I thank the committee for the opportunity to allow FBD to give a view on the cost and availability of insurance in Ireland. FBD is the only Irish insurer. It is also the only public insurance company operating in the Irish market. We do not conduct any business outside the Republic. The original share capital to start this company was in £50 stakes, gathered throughout the country from thousands of farmers, who, along with their families, to this day remain among FBD's most loyal customers. We have 34 branches and employ 900 people in Irish towns throughout the country. We have direct relationships with our customers, writing 95% of our business directly and not through brokers.
Farm, food and agriculture remains our most important customer group to this day. Some 85% of all our premiums are with small and medium businesses - we are writing insurance for the shops, the pubs, the restaurants, the tradesmen and farms that make up the backbone of the economy. Our customers’ businesses are predominantly those that are family-owned and managed. We survive and prosper on Ireland’s economic growth and success and on our customers’ growth and success. It is the strength of our relationships with these customers and the quality of the service we provide them that has underpinned our business for 50 years. Like all good businesses, we know that our success is linked to our customers’ success.
We are proud of our contribution to and track record in Irish business life. We believe in the social utility of our product. Opening and operating a business in Ireland today is not for the faint-hearted. There is plenty of risk in it, as any business person will say. However, no small business could even start to hang out an "open for business" sign, no individual could borrow to buy a house, unless the risk of a fire or the risk of being sued if someone trips is taken away from them. Insurance is a cornerstone of entrepreneurship. FBD has served many Irish businesses and continues to do so. We want to grow our business. FBD competes through our risk selection and our pricing, and through the men and women who meet the customers, work up health-and-safety practices and underwrite those businesses and farms. We compete again and again with the huge multinationals that operate here and also with naive foreign capacity that is not regulated here and that comes in with unrealistically low prices for a few years in the belief that Ireland will behave in the same way as the greater Manchester area, and then, after a few years, when the losses are unsustainable, they quit, leaving a destruction in their wake and the rest of the market with no background or expertise in the classes of business they wrote. This is what happened with play centres.
FBD is writing difficult risks and writing some of these at a loss. Examples of the risks include marts, piggeries, poultry farms, pubs, shops, hotels and agricultural contractors. We are committed to our sectors and we are providing stability. FBD very much wants to write more business. For example, we wrote over 200 new shop accounts in 2018. We want to grow geographically, particularly in the major urban centres, and we recently opened new offices in Limerick and Cork city and two in Dublin.
There are many factors which influence the cost of insurance for the Irish customer but chief among these is the high cost of bodily injury claims. Injury awards are also significantly higher in Ireland than elsewhere. At the simplest level, and if we take the example of the play centres again, the average public liability award at the Personal Injuries Assessment Board, PIAB, is €27,000. If the premium for a business is €2,500, then, if there is even one claim in ten years, the ten-year premium will not exceed one single average PIAB award, never mind a claim that goes to court. How many businesses in today’s environment, where the courts apply a duty of care so high and where modern standards for health and safety place all onus on the operator - and, sadly, in the context of the absence of individual responsibility once the person walks onto the business premises, not to mention those who may be trying it on - will withstand that test of one claim in ten years, let alone one where minors are involved?
It is our belief that structural reforms are necessary in order to moderate the cost of such claims in the future. The current one-way bet in the courts system must change. It provides an incentive for those who want to have a go and each and every case, no matter how spurious, must be defended. That costs money. Absent such structural reform and in this prevailing interest rate environment, the current high cost of insurance is solely a function of the cost of its current inputs, which means predominantly claims costs, particularly soft tissue claims. As a society, we have a choice: we can encourage entrepreneurship and business through lowering the cost of insurance or we can continue to be the most generous payer in Europe. Our current injury compensation system is directly at odds with business. We cannot have it all. Cheap insurance is an economic impossibility in this environment. Society must choose.
FBD is charging more than it was five years ago – that is incontrovertible. However, I would like to tackle the false idea that we are making outsize profits at the expense of our customers. It is difficult to sell price increases and no business likes to lose customers. However, if we take it as a given that, unlike other businesses, on the day we make a sale, we do not know the cost of goods sold because we do not know how many claims we will have, we can see that an insurance business can be inherently risky and difficult to get right. FBD has come out of a period of five years in which we have written cumulatively €1.8 billion in insurance premia. Our underwriting profit for that period was €22 million. This represents a tiny net margin of 1.2%.
FBD is an open book in transparency terms. As a result of the fact that we are a public company, all of this information is published on our website. These are not outsize profits. The company and its employees have completed a major turnaround to make a profit of €50 million in the last two years, and we are proud of that. For these two years, this represents a normal double-digit return on equity. What we have accomplished has been difficult. All our customers are paying more, we have lost some customers, we have lost 150 jobs, we shut down some businesses, we sold our hotels, we raised capital, we stopped our dividend, we changed our board structure and changed management and we invested in technology and skills. We are now healthy and stable and paying a dividend again. FBD is a business. It has shareholders who put their money at risk and they expect us to make a return. Like all businesses, we do not apologise for making a profit.
FBD is ambitious for growth and success. We are targeting specific markets for growth, including farms, homes, shops, pubs, restaurants and motor. However, if we are to survive as the last remaining Irish company competing with gigantic international names, like some of those the committee has just heard from, we must observe the rules of business, reward those who put their capital at risk and provide a service that differentiates us from the competition. FBD does this by being close to its customers, understanding their business and operating alongside them in our communities. We are open for business. We want more customers but we do not and will not sell below cost.
We believe the economy and the customer are best served by a strong, independent local operator focused on long-term relationships with its customers. In other words, a company just like ours. This means that we must continue to survive and thrive in this crowded market, where lawyers take home 40% of all court awards made, where international names disclose little and operate to different capital standards and where foreign-regulated competitors come and go at will, with little thought for the market disruption they leave in their wake.
FBD is charging an economic price for an excellent product and service. We are contributing to the economy. After much work, we are finally making a fair profit. FBD shares the frustrations of our customers. I have been in this job for more than four years, calling for reform. To encourage business and entrepreneurship, to lower insurance costs, there is no quick win. Tackle the legal system, the level of awards, the speed of access to court and the amount it costs to access it. Tackle the impossible standards that small businesses are held to in a personal injury court case, and the total responsibility they must take for anyone crossing their threshold. Look at the enormous sums of money being made by the legal profession on bodily injury awards. Look at the vested interests. This is not an easy problem to solve and only hard yards on complex issues will solve it.