies that IBEC is proposing to keep down the cost of liability insurance should benefit private motorists as well as employers. A recent survey of our members suggests that EL and PL premiums taken together equate to nearly 3% of company payroll. Billions of euro are at issue each year. If these premiums start to rise as rapidly as they already have for motorists, it will have a damaging impact on competitiveness and hence on jobs. There are concerning signs that this is starting to occur. We want the Government to take urgent action to head it off at the pass.

In our view, the courts system is a big part of the problem. Only a small proportion of personal injury claims result in court awards. However, the sums awarded there set the benchmark for a far larger number of settlements negotiated out of court or on the steps of the court. Since the arrival of a new cohort of judges in 2014, personal injury awards have been rising steadily. There seems to be a high degree of inconsistency as well, as others have mentioned, with some court awards being far above the guideline amounts set out in the Injuries Board book of quantum. The Injuries Board is effectively competing with the courts and is regularly outbid. Naturally, this encourages claimants to reject the Injuries Board recommendations and proceed to litigation. We expect the second edition of the book of quantum will feature increases in the guideline amounts, bringing them more closely in line with what the judges, and hence the insurers, are doing. This might reduce the incentive to litigate, but it could also drive up insurance costs even further, simply providing a new benchmark for the courts to regard as a starting point for ever greater awards. Court awards in England and Wales pay far greater heed to the UK Judicial College guidelines, and it is little wonder given that these are endorsed by senior appeal court judges. It is also clear from our research that the British guideline amounts are far lower than ours across a range of common personal injuries. Whiplash, referred to previously, is simply the best known example of this disparity and the figure is somewhere in the region of 300%. IBEC would, therefore, like to see a reduction rather than an increase in the guideline amounts, and to have these reductions endorsed by a senior member of the Judiciary. We are keen to see a greater granularity, in other words, more categories with narrower ranges. Above all, we want far greater consistency in the application of these guidelines by individual judges. By reducing the perceived risk for insurers, this will hopefully foster competition in the market.

The legal profession can be part of the solution. The law courts are increasingly clogged with personal injury cases dragging out over months or years. IBEC would like to see the Law Society of Ireland encourage greater use of pre-trial protocols to cut unnecessary delays in discovery and procedure. This would benefit injured claimants and respondent companies alike. The insurance regulator and the insurance companies have important roles to play in containing costs. The lack of meaningful information on claims settlements and provisions for future liabilities make it difficult for customers to know whether their premiums are cost-reflective. The Central Bank, concerned only with solvency, seems to be advising insurers that they need to raise their EL and PL premiums. We question whether this is justified by the evidence. IBEC is keen to see a pooling of insurer data for the purpose of cost analysis. This should include a code of practice with common reporting standards. It may entail setting up a black box to ensure compliance with competition law. This type of mechanism has been shown to work effectively and at reasonable cost in other sectors, notably the producer responsibility schemes for recovery of waste electrical and electronic equipment.

Lastly, there needs to be a tightening of the legislation governing the claims process. Claimants should be obliged to co-operate with the Injuries Board. For example, if they want the option to reject a recommendation, they should not be allowed to refuse an independent medical examination when requested. In conclusion, to echo the title of our recent report, it is time to reduce the burden of personal injury claims.

I thank Dr. Walker very much. As in our earlier sessions, we will allow various members of the committee to put questions to the deputations. We will then allow the latter to address the queries rather than have a series of different people all coming in at one time. Would Senator Conway-Walsh like to start?

I thank all of the delegations for their presentations. The representatives will appreciate that much of what we have heard is in line with what we have been hearing all day and what we heard yesterday. In any event, it is interesting to hear the different perspectives. I agree with almost all of them.

It was interesting to hear Mr. Fielding's comment to the effect that claims have only marginally increased, the figure cited was €22,800. In one way, that is at odds with the emphasis from IBEC to the effect that the main focus should be around reducing the amount of injury claims. Further examination is required in this area.

I absolutely agree with IBEC on the question of new entrants to the market and the blockages for them as well as the comments on the burden of reckless companies or companies which are not operating in the way they should, and how this puts a burden on those operating responsibly. I endorse what was discussed earlier - the idea that no one should be allowed to sell insurance in Ireland unless they are locked into a compensation fund. That is something we will certainly follow up at EU level. There needs to be greater congruence between the European Commission and ourselves in tackling many of these issues.

I thought the comments on the book of quantum were interesting, particularly regarding the precariousness around it and the danger that if the position is not put right, costs could increase further. We need to be mindful of that.

I like what was said about the endorsement by a senior member of the Judiciary. It will be problematic if we do not get buy-in from there. We should not be afraid to say, as Mr. Fielding noted, that judges need training.

I think they need training in a lot of areas. In this instance, we should all be open to training and to gathering expertise in respect of matters in respect of which developments are taking place all the time. If we can link that up as well, we will do some good.

I agree with all of the witnesses that insurance costs are crippling small businesses which have never made claims and which operate in a responsible way. This matter needs to be examined. Mr. Fielding mentioned the profits, the multiples and the comparisons that are made with UK counterparts. There are many different aspects to insurance that need to be examined. I do not want the committee to just focus on people who make claims. The reason we have insurance is to provide safeguards for individuals when accidents occur.

I agree with the suggestions in respect of having a common reporting matrix and for the Central Bank to enforce reporting procedures. I also completely agree with the call to reintroduce the MIAB. The latter made 67 recommendations, some of which have not been implemented. The fact that people have called for a return of the MIAB shows that it did not solve the core issues in the first instance. However, I support the calls for its reintroduction.

We have a great deal of work to do to resolve this matter. We will only make progress by working together and not being afraid to ask difficult questions. We also need to put pressure on people to supply the data that is required in order in order that we proceed on the basis of proper evidence as opposed to anecdotal information and, thus, pursuing the wrong people. When people are reluctant to submit proper information - such information is provided in other countries - then one must inquire as to what is being covered up and why that is being done. The committee and the Government need to uncover and unravel the real position in order to discover the crux of the problem. I thank all of the witnesses for their presentations.

I thank Senator Conway-Walsh. I do not believe she asked a question but she endorsed what was said by many others.

I support the Senator's endorsements. The witnesses have put their cases very well. There was a slight difference of opinion. The perspective of IBEC is that legal costs are rising versus Mr. Fielding's comment that the costs have not changed that much. We have heard the same stuff for the past two days, so we have been here before. That is the slightly depressing or disappointing aspect from the point of view of members. We are wondering why must we keep revisiting these issues. Motor insurance is something that happens all over the world and Ireland is not that different from many other countries. Our roads network, population and people are not that different from those in many other countries. Why do problems with motor insurance keep arising here? It is unfortunate that these problems continue. I thank all of the witnesses for their contributions.

I call on Deputy O'Rourke for his questions and comments.

I thank all of the witnesses for their presentations. I have worked in the private sector for years and I am a massive supporter of the SME sector. I work very closely with businesses in my constituency. I support them and promote the idea of them working together. Running a business is difficult at any stage but it has been particularly difficult during the past eight years. In such circumstances, I endorse and agree with everything that has been said by the witnesses.

The Acting Chairman has said that Ireland is no different from other countries in terms of insurance. I am of the view that there is a reduced risk of accidents occurring here on foot of the fact that Ireland is an island nation and, as a result, has a smaller population, a smaller number of cars, etc., and everything is pro rata. One could make the argument that the risk is reduced and it certainly has not increased by 40%, which is the statistical figure that has been stated all morning.

I take on board everything that Ms Callan said. We need to do everything that we can - and I am tired listening to myself saying so at this stage - to make the insurance industry more transparent and more accountable, to ensure that there will be consequences for insurance companies and to impose penalties on them in respect of their unacceptable behaviour with regard to individuals and businesses. Ms Callan mentioned certain issues and suggested that we may be feeding in to this problem. As I have said all day, I am concerned that we are nearly justifying or explaining the bad and unacceptable behaviour demonstrated by insurance companies in increasing policies premiums. Such increases cannot be justified because all of the issues have existed for some time and date back years. That is definitely not an excuse failing to take action. I am hugely proactive and believe we should do everything we can - collectively and by means of a partnership approach - to resolve this problem in order that we never need to have this discussion again. There is no justification for the increase in premiums in the past three years and, in particular, the past year because the current issues have existed for ten or 15 years in every sector whether it is claims or whatever.

In terms of business, I know of one haulage company that had to set up outside of Ireland. All of the vehicles had to be sent abroad to be registered and tested and then brought back here. Even though the company had made no claims and all of its details remained the same, the cost of its insurance premiums doubled in one year. If it had paid the premiums, the only option would have been to fold and close the door. The company employed 25 people in a local economy. It is frustrating and annoying to speak about this situation because there was no justification to increase the premiums.

I like the proposal made by Ms Callan for the novel approach of "care not cash". I did not hear the terms before but I like it because it is a good idea and takes the onus away from euro or pound signs appearing in front of one's eyes when an accident occurs. When an accident occurs, a minority of people think, not so much "How badly injured am I?" but rather "How much can I get from a claim?" A claims culture has always existed but it still does not justify increased premiums. The claims culture needs to be dealt with head on by tight legislation or regulation but that is still not an excuse for what insurance companies are doing at present.

Senator Conway-Walsh mentioned the outstanding 67 action points put forward by the MIAB and the fact that the current discussion about the insurance industry proves it had not done its business. I would take a slightly different tack by saying that while the MIAB was in existence - this is what I have been informed by industry - it may not have completed its job but we do not need the current discussion. It has been strongly indicated to me by people I meet, engage with and represent from all walks of life, that the disbandment of the MIAB has been a contributing factor in the context of the issue we are debating. We need, as a matter of urgency, to reintroduce the MIAB or establish an equivalent thereof that will have teeth.

Increased insurance premiums are crippling businesses that are already faced with pressures imposed by paying wages and rates. Also, there is less money being spent in the economy so turnover is down. Let us remember that the SME sector is the lifeblood of the economy because we know the number of people it employs and the returns made to the Exchequer. Yesterday, we talked about multinationals that are great and needed but the SME is hugely important. Increased premiums constitute a major issue for the SME sector. If the matter is not resolved, then the economy will be in serious bother.

Earlier, the Chairman said that Insurance Ireland will attend one of our meetings in the coming days. Today, I have substituted for a colleague and, unfortunately, do not attend meetings of this committee regularly. Perhaps Mr. Fielding made two or three points before I arrived.

Mr. Mark Fielding

At the last session.

Yes, but not at this session.

Mr. Mark Fielding

If I was asking the questions, I would also seek a view.

Mr. Fielding made a very good point.

What are the two or three focus areas we should be putting forward to try to root out this unacceptable premium increase, which is in no way justifiable?

I thank Deputy O'Rourke. I think his main question is really the last question which was written down in front of me. It was a question I was going to mention. We will have representatives of Insurance Ireland before the committee next week. We had the Consumers Association of Ireland in just before the current witnesses and we asked the representatives if they had engaged with Insurance Ireland. They had not actually met Insurance Ireland. I asked what they would do if they were in our position and sitting on this side of the table. We got some questions from it. Equally, I would be interested to hear from all three organisations that are here now as to what they would say. From my own understanding, quite a lot of the 67 recommendations were implemented. Is that correct? A number of them were not, but they were not all left undone.

Mr. Mark Fielding

Many of them were. There were 67 recommendations, of which a number were not brought through.

Was that five or six, or 20 or 30?

Mr. Mark Fielding

It was nearer to 20. I cannot remember but it was up in the teens. To take the Senator's point, maybe it did not solve anything. All they can do is recommend. It is up to the Oireachtas and the Government to bring that in and follow through on the recommendations. That is one thing. There was a question on the actual awards. The Injuries Board's awards are on record and they are the figures about which I was speaking. The average award in 2009 was €23,000. In 2015, the average was €22,800. The sequence was €23,000, €22,000, €21,000, €22,000, €22,000 and €23,000.

I want to develop that point a little because it is a very relevant one. Between PIAB and the courts we are getting visibility to a certain extent on about 30% of claims. We do not appear to have any visibility on 70% of claims, where legal costs could be at 90% or at 9%, but we do not know. Mr. Fielding's comment, which I do not doubt is perfectly accurate and valid, is on Injuries Board figures, which refer to a relatively small component of the total number of claims established and finalised one way or the other.

Mr. Mark Fielding

I agree.

One could take the view that claims costs have not changed, but the insurance industry will come in and say it is settling so many claims because companies cannot rely on going to courts where one judge gives €15,000 and another gives €75,000 for the same injury. I do not want to put words in their mouths but I want to be sure of what Mr. Fielding said. It is Injuries Board claims that have not changed, but more and more people over time are abandoning or discounting the Injuries Board to take their chances either in the courts or with settlements because they feel they will get more out of a settlement than the Injuries Board figures are establishing.

Mr. Mark Fielding

I accept the Acting Chairman's point. They are the only figures I can stand over or that anybody can stand over.

Mr. Mark Fielding

The Acting Chairman's point is well made with regard to the other 70% or whatever it is and how much of this is due to legal fees. The Acting Chairman is saying it could be 90% or something else. This is exactly where we are with the insurance industry.

Mr. Mark Fielding

We just do not know, but they can say what they like.

I was asked what I would say to the insurance industry or to say what we are looking for. It is for the total aggregated figures to be made available, the number of claims, the value of claims and the associated legal and professional costs. That will give us the answer and show the contributory factors to the increases. At the moment we do not know, although we know that there has been lazy financial management. We know that back in 2002 - and we have the same again now - the insurance industry did not manage its finances because its players were dependant on investments. We all know it happened to the investment industry. That is what has happened, but it happened in 1998 up to 2002 also. We need somebody who will put manners on these people because they are treating small and medium-sized businesses and the citizens of Ireland with disdain. They just throw the figures up.

Deputy O'Rourke was talking about an incident or a particular company. Just last Friday, one of our member companies which had 11 vans was seeking to increase the number to 19. The 11 were costing it €9,000 to insure while 19 were going to cost €24,000. These are absolutely crazy figures and no talk about it. One sole trader decided to incorporate and form a limited company, so he was no longer insuring his car as a sole trader and private individual but as a company car. His premium went from €650 to €2,200. That is the type of stuff where there is no rhyme or reason. All of these questions have to be asked. It is back to exactly the same position as before. That is what is so frustrating about this. It was done before. We have done this before and are back to the same stuff we were at 14 or 15 years ago.

Since our private session yesterday morning, where I asked about it in reference to the IBEC contribution, every committee member who has spoken has asked whether there is an opportunity to broaden this set of sessions to business insurance and insurance generally. I am getting restaurateurs, publicans and hoteliers all saying that their insurance costs are increasing massively, which has nothing to do with their claims history, any incident, reckless behaviour or health and safety issues. It is just that these costs are arriving and there is almost nothing one can do about it. One shops around and, as Deputy O'Rourke said, one might get €50 off, but that is not what a lot of people would regard as normal competition. That is the frustrating thing. The point I took from Mr. Fielding is that the MIAB is very important, but equally it is about the data and what we do not see or know.

We have anecdotal stories about investment performance or otherwise. We have stories about solvency levels having to be brought up to new rules and therefore they are trying that. We have various other things about the overheads of insurance companies, sponsorship of various other things and marketing budgets which are out of control. We are told that is where it is all going. Then there are the legal costs. We mentioned yesterday when the Minister was here the idea of a care-not-cash model, and he was saying that it sounded very innovative, which I think it does, but the argument from the legal profession may be that it moves the money from the legal profession to the medical profession. I am not sure I am convinced of that. Equally, Mr. Fielding mentioned 300%. Why do we have whiplash awards of €15,000 here versus £5,000 in the United Kingdom, while it is virtually nothing in mainland Europe? That is what we are being told. Certainly, we need data. The Minister and his working group are investigating things we are not involved in and will bring stuff back to the committee. We just do not know if there are profits or profit gouging, with supernormal profits being made here, or whether it is genuinely the case that settlements are much more expensive than they were. The committee really needs anonymised, aggregated data from all of the players. We heard earlier that there are 24 players, of which 11 are based in Gibraltar. Equally, we heard this morning that there are really only five main players in the motor insurance business.

I note to Ms Callan that a book of quantum is really only going to be of benefit if it is somewhat binding. If it is just there and one can have regard to it or, equally, ignore it, I do not know how much value it can have. There is a concern that it will normalise what is currently abnormal, and that is a very important point. On competition, we heard this morning from various sources that people are more likely to be leaving this market than coming into it. We do not seem to have a great record right back to PMPA and, more recently, Setanta. One could include Quinn Insurance in that bundle of companies that sold stuff apparently cheaply. If one did not have a claim that was fine, but if one claimed, it was not resolved as satisfactorily as one might have liked.

What I took away from the IBEC contribution was its legal costs and that that is the emphasis it would like to put on the issue. Was Dr. Gillen indicating he would like to come in on that point?

Dr. Michael Gillen

In answer to Deputy O'Rourke's question, what we would like members to ask the insurers when they come in next week is to agree to sign up to this type of black box concept. Like Mr. Fielding, I was involved in this area in the early 2000s. We asked them for the same data we will ask them for again, and they will argue that on competition grounds they cannot give it to members. The research we have conducted does not support the idea that super profits are being made in motor insurance. If there were, the insurers would not all be leaving the market; they would be joining the market. Members should therefore park that idea. It is easy to hit out at the insurers and claim super profits are being made. They are not making money on motor insurance at the moment. They have the data that will allow people to form concrete decisions as to how to address the issue but they are nervous to release them on competition grounds. The black box will work because it will be done anonymously. As Dr. Walker said, it works really well for the producer responsibility schemes, such as for WEEE. It is a very efficient and very effective method for getting the data out there. There are mountains of data that are not being mined.

By way of clarification for Senator Conway-Walsh, the numbers Mr. Fielding quoted from the Injuries Board show that when people engage with the board, it works. The amounts it has been awarding over the past ten years are more or less consistent. However, approximately 40% of all assessments made by the Injuries Board are rejected by claimants. Either they decide they can get more elsewhere or they are advised they can do so. That is where the problems begin and where the insurers will make the decision, based purely on risk metrics, that it is cheaper to settle, even though they think they could win, than to take the chance of going in and having an award for €80,000 or €400,000 made for the exact same injury. If members are to ask the insurers anything next week, they should ask them to sign up to this black box concept. All of a sudden a mountain of data will be made available for members to mine effectively, and it will form a very solid basis on which to base new legislative agreements. The Motor Insurance Advisory Board has largely morphed into what is now the Injuries Board. As Mr. Fielding said, the bulk of the 67 recommendations were adopted, but what we never adopted was a metric whereby people could be compelled to engage with it and we never adopted a process whereby the data insurers had could be made available anonymously in a non-competitive way such that people could mine them effectively.

For my own clarification, Dr. Gillen is talking about somebody or some organisation trusted with all the data, which come out in aggregate form which the industry is collecting and which show it is spending a certain percentage on legal costs, on medical costs, on material damage repair claims, on injuries and so on in order that we see how the motor insurance industry is performing in its totality within this jurisdiction.

Dr. Michael Gillen

Correct.

That is what we have all been talking about from the very first moment yesterday morning. We all have buckets of stories and anecdotal evidence, which is all true in itself, but the data in totality may not reflect it or may absolutely reflect it. We just do not know. The only thing we know is that motor insurance premiums have gone up by 36%, 38% or 40% in the past 12 to 15 months. I am sure every one of us knows from our own insurance renewal premiums - I certainly do - that they are going up by those percentages. Are there any other points the witnesses would like to address? Ms Callan and then Dr. Walker, if that is okay.

Ms Patricia Callan

I would like to come in on the data point. What the Injuries Board assessment shows is that it always sticks to the book of quantum. That is why it does not vary year to year. We know that the court awards increased by 30% in one year, in 2014, and we know that the insurance industry has lost €120 million on motor insurance, so it is loss-making. In answer to all of those years in between when this was not an issue, there was more competition in the market. In fact, some of those traders who were trading badly meant that the price probably came down too much and that is why we are-----

And we are all paying for it now.

Ms Patricia Callan

-----facing into this now. Ideally, what one wants is to get the motor insurance industry data from those companies before the book of quantum is reviewed, because it was 70% of the market. Then one has a proper assessment. However, it will also be very important to attract new companies into the market. If I am deciding whether this is a good market for me, if I really understand all the variables, then I, as one of the other, newer entrants, is more likely to come in. Again, this is very much Central Bank regulatory territory, so that would be critical, but we need to revisit the Setanta decision. No company in its right mind - and I represent businesses and understand how business works - is going to come in with its risk assessment, cost base, marketing and everything else and then have this hurdle thrown at it from outside over which it has no control.

We take that point. The likelihood is that any new entrant will go in to get business for itself, but that will, by and large, be at the expense of other business, particularly in something like motor insurance. One does not create extra motor insurance just because one enters the market. One can argue in an airline scenario that if one drops the price enough, people travel more, but there is one motor insurance policy for a person's car or per person, and a new entrant, if it does it right, will damage other businesses. Then the customer is supposed to pick up the tab if that business fails, which is a peculiar way of looking at things.

Dr. Neil Walker

Just to clarify, I would not want to give the impression that we are saying that legal costs are the main part of the problem. They are a symptom of the broader problem. The problem starts in the courts. That sets the benchmark for everything else, and it is a fact that on a very low-risk basis a solicitor can say to a client that he or she will get the client 50% more than whatever the Injuries Board offers. Why would the client say no? That needs to be eliminated so the judges will not be awarding 50% more. Then there is no need for the solicitor. In fact-----

Dr. Neil Walker

Yes, and in fact, one of the things that perhaps ought to be more widely known - although the Injuries Board will not be able to say it, we will say it - is that if the majority of the Injuries Board awards were accepted, there would be no incentive to bring a solicitor along. They would just take a cut from whatever is awarded. There should be no need to bring a solicitor in, but the reason that people do so is because many of them are keeping their options open of going on to litigate afterwards or at least knowing that they have a very good chance of doing better than the Injuries Board award, not because of a clever solicitor, but because that is what the courts are doing because they think there is 12 years of inflation. However, the problem is that the level of awards set 12 years ago is still two to three times higher than the current British awards. There are a range of awards, but the top of the British range is generally lower than the bottom of the Irish range. That 300% factor is like comparing the middle of the ranges.

We have had a very productive and helpful discussion from all of the witnesses, whom I thank for their opening statements and the questions - and answers - session since. Motor insurance premiums went up by 35 to 40% in the last year. What does each organisation believe to be the number one reason - or two or three reasons if the witnesses need them - for this rise in the past year? Is it claims, an attempt to recover past losses or solvency? What do the witnesses think is the real reason premiums are up 40% in a year?

Mr. Mark Fielding

I will go first. It is a combination of all of what the Acting Chairman has just said, and it is quite difficult for anybody on the outside to give a definitive answer and say it is this one reason or that one. However, the committee has heard today from the legal side of things. It has heard, as I said, of the lazy financial management of insurance companies over the years. We only have to consider where we were back at the turn of the century to see we are in exactly the same position. The committee should consider the MIAB and what it did and see the figures that it got. Until 2013 there was a 40% reduction in motor insurance premiums because the MIAB was able to get at least some information together. However, it comes back again to the information. I honestly could not give the committee one reason, but it is a combination of all of those. We need to know what the factors are so that we can drive at those. Is it because our judges have gone AWOL? Is it because the doctors are charging? Of course it is not. It is not one particular thing; it is all of the above.

Ms Patricia Callan

I certainly agree that it is multifaceted. I have bilaterally met all the insurance companies, trying to work through these issues for members.

The Solvency II directive, the reserves, the state of the investment market and other such financial issues which we do not consider when we think about claims and accidents are factors in the background. As has been said, there really are only five companies, which are all multinationals that operate elsewhere. They wonder why they are in this market. As an association, our real worry is that if one of them pulls out, we would be in serious difficulties.

Without putting words in Ms Callan's mouth, she does not buy into the idea that super-normal profits are being generated here.

Ms Patricia Callan

Not based on what they have told us.

Not without the data to substantiate it.

Dr. Michael Gillen

I would love to be a position to answer the question. I truly believe, however, that if I were to give an answer, it would be based on anecdote and hearsay. This is why I reiterate that in the absence of independently verified concrete data no one can answer it. We can all give an opinion, but the trouble with the debate to date is it is based on opinion and not facts. If the committee gets the data it will have the answer.

What do the witnesses think of the Competition and Consumer Protection Commission getting involved and examining what is going on to see if we can get the answers we need? We spoke earlier about the Consumers Association of Ireland trying to get to the bottom of the issue. I asked about a regulatory body getting its teeth into it to get the information required. If the information is all so good and can be validated, what is the risk of putting it into a public forum where it can be analysed and examined? I am concerned as to why the information is not being put out there. As Ms Callan stated, this is the thin end of the wedge. Next will be home insurance and insurance for businesses creeping up.

No one is suggesting the insurance companies are making massive profits, but they are doing something in a very closed, unacceptable and concealed manner. They have a blank cheque with regard to motor insurance premiums for businesses and private citizens and it is not good enough. This is what we are dealing with.

The courts should have a matrix of awards so if someone is unfortunate enough to get whiplash in an accident and gets cash instead of care there should be limit. The problem is a judge might give me €5,000 and give someone else €15,000. This is a huge issue and it is a factor. They are not above the law either and they must be accountable. It is no one person's responsibility to solve this - a partnership approach is required. That is why the motor insurance advisory board or an equivalent body could play an important role. It would bring all stakeholders together, which is the only way this will be solved.

Do any of the witnesses have an opinion on the Competition and Consumer Protection Commission looking at the figures? Dr. Gillen's point was on the concept of a black box and all of the players' data becoming available anonymously and not for the benefit of competitors. At a previous session, the point was made that it could be argued the industry is operating as a form of a cartel, and on this basis the Competition and Consumer Protection Commission could be used to get stuck into the figures involved but this is not Dr. Gillen's point. What are his thoughts on such an idea? We have had much talk in the past week about EU Commissioners looking at various competition matters and using them as a way to interrogate issues.

Dr. Michael Gillen

From our research, there was no evidence of cartel-like behaviour. In fairness, the point of a cartel is to make money and all of the evidence suggests the companies are losing money. I had not considered the competition angle, but the analogy I would use is a small country town with five shopkeepers all of whom are asked to announce to the entire populace how much they will charge for a chicken on any one day. If only one person states the price, a competitive advantage is immediately given to all of the others. My black-box concept would override this. I do not believe the Competition and Consumer Protection Commission is set up to do this type of work. I can understand it wanting to get its hands on it, but I do not necessarily-----

We are not saying it does. Members suggested that it should.

Dr. Michael Gillen

I do not see how it could resolve sharing data and making it available to help the committee with its work.

Ms Patricia Callan

We have a very regulated industry in the insurance sector. Companies are regulated here and at EU level. From our experience of dealing with banks in recent years when we asked for more data on SME lending, the banks found a way to give the data to the Central Bank which gave them back to us in a way that was not anti-competitive.

Acting Chairman (Senator Gerry Horkan) No one knew who it was from.

Ms Patricia Callan

We definitely found a way around it in the banking sector so I imagine the Central Bank could play a role in this regard. I do not think it ever does any harm to ask the Competition and Consumer Protection Commission for its opinion. We should also ask whether there would be any barriers. That is why the commission exists.

Dr. Neil Walker

We spent a great deal of time - this is detailed in the report - trying to reconcile the numbers the Central Bank published its recent bodily injury thematic review with the numbers published by the Injuries Board and we cannot reconcile them. One would expect the Central Bank estimates on something as simple as the average size of a claim to be bigger because it is forward looking and includes provisions for legal costs but it is the other way around as far as we can tell. The famous headline regarding a 27% increase in premiums was based on a much smaller number than that of the Injuries Board and we cannot fathom this. Until we have hard data, we could have one regulator telling the insurers to charge more because they do not charge enough while another states they are acting as a cartel and need to charge less. A battle of regulators would not be terribly helpful. We can agree on facts but there is a big shortage of them at present.

On behalf of the committee, I thank the witnesses for their genuine, honest and open engagement with us in their opening statements, questions and answers and the documents they sent us in advance of the meeting. I particularly thank members, who were very participative in the process.

The joint committee adjourned at 5.20 p.m. until 11 a.m. on Tuesday, 13 September 2016.
Top
Share