Insurance Sector: Discussion (Resumed)

We are dealing with No. 5, the difficulties being experienced with insurance. The committee recently heard direct evidence about the difficulties faced by businesses with the escalating costs of insurance. To assist us in our consideration of this matter, I am pleased to welcome: Mr. Declan O'Rourke and Mr. Owen Kelly from AIG Insurance; Mr. John Quinlan, Mr. Brian Mahon and Mr. John Farrell from Aviva Insurance; and Mr. Anthony Brennan and Ms Siobhán Corbett from Zurich Insurance.

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.

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 outside the House or an official either by name or in such a way as to make him or her identifiable. We have a number of opening statements. I invite AIG to give its opening statement first.

Mr. Declan O'Rourke

We thank the committee for the invitation to give evidence today on behalf of AIG. We understand the valuable work of the committee and the importance of these hearings and welcome the opportunity to contribute to the discussion. My opening statement will provide some background on AIG in Ireland and then address the costs and availability of insurance in Ireland.

AIG is 100 years old this year and has operated in Ireland for 43 years. AIG companies have a team of 900 people in Ireland. The team is involved in insurance and shared services, both domestically and internationally. Domestically, AIG is the seventh largest general insurer and the second largest health insurance provider in Ireland. In addition, the AIG team in Ireland provides IT support to AIG operations in Europe, the Middle East and Africa. The AIG team also provides treasury and investment services to AIG globally from Ireland. Our general insurance business is roughly €300 million in premiums, 50% in insuring individuals and 50% in insuring companies. Our principal lines are financial, for example, directors and officers insurance, professional indemnity and cyber insurance, motor insurance, travel insurance, liability insurance and property insurance. For 40 years, AIG has been the insurance partner for large and small companies, not-for-profit organisations and consumers in Ireland. Operating in over 80 countries, our global footprint combined with our local presence and knowledge has enabled us to support the insurance needs of Irish based companies expanding in the EU and around the world, as well as the insurance needs of US and other multinational businesses in Ireland. We are proud of the part we play in safeguarding people and property.

The high cost of insurance has been an ongoing challenge in Ireland for many years. Representing the Government back in 1992, the former Minister, the late Des O’Malley, stated in the Dáil that insurance costs in other countries are only a fraction of what they are here. However, the claims and awards in other countries are also only a fraction of what they are here. Inevitably, the former is a reflection of the latter and that will continue. As has been discussed, Ireland has experienced significantly higher personal injuries awards from its courts than comparable European jurisdictions, with awards for minor injuries, on average, 4.4 times higher than in the UK, according to the Personal Injuries Commission. Claims awards and legal costs make up the majority of insurance premiums, and this is a key factor in the cost of insurance in Ireland. The higher awards arise from a combination of factors, including the relatively high award levels for personal injury claims set out in the book of quantum, the inconsistency of awards made by the courts, and a time-consuming and costly appeal process. There is real commitment from Government, the Oireachtas and key stakeholders, including the insurance industry, to implement change. We welcome the Judicial Council Act 2019 as it provides an opportunity to address some of the root causes of higher insurance costs by creating a fairer and more consistent framework for the allocation of personal injury awards. We look forward to the establishment of the personal injuries guidelines commission, under a judicial council, to oversee the delivery of new personal injuries guidelines. We also support the Civil Liability (Capping of General Damages) Bill 2019.

It is critical for the market that insurers are well capitalised with a strong governance and risk management framework. For insurers to continue to provide services to consumers and businesses, they also need to be profitable. Although the Irish motor insurance market made a profit for the first time in many years in 2017, liability remains loss-making. In the last six years of published data, the liability market has made a net underwriting loss of over €500 million and the motor market has made a net underwriting loss of over €800 million. This has led to some companies exiting the market or exiting poorly performing segments, which has impacted the cost and availability of cover in these areas. We want to work together with the Government and Oireachtas to create a sustainable, fair and consistent cost framework for insurance claims, allowing AIG to play its role supporting businesses and consumers in Ireland.

Mr. John Quinlan

The issues being discussed today are of great importance to economic well-being and we welcome the opportunity to contribute to the discussion. Aviva has been operating in the Irish market for nearly 240 years. This year, we reinforced our commitment to this market by completing the establishment of separate legal entities in Ireland for our general insurance and life assurance businesses. This allows us to continue to protect our customers and serve their best interests in Ireland post-Brexit. We employ circa 1,600 people in Dublin, Galway and Cork. We are a socially responsible insurer that seeks to deliver value for all stakeholders, including our customers, over the long term. We contribute significantly to national sports and community organisations through our sponsorship of the Aviva Stadium and our support of charitable and community causes. We are one of the largest providers of insurance in the Irish market, with a general insurance market share of approximately 15%. To give a sense of that figure, we insure one in every five small and medium enterprises, SMEs, one in every five motorists and one in every six homes. We are well placed to know and understand this market and we exist to pay our customers claims. We hear from our customers on a daily basis about the difficulties they are facing as a result of the problems in the insurance market.

What is driving the cost and availability of the insurance sectors under discussion today? We point to three areas that have caused challenges for profitability in the market. Those challenges are the increasing cost of claims, a reduction in investment income and a reduction in premiums. The problems faced by the insurance market became a consumer issue from 2015 onwards, manifesting first in significant increases in customer premiums and thereafter in significant reduced availability of cover for certain market segments. Most domestic insurers reduced capacity for volatile and unprofitable segments of the market, including leisure, and these were replaced primarily by UK-based insurers. The additional problem, as highlighted in the media recently, is that these UK insurers are now exiting the market. Business customers in these sectors can find it difficult to get a quote and if they do, it can be at prohibitively expensive prices.

The cost of insurance working group was established in 2016 to address the issue of increasing insurance costs. The group correctly identified the need to establish the Personal Injuries Commission, PIC. One of the most significant aspects of the PIC was that for one of the first times ever, it included representatives of all stakeholders, including the Law Society, insurers, the Bar Council, the medical profession, consumer and competition representatives and relevant Government Departments. The excellent work of retired Mr. Justice Nicholas Kearns, who chaired the PIC, confirmed that personal injury award levels in Ireland are 4.4 times those in England and Wales, with the commission unanimously recommending the establishment of a judicial council to recalibrate awards back to reasonable levels. When whiplash awards are aligned to levels in England and Wales, this will result in substantial premium reductions.

What are the key changes that need to be made to improve the landscape for the cost and availability of insurance? The insurance landscape continues to create significant issues for Irish customers in terms of premium volatility and the withdrawal of insurance underwriters from what is an open market here. The issue of excessive award levels was validated by the cost of insurance working group and the Personal Injuries Commission and Aviva fully supports the recommendations they outlined. However, our customers remain frustrated that in spite of all the activity in implementing changes, there has been no real reduction in claims costs and, as a consequence, we cannot deliver more substantial premium reductions and sustainable premiums.

Business customers face an additional challenge. The excessive award levels have created a "compo" culture that is significantly impacting the liability market in Ireland. In our experience, the courts are taking a much broader view of the duty and standard of care. We are asking the Government to review the law of negligence as it applies to personal injury actions against small and medium enterprises, SMEs, and community and voluntary organisations in Ireland.

What has Aviva done to promote, encourage and deliver these required changes? In 2015, we launched our “road to reform” agenda and wrote to our customers highlighting the reasons for the rising cost of premiums and the changes required to reduce the cost. We have since proactively engaged with key stakeholders including Ministers, Opposition spokespersons and senior officials in the Departments of An Taoiseach, Finance and Transport, Tourism and Sport on the drivers of premium increases and the urgent reforms required. We recognise the need to substantially increase our capacity to prevent and detect fraud. We have invested heavily in our fraud team, which now has more than 30 dedicated fraud investigators working alongside a network of more than 50 additional claims investigators nationwide. Over the past three years we have worked very closely with the Garda Síochána and have increased the reporting of criminal disclosures to it under section 19 of the Criminal Justice Act 2011. In addition, we have proactively engaged with the Garda, industry stakeholders and the media to raise awareness of the issues of claims fraud, ghost broking, which involves the sale of counterfeit policies, and fraud tourism, involving claimants who travel to Ireland from countries with lower award levels solely to commit insurance fraud.

What is Aviva’s commitment to Irish consumers if the required changes are delivered? Aviva will continue to operate prudently from an underwriting and pricing perspective, as it always has, to ensure that we are here to protect our customers when they need us most, namely, at point of claim. The target return we hope to achieve is a small percentage of the overall cost of insurance. Most of a premium goes towards paying our customers' claims. For example, 65% of motor insurance premiums goes toward paying claims, with a further 11% going towards paying levies and claims from uninsured drivers. The cost of claims remains the largest influencing factor on the cost of insurance in Ireland. We would be delighted to pass on lower premiums to our customers who are bearing the brunt of these excessive awards. Changes in the awards handed down are essential if we are to deliver lower and more sustainable premiums to our customers and we encourage the Government to prioritise the completion of this reform process. We are committed to ensuring our customers will benefit directly from any such reductions when claims costs come down.

What is Aviva’s request of the Government and the committee? The biggest factor determining the cost and availability of insurance is the cost of claims. The mechanism to address this is a recalibration of award levels as provided for in the Judicial Council Act. Aviva calls for the establishment of the judicial council without further delay and for it to then establish the personal injuries guideline committee to recalibrate injury award levels as a matter of urgency rather than in accordance with the maximum timeframe permitted under the legislation. Aviva also asks the Government to review the law of negligence as it applies to personal injuries actions against SMEs and community and voluntary organisations.

I thank the Chair and members.

Mr. Anthony Brennan

I thank the committee for the opportunity to discuss the cost and availability of insurance in Ireland. Zurich welcomes the opportunity to be part of this discussion, contribute to the work of the committee and discuss the next steps in the reforms required to address the challenges on the agenda today. As this is our first time to appear before the committee, I will briefly introduce Zurich Ireland. It was originally founded in Cork in 1952 and has been part of the global Zurich Group since 1998. Our AA- financial strength rating means Zurich customers can rely on us to consistently deliver on our promises when it matters. We are a proudly Irish business with a 100% local management team focused solely on the Irish market, with 380 employees across our Dublin and Wexford offices. We write over €300 million in premiums in Ireland, giving us a market share of approximately 9%. Our business profile is similar to that in the market overall, with 45% of premiums in motor insurance, 30% in property and the remaining 25% spread across a number of more specialised business lines including farm, financial lines and liability business.

Like most companies in the market, Zurich experienced the ups and downs of the Irish insurance cycle in recent years, with underwriting losses after several years of falling premiums and rising claims costs across the industry. In 2015 we enacted a turnaround programme to restore our business profitability. By 2018 we had completed the programme and delivered a 6% underwriting profit on our written premiums. Even during the turnaround period, we continued to experience consistently rising claims costs. The continued rise in claims costs and volatility has been the key driver of increased insurance premiums and reduced availability of cover in certain lines across the Irish market. We have worked to help drive change and reform and have been consistent and active supporters of the actions outlined in the reports of the cost of insurance working group which lay out a clear framework that can deliver real change for Irish customers in terms of internationally benchmarked claim awards, faster resolution of those claims and improved predictability of total claims costs which will deliver reduced cost and increased availability of insurance for Irish customers.

We accept that providing more consistent and transparent industry data to independent bodies such as the Central Bank will help all stakeholders to understand relevant trends and drivers of performance. We have seen the useful impact of making such data available through the work of the Personal Injuries Commission which used independently verified industry data to drive an informed debate on the level of personal injury awards in Ireland and provide that Irish soft tissue injury awards are more than four times the level of such awards in the UK. It determined the cost of inaction on the issue, with awards for such injuries increasing by more than €900 each year benchmarked from 2011 to 2016. We welcome, therefore, the recent passage of the Judicial Council Act through the Oireachtas. It promises to be a significant step in reforming and modernising the way our courts work. However, real measures need to be implemented as a matter of urgency to align the level of compensation awarded in Ireland with that in other jurisdictions. We also welcome recent Court of Appeal rulings which recognise that minor injuries should attract appropriately modest general damages. We acknowledge and welcome other key steps taken in 2019 such as the progress of the Civil Liability (Capping of General Damages) Bill and the commencement of the Personal Injuries Assessment Board (Amendment) Act which should enable more timely and accurate settlements to injured parties.

The introduction of the Personal Injuries Assessment Board in the early 2000s was a landmark event and initially led to material reductions in the duration and cost of claims as well as delivering reduced insurance premiums across the market. These benefits have been eroded over time as more and more claimants have chosen to reject the recommended awards and instead pursue a longer, more adversarial and more costly settlement path. The steps I have outlined are key enablers of reform and it is important to acknowledge progress that will benefit customers, insurers and society. However we must also acknowledge and act on public frustration with the pace of change and the need for a continued sense of urgency. All stakeholders need to remain engaged and vigilant to ensure the benefits are delivered and maintained from these actions and not allowed to erode over time as happened with the Personal Injuries Assessment Board.

We recognise the committee’s major concern regarding the cost and availability of insurance in the Irish market. There are a number of factors, so how do we fix the problem? The way forward is to continue to deliver the recommendations laid out in the reports of the cost of insurance working group, which lay out a comprehensive suite of reforms agreed through co-operation and commitment across multiple stakeholders. We cannot get away from the fact that the single biggest input into our calculation of insurance premiums is the cost of claims. Insurers transfer the risk and cost of claims and we share it across our portfolio. This means the cost of claims directly impacts on every insurance premium we calculate and collect from our customers. Our premiums must reflect the prevailing level of awards to ensure our business is sustainable. If the level of injury awards and incurred legal costs reduce, this will drive meaningful reform in the claims environment which will deliver a stable and sustainable cost of insurance for businesses and consumers. We want to be part of the solution and we welcome any help from the committee to maintain the necessary sense of urgency on reducing uncertainty and delivering these core reforms. I wish to take this opportunity to confirm that we will pass on the benefits of reduced claim costs to our customers. I thank the Chair and look forward to answering questions from members.

I welcome all of the witnesses to this committee hearing, which follows on from our previous one with AXA, FBD and Allianz. Today, I would like to follow up with a few quick questions. All three insurers present share a common theme. Mr. O'Rourke from AIG stated: "Claims awards and legal costs make up the majority of insurance premiums and this is a key factor in the cost of insurance in Ireland." Mr. Quinlan from Aviva Ireland stated: "The cost of claims remains the largest influencing factor on the cost of insurance in Ireland." Mr. Brennan, representing Zurich, stated: "We cannot get away from the fact that the single biggest input into our calculation of insurance premiums is the cost of claims." I ask the witnesses to break down the premia into the cost of claims, awards, legal fees, administration and the profit margin that they seek to cover. My request is simply to elicit the information and I ask Mr. Quinlan to respond first.

Mr. John Quinlan

I am happy to start, Senator. Let us consider a typical premium. Our premia is made up as follows: Claims would represent 65% out of €100 and of that 65% the legal fees would be 19% or 30%; levies, including for uninsured drivers, would be 11%; commissions to intermediaries would be 9%; our expenses would be 12%; and our profit would be 3% but that is a target. From 2012 to 2018, one can see from the facts that we achieved nothing like that.

I will be consistent in terms of my questions to the previous three insurers of AXA, FBD and Allianz. Am I correct to say that the target of profitability in Aviva is 3%?

Mr. John Quinlan

We would look for 5%. When one looks at the interest rate environment and what is happening in Lloyds, one of the reasons that capital is withdrawing is because interest rates are so low that people have to make money at the underwriting level.

What was Aviva's premium income in 2018, which is the most recent year?

Mr. John Quinlan

Our premium income in 2018 was €508 million.

What was Aviva's profit?

Mr. John Quinlan

Our profit was €58 million in our general insurance business.

Is that a profit margin of 10%?

Mr. John Quinlan

One is looking at lots of different moving parts within that. One is looking at benign weather, which is a factor. We have a hurricane, potentially, on the way, which can cost a multiple of millions of euro in damage. When one considers the return that we make the figure I would always consider is our combined operating ratio.

Mr. John Quinlan

Our combined operating ratio is the critical figure of our premiums, less claims costs and less expenses. If that is less than €100 million then we are making money without having to rely on investment income, which we cannot do. Our group, to attract capital in Ireland and remain safe, will require a combined operating ratio of 95% out of 100%. It is important that we continue to attract capital here. We are struggling to do so, certainly from the Lloyds market following its remediation of its book.

What does AIG seek in terms of the breakdown of the premium?

Mr. Declan O'Rourke

Typically, we are quite happy with the industry norm of 5%. AIG has a similar breakdown of between 65% and 70% for claims.

What was the turnover for AIG in 2018?

Mr. Declan O'Rourke

It was €280 million.

What was the profit?

Mr. Declan O'Rourke

We lost money in 2018.

What was the loss?

Mr. Declan O'Rourke

It was €30 million.

Is the target margin 5%?

Mr. Declan O'Rourke

Correct.

What was 2017 like for AIG?

Mr. Declan O'Rourke

We consider things over the long term. Over a six-year period, for every €100 we collected, we paid out about €97.

What were the AIG figures for 2017?

Mr. Declan O'Rourke

In 2017, it was €314 million in premium so it was a year in which we broke even.

What was the turnover for Zurich in 2018?

Mr. Anthony Brennan

In 2018, it was €312 million. Our total breakdown for 2018 in terms of our actual profit margin was 6% and our cost of claims was roughly 63%.

What was the target profit margin?

Mr. Anthony Brennan

We would aim for about 5%.

So all three insurers aim for a 5%.

Mr. Anthony Brennan

In or around that, yes.

What was Zurich's profit?

Mr. Anthony Brennan

In 2018, we had an underwriting profit of 6% on the €312 million so that is roughly €18 million, plus €10 million of investment income, which means we had a total profit of €28 million.

Did Zurich have €10 million in investment income?

Mr. Anthony Brennan

Yes.

Was the actual profitability overall €28 million?

Mr. Anthony Brennan

Yes.

I am sure Mr. Brennan will appreciate that, to the ordinary person viewing this meeting, it would be higher than 5%.

Mr. Anthony Brennan

It would but that is the total, as I said, across €312 million in premiums.

If there was a reduction in claims and awards how much of it would be passed on to customers in reduced premiums?

Mr. John Quinlan

We have figures that I cannot provide, unfortunately, under competition law. Given the components of our premiums we will pass back anything above our 5% margin. We are absolutely committed, pound for pound, to return that by way of reduced premiums. I cannot give an exact figure but I can tell the Senator that we have done calculations.

Is it fair to say that Aviva will always seek to retain the 5%?

Mr. John Quinlan

Absolutely, Senator. We need to make sure that we are here to pay the claims. The cost of the Quinn liquidation to this State is €2 billion.

If claims are reduced will the profit margin for Aviva be reduced to 5%?

Mr. John Quinlan

One will see more competition come into the market, which is really important. A 5% margin, for any provider of capital in a risk-based industry, is a minimum acceptable return. The percentage will stay at that level but one will see substantial premium reductions. I cannot give figures under competition law, as the Senator will appreciate.

Will Zurich pass on a reduction in its entirety?

Mr. Anthony Brennan

Yes, and we have considered competition law. I cannot talk about our actual premiums but I can go a little bit further and talk about the theoretical premium calculation model. To be very clear, for competition reasons, I am not saying this is exactly Zurich's premium. Right now, if we consider motor insurance, roughly 30% of our claims are personal injury-type or soft tissue damage and we are four times the UK average. If we reduced the figure to twice the UK average, which is reasonable, and thus a reduction of 50%, I think I could bring that 30% in a theoretical model down to 15%. It would be quite reasonable that if that were to happen and insurers had reduced their prices, with all things being equal and somewhere in the region of 10% to 15%, the committee should ask us a lot of questions. I cannot really go much further than that.

For liability, where the vast majority of claims are injury related, it would be a higher percentage and probably close to 20%. Again, this is a theoretical pricing model and not a commitment on Zurich's premiums, which I cannot give for competition reasons.

Will AIG pass on a reduction?

Mr. Declan O'Rourke

We will take a reduction into consideration. It is the biggest part of our inputs and pricing so we will take it into consideration. If one looks back, because we cannot look forward with pricing legislation, one can see that when the injuries board was established premiums dropped dramatically fairly quickly. As the market has returned to profitability over the last couple of years one can already see decreases across the market, particularly on the motor side.

To date, the committee has met six insurance companies and AIG is the only one to make a loss. Why? AIG broke even in 2017 yet it showed a loss of €30 million on a turnover of €280 million in premiums in 2018. Have there been major write-offs? Was the loss of €30 million made after exceptional provisions were made? A loss by AIG is out of kilter with what happened in the rest of the insurance industry.

Why is that?

Mr. Declan O'Rourke

Our mix is different from that of a lot of the other insurers. We tend to write a lot of major multinational accounts and financial lines. We had a reasonably large adjustment in our financial lines piece that is separate from the motor and liability business.

I am reading from the Insurance Ireland fact file of 2017, which shows that the company was consistently among the highest. It had the second highest market share in the motor sector, the sixth highest in property, and the highest market share in terms of liability insurance.

Mr. Declan O'Rourke

Liability insurance for the fact file includes employer liability, public liability and financial lines. Financial lines is a different kind of business. It is director's and officer's insurance, cyber insurance-----

In that loss of €30 million, how did the company do in the areas of motor, property and liability insurance, respectively?

Mr. Declan O'Rourke

We made money in motor, we lost money in liability, and we also had a loss, mainly coming from prior years, in financial lines.

Is the latter the property line?

Mr. Declan O'Rourke

No. Financial lines is a much bigger part for us. We are not a major household insurer in Ireland. In the property side, we are more involved in insuring large commercial property.

Mr. O'Rourke referred to losses coming forward from previous years. Did the company make money in 2018 in financial lines?

Mr. Declan O'Rourke

In 2019?

Mr. Declan O'Rourke

In 2018, we did make money, yes.

The company made a profit in motor insurance. Mr. O'Rourke has said that in the financial lines, the issue was a provision coming forward from previous years. In liability, the company made a loss. Did AIG make a profit in 2018?

Mr. Declan O'Rourke

No, we made a loss.

How much of that loss was from previous years? Mr. O'Rourke referred to payments in respect of previous years.

Mr. Declan O'Rourke

Correct. We had what are known as prior year developments. If one excludes the prior year developments, we would still have made a small loss.

How small? Was it more or less a break-even scenario?

Mr. Declan O'Rourke

It was approximately €5 million.

An overall loss of €5 million. Would it be fair to say that the company almost broke even? How are things looking for 2019?

Mr. Declan O'Rourke

Again, it is going to be a difficult year. We have a number of very large losses in Ireland and one from abroad, and it will depend on how they work out.

Do the figures provided by Mr. O'Rourke relate solely to AIG's operations in the Irish market?

Mr. Declan O'Rourke

That is our total premium.

That is the total for 2018 for the Irish market. Is some of it for operations overseas?

Mr. Declan O'Rourke

Yes, some of that is overseas.

If we just drill down into the Irish market, how did AIG do?

Mr. Declan O'Rourke

I would say about €30 million of that is overseas. Most of our difficult lines are written here in the Irish market.

The company made a loss in the Irish market.

Mr. Declan O'Rourke

Correct.

During previous engagements with insurers, FBD representatives spoke about high levels of fraudulent claims. Will the witnesses outline briefly the percentage of claims they believe are fraudulent?

Mr. John Quinlan

I will pass that question to our claims director, Mr. John Farrell.

Mr. John Farrell

The main source of fraud is in the personal injuries area. In terms of the personal injury claims that we receive, approximately one in five would be fraudulent.

One in five personal injury claims, which is 20%, are fraudulent.

Mr. John Farrell

Yes, one in five or 20%. Over a three-year period, that is approximately 800. If one looks at the three-year period and the reports made to An Garda Síochána under section 19, we would have reported fewer than one in five of those.

The company reported one in five of that 20% to An Garda Síochána.

Mr. John Farrell

Yes.

I direct the same question to Mr. O'Rourke and Mr. Brennan.

Mr. John Quinlan

There were 100 cases this year and 500 over recent years.

Mr. Declan O'Rourke

Looking at our personal injury cases, we had 5,700 in total, which is a mix of employer's liability, public liability and motor. If we drill down into the figures for motor, where this issue is most prevalent, we have 2,500 personal injury cases, with red flags and cases being passed on to the fraud team at around 18%. We see ten being reported to An Garda Síochána and one conviction.

What percentage of claims does Mr. O'Rourke believe are fraudulent?

Mr. Declan O'Rourke

About 18%, according to our figures.

Mr. Anthony Brennan

We had about 2,700 injury claims last year. We have a three-line defence system but I will not go into that now. We identified 200 claims to be directed to our special investigations unit and we did not pay out on roughly half of those. In 2018, we reported four cases to An Garda Síochána.

What percentage of the claims does the company believe were fraudulent?

Mr. Anthony Brennan

Our fraud savings from those cases were roughly €15 million, which is approximately 6% to 7% of our total premium income. Obviously, we do not know about what we have not found, but I would be fairly confident that we found the majority of fraudulent claims against the organisation.

That is the number for the claims the company paid out-----

Mr. Anthony Brennan

No, it is for the claims that we did not pay. It is the savings compared with what-----

Mr. Brennan is estimating that fraudulent claims amount to roughly 6% or 7%.

Mr. Anthony Brennan

Yes, roughly 6% or 7% of our total premium income was saved.

Deputy Pearse Doherty is next.

I want to pick up on some of those numbers again, starting with Mr. Brennan. He said that the company suspected fraud in approximately 200 cases. Is that correct?

Mr. Anthony Brennan

We identified 200 cases with fraud flags, and with around 100 of those cases, we went further.

Mr. Anthony Brennan

In 2018.

In terms of the other 100 cases, did the company believe, on further inspection, that there was no fraud involved?

Mr. Anthony Brennan

There was no evidence of fraud. There was nothing more to work on. We have a number of flags for identifying fraud. When flags are raised, the cases are passed on to a specialist team who work through them to see if there is more evidence to indicate that they merit further investigation.

The company paid out on the other 100 cases. Is that correct?

Mr. Anthony Brennan

Yes.

There were around 100 claims that the company believed were fraudulent.

Mr. Anthony Brennan

Certainly there was an element of suspicion of fraud.

What percentage do those 100 cases represent of the overall number of personal injury cases?

Mr. Anthony Brennan

The 100 is out of 2,700 which represents about 3% to 4%. That is the percentage by number rather than amount. Such claims tend to be for higher amounts, which is why I referred to a 7% saving against the premiums.

It is 3% in terms of-----

Mr. Anthony Brennan

It is 3% in terms of the number of claims, but that works out at about 7% in terms of the value of claims.

Yes. I am only looking at the number of claims as such but I understand the point Mr. Brennan is making about the value. Zurich believes that in 3% of its personal injury claims it found sufficient evidence of fraud. In those 100 cases, the company did not pay the claims. Is that correct?

Mr. Anthony Brennan

Correct.

They were not paid because the company believed it had strong evidence that they were fraudulent. Is that correct?

Mr. Anthony Brennan

We would have challenged the people making the claims, and in some cases they withdrew their claims. Some cases moved forward towards the court process and we simply said that we were not paying. Some cases would have been dismissed.

Only four of those were reported. The company believed there were around 100 fraudulent cases but it only reported four of them, or 4%, in 2018.

Mr. Anthony Brennan

There were 100 cases in which there was a suspicion of fraud, and in some instances that suspicion was real and we went further. We reported four of those cases where we felt we could be of material assistance to An Garda Síochána We work very closely with gardaí and co-operate with them through the fraud round table and so on. We pass cases on to gardaí that we feel would be of material assistance to them.

I do not understand this. Here we have an insurance company that did not pay out on claims that were made because it believed those claims were fraudulent. They were not paid out so those involved did not get any money. They obviously did not challenge that but only four of those cases were reported to gardaí. How does that sit with section 19 of the Criminal Justice Act 2011, which imposes an obligation on insurers to report suspicions of fraud to An Garda Síochána? Under that Act, failure to do so can result in up to three years in prison.

Mr. Anthony Brennan

We work very closely with An Garda Síochána. There is a protocol in place for reporting claims to An Garda Síochána. The section to which the Deputy refers includes a piece on providing "material assistance" to the gardaí. I do not believe that sending those 100 claims forward would be of material assistance. We would not have had court level proof of fraud in all 100 cases. That is quite important, even from a civil liability point of view, and then we must move on to a level of evidence that allows for prosecution for fraud. It is quite a difficult offence to prosecute successfully. We work very closely with gardaí and will continue to do so. I welcome the fact that An Garda Síochána announced recently that it has increased resources in this area, and we look forward to working with it. We would be very happy to take gardaí through the other 96 cases if there is a change or improvement in the guidelines around what would provide material assistance to them.

It is not about whether Mr. Brennan is happy to work with the Garda or provide further information. There is a legal obligation on insurance companies to report suspicions of fraud. Mr. Brennan's company, Zurich Insurance, determined that there were 100 fraudulent claims made in 2018 and in 96% of those cases the information has not been passed on to the Garda. Zurich is therefore in breach of section 19 of the Criminal Justice Act 2011. It is up to the Garda to decide whether it has enough information to warrant a prosecution, once it is given that information. The requirement in that section is that one has to provide the information where there is a suspicion of fraud.

Mr. Anthony Brennan

I am not sure what I else I can say to answer the Deputy's question. We have worked very closely with the Garda and will continue to do so.

We heard from Zurich that 3% of its 2018 claims were fraudulent. What percentage of claims did AIG believe to be fraudulent, following investigation?

Mr. Declan O'Rourke

The 2% to 3% that we reported to the Garda.

Is Mr. O'Rourke saying that AIG reported every claim it believed to be fraudulent to the Garda?

Mr. Declan O'Rourke

Yes. We reported all cases where we had proof that they were fraudulent.

How many fraudulent claims were made to AIG in 2018?

Mr. Declan O'Rourke

Ten.

What percentage of the total number of claims is that?

Mr. Declan O'Rourke

It is about 2% or 3% of the motor bodily injury cases.

Okay. That is a very low level of claims.

Mr. Declan O'Rourke

Unfortunately, the level of convictions is even lower. Of those ten cases, only one resulted in a conviction. It can be difficult to get convictions in these cases because much of the evidence is gone and CCTV is often needed to prove one's case. We only won a conviction in that case because we could prove that the person who claimed they were in the car was not as they were visible elsewhere on CCTV. We spent a lot of money on that case. It went to court and the person was given community service for the offence.

I will rewind a bit. Mr. O'Rourke says that AIG reported all fraudulent claims to the Garda. There were ten cases in 2018, which is 3% of AIG's overall personal injury claims. Is he saying that only 300 personal injury claims were made?

Mr. Declan O'Rourke

That is 3% of the suspicious cases.

Mr. O'Rourke said that AIG reported all fraudulent claims. What is the overall figure?

Mr. Declan O'Rourke

Some 2,500 motor claims for bodily injuries were made, of which 450 were suspicious. Ten were reported after investigation and there was one conviction.

Of the other 440 cases that were deemed suspicious, did AIG concur that they were not fraudulent, having looked into them further,?

Mr. Declan O'Rourke

We typically let such cases run to the courts and let the judge decide. We tend to make the plaintiffs prove their cases in the courts.

Did AIG challenge every one of the 440 cases?

Mr. Declan O'Rourke

In such cases many people will withdraw and we might win a small percentage. We tend to put the onus on the plaintiff to prove the case through the courts at that stage.

How many court cases did AIG challenge in 2018? Is Mr. O'Rourke telling me that AIG has 440 cases before the courts?

Mr. Declan O'Rourke

No, because by the time the cases work their way through, between withdrawals and other types of cases-----

How many cases does AIG have before the courts, or how many did it challenge?

Mr. Declan O'Rourke

I do not have that number right now. If there is any suspicion, we let a case run through the courts, so most of them would go that way.

Are there fewer than 20 before the courts?

Mr. Declan O'Rourke

I would say there are more than that.

Would there be many more than that?

Mr. Declan O'Rourke

I do not have the exact numbers right now.

Mr. O'Rourke said that all suspicions of fraud were reported to the Garda. Does AIG therefore believe that other 440 cases that are not in the courts system were not fraudulent?

Mr. Declan O'Rourke

That is up to the courts to decide. The bar for proving fraud is very high, and in many cases we did not have the evidence as it was gone.

I do not want to go around the house on this. The witnesses need to read section 19 of the Criminal Justice Act 2011. It is not for insurance companies to decide whether the evidence reaches the threshold for prosecution. That is a matter for the Garda and the Director of Public Prosecutions, DPP. The witnesses and their companies have a clear responsibility to report any suspicions of fraud to the Garda and allow its members to do the work for which they are trained.

Mr. Declan O'Rourke

Absolutely.

I ask the representatives of Aviva the same question.

Mr. John Quinlan

I will give an overall direction of travel before I pass over to my claims director for the refined figures. According to our internal legal advice, we are compliant with the relevant Act in our reporting of fraud. We have 80 people working on fraudulent claims and the division is headed by a former Garda superintendent. We have taken a proactive and aggressive stance on fraud detection and prevention, of which the Deputy will be aware. I will pass over to our claims director, Mr. Farrell, for the facts and figures on fraud cases, the percentages, numbers brought to court, and so on.

Mr. John Farrell

This is a real problem area. Over the past three years, we have reported more than 500 claims to the Garda under section 19 and have reported an additional 100 this year alone. The issue is not with the cases that are not reported, the vast majority of which will not provide material assistance to the Garda. The real problem is with the ones that are reported. Of the hundreds that have been reported, there have been virtually no convictions. Gardaí are incredibly hard-working, professional and dedicated people, but there is simply not sufficient capacity in the Garda with enough dedicated resources to follow up on fraud. We are fighting fraud in AIG, with 30 employees backed up by 50 full-time investigators.

I refer to what happens when a case goes to court. Take for example the case of a businessman who burns down his premises, against whom we plead fraud in open court to defend that case on behalf of innocent policyholders, as is our obligation. We are forced to spend 21 days in the High Court, at a cost of more than €1 million. That man then simply walks away from his claim, and that €1 million has to be paid by SME customers around the country. That is why their premiums have gone up despite not having made any claims. As long as claims in this country are a free-risk endeavour, people will continue to make fraudulent claims. We need assistance in this area. There needs to be far more effective follow-up on fraudulent crimes, because they are crimes and they have a real impact.

In another case, one of our customers rear-ended a third party. The cost of the damage was €80 and no personal injuries were reported at the time of the accident. Some time after the accident we were presented with two personal injury claims, which is not unusual. The first claim that went through the court was awarded €105,000. The legal fees were €98,000, though that was subsequently adjusted to €65,000. That was only for one of the injuries. There is a very real problem with the compo culture in this country and it has to be addressed.

Did Mr. Farrell say €80?

Mr. John Farrell

There was €80 damage to a bumper.

Serious questions must be asked about how our Judiciary operates if those are the types of awards being given out for €80 worth of damage to a bumper with no other personal injury damages.

Mr. John Farrell

Unfortunately, it is a common occurrence in court, as is widely reported. People submit fraudulent claims that did not happen in the manner they are presented. In some cases they are staged. Even when these people are thrown out of court, there is no effective follow-up or prosecutions. There needs to be a deterrent. Our awards are worth 4.4 times the value of similar claims in the UK, which is a huge magnet. Some people come into this country with no other purpose than to perpetrate crime by committing fraud. We are currently defending ourselves from a fraudulent claim by a gentleman from England. When he came to Ireland to attend a medical examination for the claim, he caused another single car accident that same day. This is a very real problem that we have to address. It will ultimately be addressed by bringing down the high cost of awards. If we reduce the figure from 4.4 to one, many of these problems will go away. Our customers cannot understand why the Minister has not signed the Judicial Council Act into effect.

Why are we waiting one more day? We call on him to sign it today.

I appreciate that. Our guests will hear from many members of the committee that we want additional action in respect of an insurance fraud unit and to ensure there is not a revolving door in the courts, with those who make fraudulent claims just walking out with no losses. Deputy Michael McGrath has prepared legislation in that regard. Nevertheless, this meeting is about the industry and I wish to address the figures, not anecdotes or stories. Mr. Farrell stated Aviva reported 100 fraudulent claims to the Garda. What proportion is that of the overall number of suspected fraudulent claims?

Mr. John Farrell

The figure of 100 relates to this year to date. For the three-year period before that, it was 500, or approximately 20%. A total of 20% of all the claims we suspect to be fraud are reported.

There are two issues with that. Every claim that is believed to be fraudulent needs to be reported. What percentage of claims made to the company does Mr. Farrell believe are fraudulent? What proportion of the total number of claims made to Aviva are the 100 cases that were reported to the Garda?

Mr. John Farrell

In a typical year, we identify approximately 800 fraudulent claims-----

Aviva reported 100 claims in 2018. For what proportion of the overall number of claims made to the company does the figure of 100 account?

Mr. John Farrell

I apologise but I cannot answer that in respect of the 100 claims. I know the overall numbers-----

Does Mr. Farrell know how many claims were made against the company in 2018?

Mr. John Farrell

It was approximately one third of 800.

How many personal injury claims were made against Aviva in 2018?

Mr. John Farrell

In any one year, there are approximately 4,000 injury claims.

I have worked the figure out. It is 2.5%. Is that correct?

Mr. John Farrell

No, of the 800-----

I do not mean the 800. I am asking for the ratio of fraudulent claims to personal injury claims made to the company. There are 4,000 personal injury claims each year and Aviva reported 100 of them to the Garda, which is 2.5%. Is that correct?

Mr. John Farrell

No, I apologise but I will try to be clearer. Of the 4,000 injury claims we receive, we estimate that approximately 20%, or 800, are fraudulent. Of those 800, we report 20%, or 160, under section 19.

What does Aviva do with the other 700?

Mr. John Farrell

The Deputy stated we have an obligation to report all of them but we do not. Under section 19, the obligation is to report them where they would provide material assistance. We have regular engagement with the Garda. For example, there could be an instance where the Garda is already aware, through other channels, that fraud is present and, therefore, a section 19 report would provide no assistance, material or otherwise.

Let us say somebody makes a fraudulent claim, which is a crime. Aviva believes that passing on the name and address of the criminal and the details of the crime is not of material assistance to the Garda, whose job is to prevent and detect crime.

Mr. John Farrell

We examine all our fraudulent claims and report those under section 19 that we believe are reportable. We are increasing the number of section 19 reports we make and amending our systems to make more section 19 reports-----

I return to the question of what happens to the 700 that Aviva does not report to the Garda.

Mr. John Quinlan

The 80 people we have employed to fight exaggerated claims or fraud do so and we will bring the claimants to court. Despite the level of the fees we pay, even when someone walks away scot-free for something that was obviously wrong, that is what we do. The cases we report to the Garda are those that offer material assistance, as adjudicated by our legal counsel and head of fraud, who is a former superintendent with the Garda. We could tick a box, dump over all our claims and say we report every single one. We saw what the Criminal Assets Bureau did to the criminal fraternity and we need the same in the form of a dedicated fraud unit in the Garda. It will not change anything if we just tick a box and send over everything.

Are our guests suggesting that Aviva fights every one of the 700 claims?

Mr. John Farrell

Yes, we do not pay claims we regard as fraudulent. The purpose of the meeting is to consider the cost and availability of insurance. I can categorically state that if we increase the number of section 19 reports we make, it will make absolutely no difference to the cost or availability of insurance. The issue is with those that are reported. All stakeholders need to come together to ensure there is a far more effective deterrent against fraudulent activity.

We have heard that but we need to move on to other questions and perhaps Mr. Quinlan might be able to answer them. What is Aviva's claims ratio? I refer to the number of claims, or the amount that is paid out in claims, for motor insurance versus the premium earned.

Mr. John Quinlan

That is not a problem but I will pass to Mr. Mahon, our chief underwriting director, who covers underwriting and pricing.

Mr. Brian Mahon

Our claims ratio is 65%.

I would like to hear the figure from each of the companies.

Mr. Anthony Brennan

Our figure is 63%.

Mr. Declan O'Rourke

Our figure is 66%.

The claims ratio, that is, the amount that is paid out in claims as a proportion of the premium earned, is below the European average. European insurance companies have a higher claims ratio. They pay out more on claims compared with the earned premium they bring in. Do our guests accept that the European average is 76%, which means that each of our guests' companies has a claims ratio of approximately 10% below the European average? It is well below Britain, which has a ratio of 92%, and Germany, Poland, Portugal, Turkey, the Netherlands, Spain, France and Italy. Do our guests accept that?

Mr. Anthony Brennan

I am not familiar with the numbers but I have no reason to disbelieve the Deputy.

Is Mr. Brennan familiar with Insurance Europe and its work?

Mr. Anthony Brennan

Yes, but we tend to focus on the Irish marketplace because that is where our business is.

All our guests have told us that the cost of claims is the major issue. When one considers the cost of claims compared with the premiums the companies bring in, however, the three companies appearing before the committee paid less in claims compared with the premium as a ratio. Do our guests accept that?

Mr. John Quinlan

I am not familiar with those figures. The ratio of 92% for the UK, which the Deputy mentioned, would create an ultimate combined operation ratio well in excess of 100%.

The UK's combined operation ratio is 110%. As Mr. Quinlan will be aware, insurance companies offset that loss by investment returns.

Mr. John Quinlan

There are few or no investment returns-----

At present. I can outline the figures-----

Mr. John Quinlan

I do not believe that the point being made could lead one to believe that the cost of claims is not the root cause of the cost and availability of insurance. It is not appropriate.

Let us examine it. Has the number of claims made in respect of motor insurance in the past four years for which we have statistics, from 2014 to 2017, dropped or increased?

Mr. John Farrell

The average cost of claims has increased-----

I refer to the number of claims that have been made in respect of motor insurance.

Mr. John Farrell

It is not about just the number of claims but also the cost of claims, which is a significant driver-----

Would any of our guests be surprised to learn that there was a 25% reduction in the number of motor insurance claims across the industry between 2014 and 2017? It is a reduction of 55,000 claims.

Mr. John Farrell

I would not be surprised because car safety technology has improved the accident rate. Equally, however, the cost of claims has increased, which is a fact we must acknowledge.

Let us deal with the following facts. In the four years in question, there was a reduction in the number of claims by 25%. Mr. Farrell stated the cost of claims has risen but it has not. The industry, as a totality in Ireland, saw the amount provided for claims reduce from 2014, from €978 million to €954 million, or a reduction of €24 million. Does Mr. Farrell accept those figures? They are from Insurance Ireland and I can provide the fact file if necessary.

Mr. John Farrell

Figures are figures but the Personal Injuries Commission, which was established-----

Mr. Farrell stated it is not about the fact there is a 25% reduction in the number of claims but rather that the cost of claims has risen. I have given him the facts. Does he accept that the cost of claims to the insurance industry has reduced by €24 million in recent years?

Mr. John Farrell

I do not comment on the industry but specifically on Aviva. The cost of our claims has increased. I draw attention to the independent Personal Injuries Commission, which was attended by the Law Society, the Bar Council, consumer groups and medical professionals.

Its overriding recommendation related to the fact was that our claim level was 4.4 times higher than the level in the UK.

In the past four years, the number of claims has fallen by 25%, or 50,000 claims, and the amount being paid out in awards by the industry has reduced by €24 million. What has happened to premiums in that time? Would Mr. Farrell be surprised to hear that his company, along with 14 other companies, increased motor insurance premiums by €669 million during that period?

Mr. John Farrell

I have no comment to make on premiums.

I will finish on this question, but I will come in again. I direct this question to Mr. Quinlan. Regarding price optimisation and dual pricing, he may have read in the media that I have asked the Central Bank and the Competition and Consumer Protection Commission, CCPC, to investigate the issue. I will be providing evidence next week to the CCPC. Dual pricing is controversial. It punishes loyalty and targets vulnerable policyholders. The Financial Conduct Authority, FCA, across the water is investigating this practice and its initial investigations show that not all companies operate price optimisation. Will Mr. Quinlan clarify whether his company, Aviva, operates price optimisation and dual pricing?

Mr. John Quinlan

We have done much detailed work on this issue in preparation for this session. I will hand over to our underwriting director to give precise details.

Mr. Brian Mahon

We do operate differential pricing in the Irish market. We have also contributed to the FCA review. We were a branch of our company in the UK, Aviva Insurance Limited, until February 2019 and we are working very closely with our counterparts there on differential pricing.

Aviva is operating dual pricing, which looks at the behavioural attitudes of customers and how to get the best price from them.

Mr. Brian Mahon

It is no different to any other industry. Aviva offers a lower new business price point and we look at renewals. Some 33% of our renewal customers are offered prices lower than our new business price. Other customers are offered prices higher than our new business price. On average, however, we come in at about 3% across the piece.

Price optimisation punishes loyal customers. Does Mr. Mahon accept, given the findings so far, that the more loyal customers are, the more likely it is that they will have a price premium? Aviva's experts in price optimisation need to understand behavioural attitudes so that people willing to renew repeatedly will be penalised with higher premiums. Is that what this really means?

Mr. Brian Mahon

From 2015 to 2018, the vast majority, if not all, of our renewal customers received a lower price than the new business price. While the FCA has a number of issues with the practice, and its interim report is being released tomorrow morning, it stated in its initial review that differential pricing is not inherently unfair, harmful or always results in poor customer outcomes. Differential pricing encourages new business competition within the market. We are here to talk about cost and availability of insurance. Adjusting differential pricing will have no impact on the cost of insurance. It will, instead, harmonise it. Costs will be increased for new business customers, of which there are roughly 500,000 in the Irish market each year. It will also marginally reduce costs for renewal customers, but the average cost will remain exactly the same. I argue that because competition will be reduced on the new business side, availability may be reduced.

We would welcome a review of this issue. Our sister company in the UK has led the market there with Aviva Plus. Interestingly, this initiative, which has been in operation for 12 months, involves making a commitment to customers who take out the company's product that their renewal price will be no more than the new business price. Despite that product being available, the company sells more on its standard product with a lower price point than it does on the Aviva Plus point. Customers, therefore, are choosing not to go down the route of level pricing. They still want to go for the cheapest price in the majority of cases. When our UK colleagues test a product that may well work within the Irish market, we will look at bringing in something similar. We are working closely with our underwriting colleagues in the UK and reviewing with interest their offering.

I will get a chance to come back in later.

I welcome the witnesses and thank them for their attendance. This an important engagement and an opportunity for us, on behalf of the people we represent, to hold the insurance companies to account, tease out issues and get some answers. I will start by continuing with the issue raised by Deputy Pearse Doherty regarding differential pricing, as it has been described. How does it work in practice? What is it?

Mr. Brian Mahon

It is a costing initiative. We use it, as many other industries do, to supplement new business pricing in the market. It allows us to be more competitive within that market. In my experience, in the area of broadband, for example, I pay four times the new business price for broadband. I am also paying 70% more for my bank charges than a new business customer would pay at the same bank. Similarly, in utilities, I am paying about 30% more. That is my experience. Differential pricing is not, therefore, uncommon across a number of industries. We do it to stimulate competitiveness within the market. From the point of view of insurers, differential pricing is not a profit-generating initiative but more of a means of generating new business. If it was removed, it would be beneficial overall for the insurance industry. That is why we are pushing in the UK to see if we can road test that product. We would then be selling on key differences, such as brand, product and financial stability. Those would be the main reasons customers make decisions.

I would like to bring this issue down to the level of Aviva policyholders who get their renewal notice in the post. In effect, Mr. Mahon is stating that if they just renew at the premium quoted on the renewal documentation, they will probably pay more than they would if they were a new customer or simply went online to get a new quote, which might well come from Aviva Ireland.

Mr. John Quinlan

I will come in here. The question concerns customer fairness. Pricing sophistication is trying to get the right price for the right risk. There is a secondary issue of new business versus renewal pricing. The theory behind this is that we are trying to do is stimulate competition and new business flows by offering a lower new business price. How is that fair for me as an existing customer? Over the course of my time as a customer with Aviva - we have an average policy duration of between five and seven years - he or she would expect to pay the identical amount, notwithstanding that he or she might have come in on a cheaper price point.

Can people tweak the system, as was done with fronting, by going back in and claiming to be a new business customer? Yes, that is possible. The level of that difference for us is 3%, on average. It can be higher or lower, depending on individual circumstances. It is something we are looking at. We have launched a big pilot in the UK. It is not really working as we thought it might and other companies have not followed suit. We await the findings of the FCA to see if this becomes mandatory. If that is the case, we will welcome that in this market because we will go-----

That is fine. If we break this down to brass tacks, however, is it not the case that loyal customers, those policyholders with Aviva who renew year in and year out and do not ask questions, are the biggest losers? They are not availing of the cheaper premiums that would be available if they were new customers. Is it not that simple at the end of the day?

Mr. John Quinlan

I do not think so and there are a number of reasons for that statement. Some 85% of our business comes through brokers who do their own checking of cover and pricing. We have a high retention rate. People will look at an opportunity with a new business promotion. It can involve utilities, banks, etc. With a company such as Aviva, however, customers will look to see if they will be treated fairly over time. They will want to know if their premiums will average out to be the same as they would have been if they had shopped around every year.

Is it not the case that Aviva is taking advantage of consumer behaviour? To take the example of motor insurance, many people get their renewal policy in the post. That document will still not tell them what they paid last year. It is necessary to check up on that information. Customers look at those policy renewal documents and think that the figure presented is roughly what they paid the previous year. Most people are busy and just renew the same policy. They do not even ring up to try to get a reduction. If they do ring up, however, and state they had contacted one of Aviva's competitors and were offered a policy some €100 cheaper, then Aviva will probably match that competing policy. That is the reality. Is the lesson here that loyalty is punished?

Mr. John Quinlan

In the media, for many years and certainly going back to 2014, we have seen a call for people to shop around for all types of utilities and financial services products. If trust or loyalty is broken with customers, the company involved will lose those customers. People have that ability to shop around. As I stated, some 85% of our business comes through brokers. We retain our customers because we treat them fairly. We are more than happy to change the practice, if that is provided for in legislation. All companies would need to be involved to bring that about and ensure that the 500,000 people who benefit from a new business discount or quote every year maintain those savings.

We got a detailed set of questions from Deputy Pearse Doherty that we will come back to and answer fully.

We have seen this issue in the banking system as well. The witness referred to it in utility companies. Of course, they do it. They offer a better deal if one is a new customer signing up whereas if one is locked into a contract, one cannot avail of that until the contract expires. This is not the only industry that is doing it. Banks are doing it for the biggest transaction that people have in their life, which is their mortgage. They are not proactively trying to tell a customer he or she could get a better deal, even by switching to a different product with that bank or by switching bank. That is not happening.

It is a job for all of us to address the issue of inertia among consumers and we will do that. We also have an issue in ensuring that there is fairness in the way that the industry treats its customers. Mr. Charlie Weston wrote, in January of this year: "It is hard not to conclude that loyalty is for losers." It is hard to argue with that conclusion.

Mr. John Quinlan

I am not sure that is the case when one looks at our pilot in the UK where people choose to go down the road of our new business approach in the knowledge that over time it will move to an average of someone who is an existing customer.

Mr. Quinlan is saying this is the reality of commerce and let the buyer beware.

Mr. John Quinlan

It is customer choice.

The consumer needs to shop around and he or she will probably achieve a saving if he or she shops around.

Mr. John Quinlan

I am not sure that is the case. I am not sure that is a conclusion that I would draw. The research we are doing in the UK will give us empirical evidence on which to base that consumer behaviour and, moreover, on how we ensure we treat customers fairly.

I assume the same policy applies with Zurich and AIG.

Mr. Anthony Brennan

It does. I would point again to what Mr. Quinlan said about brokers because we get over 90% of our business through brokers. It is a commercial reality. It is the way the marketplace works. However, I would point out that, similar to Aviva, in a five-to-seven year duration, one is looking at a 15% to 20% switch rate. If one looks at those other industries we talked about, such a switch rate would be a very high one for those industries. We are making it easy for customers to move around. The broker community enables that.

One of the challenges, if one looks at this, is it seems easy to say one can legislate for it but when one starts to figure out how it would work in practice, it would create all sorts of other loopholes that would make it more difficult. The effect it would have on the marketplace in the short term is difficult to know.

Is the broker obliged, on receiving the renewal quotation from the insurer, to shop around for that consumer and adviser him or her that the broker can get a better deal elsewhere?

Mr. John Quinlan

They do that.

Does it happen in practice?

Mr. Anthony Brennan

Brokers would not only look at price. It is important to say that price is one element. The quality of the product that they have and the sustainability of the business they are dealing with, being around for many years to pay their claims, is also an important factor that a broker would take into account.

In practice, I have come across older people in particular who would happen to show me what their renewal is, maybe on home insurance. They might have been with the same firm for 20 years. They are paying through the nose because they never did anything about it. They never made an inquiry. That is the reality. There are such customers out there and the insurers are benefiting from that. Anyway, I will move on.

Mr. Declan O'Rourke

We are a little different in that our renewal premium on average is considerably lower than our new business premium. We try to reward our loyal customers. We know much more about them and we can price the risk differently. Also, during the period when prices increased, we probably capped many of our increases for existing customers as opposed to bringing them straight to market rates.

Deputy Pearse Doherty spent much of his time on fraud. I will not go into it in any great detail. Mr. Farrell referred to 500 cases being referred to the Garda over the past four years.

Mr. John Farrell

Three years.

Plus a further 100 this year. Is that right?

Mr. John Farrell

Yes.

There were 600 cases, let us say, in the past four years. How many of those have ended with a conviction in the courts?

Mr. John Farrell

Very few. One could probably count them on one hand. Two.

Mr. John Farrell

The number is very low.

What do the gardaí tell Mr. Farrell in private about their ability to take these cases the distance if they believe they are fraudulent? We are not involved in the detail of those investigations. We do not know exactly what is going on. Maybe they are not fraudulent. I would assume, if Mr. Farrell refers them, he is fairly sure that those cases are fraudulent.

Mr. John Farrell

There are two issues. This is why it requires genuine engagement among all stakeholders. First, the gardaí are incredibly hardworking professional and dedicated people but we must have dedicated gardaí in this area for effective change to happen. That is why we supported the call for a dedicated fraud area within the Garda, and we would repeat that support. We would very much like to see a dedicated unit.

Is it not the truth that they are swamped? They are drowning in cases across all areas of fraud-----

Mr. John Farrell

We need to give them more help.

----and they cannot handle it. How many of those 600 ended up in court? Mr. Farrell stated two ended up with a conviction, but how many went to court?

Mr. John Farrell

Less than a dozen. We have the additional problem, and the challenges, of going to court. I have covered some of the examples. There must be a more effective deterrent. It is too easy in this country for people to go into court, submit a fraudulent claim and walk out the door.

What happens in those cases in relation to the legal costs? If one is in the High Court for three weeks defending a case, the claimant eventually walks away and does not bring it to the end point. The insurer must pay its costs. What happens to the costs of the claimant?

Mr. John Farrell

The costs of the claimant are not visible to us and we do not know if the plaintiff's solicitors or legal team get paid or not. That is not something we would be made aware of. What we know is the costs that we have paid. Ultimately, when we say we have paid, the reality is our policyholders pay these costs. The reality is our policyholders will pay these costs through increased premiums or we must get these costs back from the fraudster, which, of course, is difficult to do. We attempt to do that but often these are not people of substance from whom we can recover costs. We urgently need greater and more dedicated resources in the Garda to work with us and we need to work on a more effective deterrent for fraud cases in the courts.

All the insurers gave a profile of the make-up of premiums, with typically, 60% to 65% going on awards for settlement. How much is going on legal costs? Did they give that figure?

Mr. John Quinlan

I gave a typical example of motor premia. Out of the €100 in premia, €19 represented legal fees or 30% of that €65.

In awards in the area of motor insurance, 30% of those awards are accounted for in the round by the legal costs.

Mr. John Quinlan

That is correct.

Would that be broadly similar?

Mr. Anthony Brennan

It is slightly lower for us. They are closer to 25%

Mr. Declan O'Rourke

It is important to look at that a little differently. If one looks at a typical whiplash case, when one zones in on one case there could be up to 70% legal costs on the case. On average, it is 25%.

Mr. Anthony Brennan

I would highlight as well that where cases are settled through the Personal Injuries Assessment Board, the typical costs are 5% to 6% but the costs of going to court tend to be more in the 40% plus bracket on almost every case that goes through the court process.

Can I get a handle across the personal injuries awards, whether it be motor insurance or in the liability area, such as public liability? The settlement channels are court, the Personal Injuries Assessment Board, PIAB, and out of court settlements. Can Aviva give the committee the broad profile in percentage terms of how its personal injuries claims are settled through those three channels?

Mr. John Farrell

Yes. Broadly, in volume terms, we would expect on the motor side to settle approximately 40% direct, 20% through the injuries board and approximately 30% through various stages of litigation. If one looks at that in value terms, it is a little different: approximately 15%, by value, would be settled directly; 5%, by value, through the injuries board; and the vast majority, 80%, would go through some form of litigation-type process, not necessarily to full court but involving a litigation-type process.

Mr. Anthony Brennan

I will ask the chief claims officer.

Ms Siobhán Corbett

If we look at the claims that we settled in 2018, approximately half of those settled via litigation and the other half were either via the injuries board or we settled them out of court directly with no solicitor involved on our behalf.

Would Zurich have a similar issue that, in value terms, it is far higher in court?

Ms Siobhán Corbett

Litigation is a much higher proportion, in terms of value, of the total amount.

Mr. Declan O'Rourke

It is: pre-PIAB, 25%; PIAB, 20%; post-PIAB pre-litigation, 12%; litigation, 400%; and trial, 2%.

In value terms, would it be leaning higher towards the litigation and the courts?

Mr. Declan O'Rourke

Correct.

Those figures are by far the highest.

Mr. Declan O'Rourke

The difficulty is we all want to support the Personal Injuries Assessment Board, PIAB, and make it successful but the economic incentives for solicitors to move business out of PIAB process are significant in terms of the fees for them. We would love to see 90% of those cases settled through the PIAB process, if possible.

Ultimately, until we get to a point where the court awards just match the PIAB awards, people will continue through the journey.

Mr. Declan O'Rourke

And the legal fees.

That is the bottom line.

Mr. Declan O'Rourke

The economic incentives are the major issue, in particular, for the plaintiff's solicitor and the claimant.

We got all the numbers for turnover and profitability given by the witnesses earlier. Are there inter-company flows of management charges with the companies' international groups, which the figures given would be net of, which would impact on the figures presented to us?

Mr. John Quinlan

Our figures are for a stand-alone business.

Mr. John Quinlan

Any services we get from the group are on a third party, arm's length basis. We seek to minimise our costs by using the group where we can.

Those figures are not distorted in any way-----

Mr. John Quinlan

Absolutely not.

----- by flows internationally within the group.

Mr. John Quinlan

They would only be improved.

Let us be very clear on that.

Finally, do any of the witnesses' firms offer insurance to the leisure sector, in particular bouncy castle businesses, outdoor activity centres or playzones? Are any of witnesses' firms offering cover in that space?

Mr. Brian Mahon

We operate in the leisure sector and have a 10% market share in it. We primarily focus more on hotels. We are one of the largest providers of cover for sports clubs and sporting associations in the country and our connection with the Football Association of Ireland, FAI, and the Irish Rugby Football Union, IRFU, has only served to cement that. That would be our specialist area within the leisure sector. There may well be others who specialise in the areas the Minister described. We might have a handful of cases but it would not be our core segment.

I assume it is similar for AIG and Zurich and that they are not operating in that sector.

Mr. Anthony Brennan

Other than providing for a handful of long-term customers, Zurich is not operating in the leisure space.

That sector is currently at the coalface of the insurance crisis and the issue is not even about affordability, rather it is the non-availability of insurance with the effective withdrawal of LeisureInsure from that space. As those businesses' insurance renewals come up and no policy is offered to them, they face closure. Many have closed and many more will close. Have the witnesses any hope to offer that sector that it is an area of business their firms would be prepared to consider and to write business in or is their message that until the personal injuries climate is improved they will not be prepared to consider it? What is the bottom line?

Mr. John Quinlan

I am happy to give the Deputy feedback on that question. We are absolutely looking to cover these areas when we can. I spoke to a leading Lloyds broker this week to understand what was going on from a Lloyds' perspective. Lloyds would have been a safety valve for the giving of cover, often at higher prices. I can give the Deputy verbatim the feedback I got. Lloyds itself is struggling to retain some of its capital providers. The Minister of State, Deputy D'Arcy, was over in its offices recently. It has introducd a newe syndicate-in-a-box initiative where over a three-month period one can become a writer of business. However, what is happening is that under a new regime they have to write for underwriting profit. We have seen many syndicates which wrote business here not getting their business plans approved. Amlin Insurance had business of £250 million sterling, a chunk of which would have been Irish business, which will no longer be written. It has not got permission to do so. C.V. Starr and R&Q Insurance were also affected. The fact that Excel Insurance and AXA Insurance - AXA being the general insurance company in Ireland and one of the biggest in the world - cannot see a way to write their leisure insurance business gives us an indication of the real challenges. The sector that will benefit most immediately from the reforms we are calling for will be the leisure sector. In the medium term we would be prepared to work, certainly at Insurance Ireland level, on alternative approaches to give some sort of cover here but it is complex. It is not without its challenges.

How would Mr. Quinlan's firm do that?

Mr. John Quinlan

There are many different alternative risk transfer type models I could reference. I know a particular Lloyds broker was speaking to the Minister, Deputy Coveney, about certain vehicles for this particular sector. There is always a way but there is a level of risk that needs to be retained by the customer. Each and every excess is there already. We are talking about a crisis where no cover is being given and we need to come together to see if we can address it and maybe even accelerate reforms in this particular area.

Mr. John Farrell

I would add that in our statement we called for two principal measures to be taken. We called on the Minister to sign the proposed judicial council into effect immediately without any further delay. We also called out the additional problem people face in the small and medium enterprise market where the issue is not only the size of the awards but the automatic entitlement to compensation. That is the "compo" culture. We have seen examples of that where a person can sit down at a table in a restaurant and simply knock his or her knee off the leg of a table and get an award of thousands of euro. We are calling for the law of negligence to be reviewed to ensure it is put back into a more affordable and sustainable area where genuine negligence is compensated for but simple accidents are not.

To be clear on this, are any of witnesses involved in any discussion or process at industry level currently to ensure there is the supply of insurance cover to that sector?

Mr. John Quinlan

Not that I am aware of.

There is nothing under way in which Mr. Quinlan is involved through-----

Mr. John Quinlan

Only my engagement with the said brokers in the Lloyds market who approached us to see if there is something we could do and that took place only during the past two weeks.

On the timeline for the key reform all the witnesses are seeking - they have all pointed to the awards being the key issue - we have been teasing this out in the Oireachtas during Question Time with the Minister for Finance and so on but I am not filled with confidence that this will happen quickly. There are still sections of the Judicial Council Act that have not commenced. As to when a judicial council will be up and running, perhaps it will be by the end of the year. The personal injuries committee then has to be set up, which would probably take a further few months, and it would then have to draw up the personal injuries guidelines. I do not get the sense there will be any great solution to this quickly from the process that is under way. Is Mr. Quinlan's feedback to us that this is the only way to do it in terms of a game changer which would result in a more competitive insurance market for consumers and, ultimately, improve the availability of insurance and reduce premiums for consumers?

Mr. John Quinlan

That would certainly be our view.

That is where it is at.

Mr. John Quinlan

Absolutely. As we have seen recently with overseas insurers traditionally passporting into our market, their pulling out of the market completely is a big concern. When we consider what happened on the back of the Setanta Insurance collapse with the collapse of Gable Insurance, Enterprise Insurance and Qudos Insurance, many of these businesses look at Ireland and wonder what is going on. We need to change that and make it more attractive to existing players because we have all got parent companies that we have to convince to keep our capital here and we want other capital to flow in equally.

In the context of Brexit - I am sure all of the witnesses' firms have their regulatory status in order and so on - do the witnesses envisage there will be any dislocation in terms of the insurance market here in the event of a no-deal Brexit at the end of October? We have replies to parliamentary questions that show there is a number of firms that have not aligned their regulatory status and, therefore, they will lose the right to passport in the sale of insurance services in the Irish market from 1 November. What is the witnesses' sense of what potentially might happen in a no-deal scenario to the insurance market in Ireland?

Mr. John Quinlan

It is a risk which the deputy governor of the Central Bank has called out in the terms of the preparedness of insurance companies writing business in Ireland. It is an absolute risk. It is a real concern. I know that around the Insurance Ireland table all the big firms have planned for a hard Brexit but there is a concern. One of the feedbacks from Lloyds is that the concern about Ireland in terms of volatility, levels of profitability and Brexit really dampen down enthusiasm to write business here so it is a concern.

Mr. Brian Mahon

I would add that we have restructured our business to be Brexit ready. As part of that we have facilitated more than 600,000 Irish customers who were with a provider which was not going to be ready for Brexit when it was to happen on 1 April. From 1 February we have taken on board and are servicing those customers to give them an option post a hard Brexit.

I thank the witnesses.

Does Deputy Pearse Doherty want to come back in?

Yes. I have a few questions. What is each of the witnesses' firms premium per licensed vehicle?

Mr. Brian Mahon

Our average premium is about €650.

What was it in terms of an increase on last year's premium?

Mr. Brian Mahon

We have reduced our premium in 2018 and 2019 by 14%

What was it in 2018?

Mr. Brian Mahon

In 2018, it would have been 2% higher.

It was 2% higher.

Mr. Brian Mahon

In 2017, it would have been 12% higher again.

Okay. What is premium charged by the other witnesses' firms, starting with AIG?

Mr. Declan O'Rourke

Our average is €660 at the moment. It is a drop from what it was last year. I cannot remember the exact figure, but it is a smaller drop than that.

Are these 2018 figures?

Mr. Declan O'Rourke

Yes.

What about Zurich?

Mr. Anthony Brennan

I do not know. I do not have the numbers with me but I know there has been a single digit reduction from 18% to 17%.

Those figures are in line with the industry average. Insurance Ireland's estimate for 2017 indicated an average premium of €680, which is up by 50% in the past four years. The Central Statistics Office tells us that motor insurance premiums have reduced by a much higher percentage. The percentages that the witnesses have told us here are very small - 1% or 2% in some cases.

Mr. Anthony Brennan

I am not sure how the CSO number is calculated. I think it overestimated the increases. The Deputy said 50%. The CSO said it was 70% and it is now showing 24%. I can only speak for my own company. We did not see a 70% increase and we did not see a 24% reduction. It is a basket of currencies and it may need to be looked at again. The Insurance Ireland fact file gives the information across the whole industry.

The fact file shows that it went up by 6% in 2014, by 12% in 2015, by 22% in 2016 and by 6% in 2017.

Mr. Anthony Brennan

That sounds like the market we were in.

The CSO and Government tell us that insurance premiums have dropped by 23% in the past three years.

Mr. Anthony Brennan

I cannot comment on exactly how it is calculated.

Mr. Brennan's experience is that it has not dropped that much.

Mr. Anthony Brennan

Not to that level.

What proportion of the witnesses' motor insurance business auto-renews?

Mr. Brian Mahon

It is about 20% in Aviva's direct book and it is much smaller in our broker book.

Mr. Declan O'Rourke

AIG invites renewal in all cases.

What percentage renews with the company?

Mr. Declan O'Rourke

Probably 70%.

Mr. Anthony Brennan

Zurich invites renewal and approximately 70% renew.

Those are people who do not contact the company and just renew their policy. It is 20% for Aviva?

Mr. Brian Mahon

It was 20% a couple of years ago. I checked the number and it is 10%.

Does that mean that Aviva loses 90% of its customers?

Mr. Brian Mahon

The terms of our renewal are on a roll-over direct debit so there is no action from the customer to renew the policy.

How many policyholders renew?

Mr. Brian Mahon

It tends to be approximately 80% for motor insurance.

If I were to go onto the companies' websites, disregarding the incentive for new business and that reduction which may be anything from 10% to 20%, and got a renewal quote from the company, entering exactly the same details into the website, would it exactly match if I disregarded the 10% or 20% offered at the time?

Mr. Brian Mahon

More than one third of Aviva's customers would receive a lower renewal price than the new business price. Others would get the same price and others would receive more. As we pointed out, there is an average of approximately 3% across the piece. A third of our renewal customers get lower prices than our new business price.

So for a third of the renewal quotes from Aviva, if the customer went onto the website, they would get a better quote.

Mr. Brian Mahon

I am talking about direct business. For brokers-----

I am talking about direct motor insurance. That is disregarding the incentive for new customers.

Mr. Brian Mahon

We do not discount. We just have new business at a different rate.

Why can they get a better rate on the Internet?

Mr. Brian Mahon

It is not just the Internet. Our call centre customers would also avail of that.

Aviva is sending out a renewal quote to its customers. People who have already been with the company have the same details, contact the company through the Internet, and a third of them get a better rate. It is not related to new customer incentives.

Mr. Brian Mahon

There are many different variables with different customers. We try to achieve our target retention rate of 80% and different customers will get different prices.

Can I ask the other companies the same question?

Mr. Anthony Brennan

We do not offer online motor insurance.

Mr. Declan O'Rourke

As I said earlier, our renewal premium is lower than our new business, on average. We occasionally have offers online that are usually time barred. There are many factors as part of a renewal premium. Some of our business is capped. We know a lot about the claims and such. On average, our renewal premiums are lower than our new business premiums. There could be differences.

What percentage? We know that one third of Aviva's customers would be better off going on to the Internet instead of accepting the renewal quote.

Mr. Declan O'Rourke

I do not have that number right now. We do not tend to look at the business like that.

I want to go back to dual pricing. What I heard from the industry was that this is the incentive that is offered for new business. It is a good line but that is not what dual pricing is about. It is about identifying behavioural change and punishing loyalty. It is not about incentives for new businesses but the fact that the companies employ people who have skills related to the behavioural attitudes of their customers and looking at algorithms to identify people who are more likely to renew automatically, and punishing them with higher premiums. Would that not be a fair summary of what dual pricing is?

Mr. Declan O'Rourke

That is what it would be considered to be in the industry. It is not something AIG does.

Does Aviva do it?

Mr. Brian Mahon

We do not have any dedicated personnel for differential pricing. A good number of our customers receive a lower price at renewal than new business. Some receive higher but on average, it is 3%. It is not to generate profit but a profit neutral initiative to generate competition in the market and try to attract more customers.

Mr. Mahon says Aviva does not have anybody dedicated to this practice.

Mr. Brian Mahon

That is correct.

Did Aviva not recently advertise to recruit a head of price optimisation?

Mr. Brian Mahon

That was for a head of actuarial function, on the reserving side.

I have the document here and can read it to Mr. Mahon. One of the skills required was understanding the behavioural attitude of the customers.

Mr. Brian Mahon

We did not hire someone to lead on price optimisation. We have a team within Aviva and, on average, half of one full-time employee per month would look at our retention and renewal models.

Here is the document. Aviva was hiring a "GI Pricing Team Leader". The job is described as expired because it is now filled, for a person that Mr. Mahon tells me does not exist. The description states that a number of price leads are being recruited in both the personal and commercial lines, so there was not just one but a number. It goes on to state that Aviva would like the applicant to have knowledge and experience of the full range of standards, risk modelling, customer behaviour modelling and price optimisation.

Mr. Brian Mahon

The Deputy has described a pricing team leader. That is not a dedicated price optimisation person, which is the question the Deputy asked. They have some of the skills but a number of skills are required for our pricing team.

The document also states that Aviva would like the applicant to, "Support the UK based Technical Pricing & Analytics function in the development of best in class technical pricing and customer behavior models for the Irish market." Do the witnesses want to have another try?

Mr. John Quinlan

These are models that are used by every insurance company.

That is fine but do not tell me that there is nobody working on this within the industry.

Mr. John Quinlan

We have nobody working to optimise pricing to penalise loyal customers. That is absolutely not true. We outlined a process where, to stimulate competition in the marketplace, there can be a difference between a new price offer and a renewal, but over the lifetime of the policyholder, the customer will pay the same amount. Can a person play the system by pretending to be new versus renewal? Potentially. We have seen fronting in the past. It is not our intention to treat our loyal customers unfairly.

I am not asking about the incentives for new customers, which is common in the industry. Why is Aviva recruiting people who need experience in customer behavioural models?

Is Aviva recruiting people who have to have experience in customer behavioural models? Is it not the case that the Financial Conduct Authority, FCA, report, which Aviva is involved in across the water, states that if people renew with an insurance company they are likely to be penalised in their premium? Let me quote some statistics: a person who renews four times with the same company will pay on average 20% more as a loyalty premium. That will be 28% if they renew five times and up to 40% if they renew over ten times. This is a result of price customisation or what is called dual pricing, something that Aviva has just recruited.

Mr. John Quinlan

We have led the research on this in our biggest market, the UK. We have a dedicated team on Aviva plus where renewals and new business are exactly the same. That pilot is one year old. The figures are not encouraging in terms of getting more business. People like to shop around and they like the dynamic of going in with a lower new business price knowing that they will pay more over time. We are certainly not hiring people to play any fast tricks with consumer behaviour. There is a broad definition of consumer behaviour, including where people live, fewer buying houses, new types of cover, etc. It certainly is not to penalise our customers in any way.

Does Mr. Quinlan accept that if a person renews with the company on average, because of these algorithms and because of identifying customer behaviour, he or she will pay an additional 20% on the premium?

Mr. John Quinlan

I could not accept those figures without doing the research that underpins them.

They are the FCA's figures.

Mr. John Quinlan

I cannot accept them when I have not reviewed them.

Would he suggest that is broadly what the FCA is examining? Has he heard, for example, that if a person renews ten times or more he or she is likely to be paying an additional 40%?

Mr. John Quinlan

I have not reviewed the research yet.

Aviva is operating in Britain. On 1 April 2017 what new rules came in for policyholders?

Mr. John Quinlan

I am not aware.

On 1 April 2017 was it not the case that new rules stated that customers who renew over four times with an insurance company will have to be prompted again to shop around, even though there is a requirement for every renewal policy to be prompted, but those who renew on four occasions or more need to be given an additional prompt by the insurance company to shop around for better value?

Mr. John Quinlan

I am not aware of that. I apologise.

That has been introduced because of this information. Does Aviva do any work with Milliman, an actuarial and consultancy firm?

Mr. Brian Mahon

No, we do not.

Are the witnesses familiar with its work?

Mr. Brian Mahon

Yes.

It is a reputable organisation and it states that optimisation algorithms, which the witnesses agree that Aviva has, can push prices up for loyal customers who have been renewing their policies with the same insurer for a few years because the model perceives them to be less price sensitive. Is that not the model? Is that not why Aviva is talking to people with expertise in behavioural analysis, is that not the point of big data mining? The company targets individuals using these algorithms to say that this individual has renewed several times, is less price sensitive and therefore it can charge an additional premium.

Mr. Brian Mahon

We are focusing on the additional premium. Over 33% of our customers get a premium reduction and within that analysis customers are identified who receive lower prices than our new business pricing. It does come back to our wish to achieve our target retention rate. We want to achieve our average differential which is 3%. From a loyalty point of view we are monitoring very closely what we do in the UK. We would be more than happy to replicate that. Even without that we brought in a new loyalty programme over two years ago whereby we award a 15% discount for multiple product holdings and free travel insurance to our renewal customers. We do believe in rewarding loyalty within our customer base.

Would Aviva also be open to following the practice in Britain which prompts those who renew a policy on four occasions or more to shop around?

Mr. Brian Mahon

If that was to come into this market we would support that and we are already supporting the new disclosure requirements which are coming out on 1 November for renewal regulations.

My insurance contracts Bill will come to the Dáil for Report and Final Stages before the end of the year. It is hoped to require all insurance companies to notify their premiums over the past three years, and the claims that have been made, to bring transparency for motor and other lines of insurance. Would Aviva welcome that?

Mr. John Quinlan

We would certainly welcome full transparency. It is critical that we do not lose sight of the real issues. That is my greater concern. Full transparency from the industry is critically important and we would certainly welcome that.

What about the other companies?

Mr. Brian Mahon

In respect of that Bill we would really appreciate a longer lead time to bring that in.

We understand that a lead time will be required for information technology systems to facilitate some of this work.

Mr. Anthony Brennan

All renewal notices will show last year's premium, extending that to three years-----

Only in motor insurance, not public liability.

Mr. Anthony Brennan

We have no particular objection but there are practical points. Anything that makes the Irish market different from other markets can make it more difficult for other insurance companies to come in here. For example, the insurance disc which we are all used to and causes us no problem might be a source of friction for an insurer looking into the Irish market.

Mr. Declan O'Rourke

We would support it. I think when there is a broker involved that happens anyway in business insurance. For individuals and consumers we would have no problem with doing that.

I apologise for not being here earlier, but I was in the Seanad.

I was at a meeting of a voluntary group last Friday and the cost of insurance for all community and volunteer groups was raised. The group found that when it applied for insurance for a men's shed or whatever it was almost treated as a commercial entity. Are there any plans to treat community and voluntary groups differently when they apply for insurance?

Mr. Anthony Brennan

Unfortunately, the challenge is that from the point of view of the claims environment they are no different from commercial organisations. We have recently seen claims against community groups which might not have been made years ago. The environment today is that people do take claims even against a group of people who have put their time in for free, doing valuable work for their community. That makes it very difficult for us to price any other way than by considering the cost of claims that these groups will incur and allow for that. It goes back to delivering on the cost of claims. Reducing those will help the community groups.

Mr. John Farrell

We would support that. That is why we called specifically for a review of the law of negligence because too many claims are being paid out. There are two significant problems, first, the cost of the claims in this country, which is 4.4 times that in England and Wales. That has been validated by the excellent work of the retired judge, Mr. Nicholas Kearns. Second, an additional problem for the groups the Senator speaks about is the sheer frequency of claims and the fact that every accident now requires compensation. It is part of the "compo" culture. We are calling for a fresh review to determine what can be done so that payments are made only where actual negligence happens. That is critical to help in that area.

The witnesses have to acknowledge that the frequency of claims has been reduced by 25% over the past four years. There are arguments the witnesses can make but they need to talk about it in facts instead of spin. I am sorry to interrupt.

Mr. John Farrell

I referred to the reduction in frequency of motor claims. That has not been our experience in the area of liability. We have seen increases in the frequency of liability claims and in their cost. It is a twofold problem that underpins why groups the Senator refers to have such real problems in the affordability and availability of insurance. Until we address that as a real problem these groups will be left in trouble.

Mr. Declan O'Rourke

We have to consider the claims. Two of my children fractured their fingers this summer playing hurling and camogie. They went to the local clinic, the finger was strapped up and they were back playing in a few weeks. A fractured finger is not a big deal but if someone is responsible for it or it happens in a play centre or a men's shed, according to the book of quantum in Ireland, a fractured finger with no long-term complications is worth €17,500.

One can expect to spend €10,000 on the complainant fees, while the defence fees will be €3,000, all for a fractured finger that will be fine in a few weeks in uncomplicated cases and which thousands of children get playing hurling every Sunday. Two of my kids had them this summer.

I assume there was no claim arising. That should be made clear.

Mr. Declan O'Rourke

Yes. There was an argument that they wanted to get back more quickly. A private clinic tries to get people to have an MRI and one has to tell them an X-ray is fine as it is not so serious. We sought the view of our claims managers throughout Europe of what would happen in their country. In comparison to the 17,500 whiplash cases in Ireland, there were 4,100 in the UK and the legal fees were €932. A lawyer needs to find ten broken fingers in the UK to pay for one in Ireland. Germany has more people in its court system and not so much of it is outsourced to lawyers but the injury value was €1,500 while legal fees were €250. In a men's shed, a broken finger is a common injury and the book of quantum has to change as regards these awards.

I have been looking at previous profit figures. Is AIG Insurance part of the AIG Europe group?

Mr. Declan O'Rourke

Yes. We are a branch of the European business.

Mr. O'Rourke said there were €30 million in losses on €280 million of premiums. Is there a group management charge from AIG Europe that is distorting the figures?

Mr. Owen Kelly

We pay 3% as a global service fee to our parent in Europe.

So the figure for losses of €30 million is not distorted.

Mr. Declan O'Rourke

No. The fee is for listing, for a financial strength rating or compliance-----

AIG is a bit of an outlier in the insurance industry in Ireland in that it made a loss of €30 million in 2018, while all the other insurance companies appear to have made substantial profits. Is this because it is a member of AIG Europe?

Mr. Declan O'Rourke

No. It has nothing to do with it.

My next questions are for Aviva and Zurich. In 2018 the normal target margin was 5% but Aviva made 11.4% and Zurich 8.98%. Aviva made superprofits of €33 million and Zurich €12 million, which are 6% and 4%, respectively. Axa was before us, as were FPD and Allianz. In total, the five companies other than AIG made superprofits of over €122 million in 2018. We have spoken about claims and legal fees but, given that the companies are making margins way in excess of their target margins, why are they not reducing fees? They are saying they will only reduce premiums when they keep the 5% margin. Why are Aviva and Zurich not passing back these superprofits, of €33 million and €12 million, respectively, to customers in the form of reduced premiums? Why do many customers feel they are being ripped off by insurance companies?

Mr. John Quinlan

We have discussed transparency this morning. We often pay claims seven years down the road and we are not making superprofits. If we were, there would be far more competition from companies interested in participating in the Irish market. Our figures for 2012-18 suggest we are making a 97% core, which is 2% below our target. It was 101% in 2012 but 92% in 2018. For motor insurance we wrote €1.2 billion between 2012 and 2018 and made a €14 million underwriting profit, €71 million in total, which is a gross return of 1.7% and nothing like 5%. Our liability was €400 million.

I was asked about claims increases but we lost €37 million on that figure at underwriting level, and lost €10 million of the total, yet I am trying to convince the group to stay with Ireland and to keep deploying capital. We are certainly not making supranormal profits. We need to make sure we are here to pay the claims of the future. Quinn Insurance cost us €2 billion because the premiums were not right. We will pass back profits as soon as we can see the reductions in average claim cost.

Mr. Quinlan is putting all the onus back on fraudulent claims and legal fees. How long does it typically take for an insurance claim to be settled?

Mr. John Quinlan

It depends on the claim. Property claims have a very short timeline.

Is it less than six years?

Mr. John Farrell

On average, liability takes six years but we are dealing with some claims that are 15 years old.

Mr. Anthony Brennan

We had a 6% margin in 2018. On top of that is investment income, which is the money we put aside to put back into our business and into reserves we all need to hold. A lot of claims take a long time to pay back so I would not describe our figures as superprofits. There have been reductions in home and motor insurance but not liability, which is a problem for us and a challenging area. The reductions will feed through to lower margins in the years to come and the danger of us of getting back into a boom and bust cycle, in which we compete strongly with each other, is that we drive the margin down to a level at which we start making losses again and require premium increases. Customers want stability. They all want reductions in premiums but they do not want big increases followed by big reductions. We plan for a sustainable level of profit and we plan three years ahead. I look at the profit level in three years' time and it will be a bit lower than 2018, which means I need to grow my business. I want to get into more lines of business because that will mean the cost of claims becomes more reliable and more predictable.

The general public are being told by insurance companies that it is a tough environment but according to the 2018 profits, five or six companies were making a very health profit. The average person will ask why their premiums are so high. It is a legitimate question and I ask the insurance company to look at premiums for hard-pressed customers, though I accept they have to make a profit. They need to ensure cover is provided across many areas, because people in leisure, crèches and the SME sector cannot get insurance. That is unacceptable.

We will consider the Senator's points in the context of a short report, after these sessions.

A lot of the discussion before I had to leave for another meeting centred on fraudulent claims, which seems to be a massive issue. Fraudulent claims, however, involve not one person but two. What responsibility do the insurance companies have to the legal representative of a claimant when an allegedly fraudulent claim comes before them?

I would welcome a response from each of the witnesses to that question.

Mr. John Farrell

Is the Deputy asking if the insurance companies have a responsibility with regard to the legal representative of the claimant?

Yes. In most cases, a claimant will have a legal representative. Where a claim is identified as fraudulent, do the insurance companies have any responsibility in regard to the legal representative in that case or is that a matter for the law?

Mr. John Farrell

In the first instance, we have deployed substantial resources in this area. We have employed 30 dedicated staff to handle specifically fraud cases, backed up by a network of 50 personnel to carry out comprehensive investigations. Fraudsters need enablers. They cannot put forward fraudulent claims on their own. They need and get assistance from various professionals. We would ask those professionals to look closely at claims to ensure there is proper behaviour and that in addition to us they are carrying out significant investigation into claims. In terms of the cases getting to court, it is a little difficult to believe that some of the people who are involved were not aware that there were grounds for suspicion.

In how many cases per annum to date has it been expressed in court that a legal representative did wrong?

Mr. John Farrell

I cannot recall where it has been said in court that a legal representative had done wrong.

Mr. Farrell is saying they are not being held responsible.

Mr. John Farrell

My point is that if the fraudsters were not enabled with professional assistance, they could not bring these claims through the system and they certainly could not get them paid. We have deployed our resources and made our investment. We will make a further investment, but we need help in this area. We call on the various professional organisations that provide professional assistance to examine what is going on and to carry out investigations similar to those carried out by the insurance companies so that they can address these suspicious events.

When an insurance company receives a case from a legal representative which appears to be odd or out of the ordinary, does the insurance company have a responsibility to immediately bring that matter to the attention of the Law Society?

Mr. John Farrell

Where we become aware of a matter which is potentially fraudulent, which we believe would be of material assistance to the Garda, we are required to make that report under section 19. In the past, we have exercised that responsibility.

I would welcome a response on those issues from the other witnesses.

Mr. John Quinlan

From memory, the first time I heard a judge comment on the role of a professional was in a recent case presided over by a female judge, which was a gross case of fraud. We would welcome tighter restrictions on all professions in terms of bringing cases and a duty of care to ensure that there is no exaggeration of claims and no sense of fraudulent behaviour.

Mr. Anthony Brennan

It is an adversarial system. We are in the business of paying valid claims. All claimants are entitled to representation. We have to assume that claimants are going to be professionally represented. It is an adversarial process and we do not always agree with the people on the other side of the bench. For us to report to the Law Society would be very difficult. These issues are more appropriately addressed to the courts, to which one or two cases have been referred recently.

Mr. Declan O'Rourke

We have never seen any solicitor taken to task in regard to any particular representation.

Do all of the insurance companies represented today provide flood insurance?

Mr. John Quinlan

We do.

Mr. Anthony Brennan

We do.

How difficult is that in the context of climate change? In my constituency, people who have been hit by flooding have made claims which, in fairness, have been paid but they are now finding it difficult to have their insurance renewed, even where there may have been works carried out by the local authority and so on.

Mr. Brian Mahon

We work closely with the Office of Public Works, OPW, and the local authorities in regard to areas where works have been carried out. We need greater information sharing on the part of the OPW in regard to works carried out such that we can recognise them. We have had some representations from various Members of the Oireachtas. Once we are able to verify that works have been done, we are more than happy to reinstate cover if we are not offering it in a particular area.

Mr. Anthony Brennan

There is a process in place in terms of working with the OPW. The OPW is doing some great work but it needs to share the information with us as quickly as possible to allow us to update our understanding of the risk involved. Where permanent defences have been installed, it is much easier for us to step in and offer flood cover again. Temporary defences cause challenges because we need to understand exactly how they will work in a period of stress.

I thank the witnesses for their responses and for attending today's meeting.

The joint committee adjourned at 1.25 p.m. until 2 p.m. on Tuesday, 15 October 2019.