Developments in the Insurance Industry: Discussion (Resumed)

I remind members and guests to turn off their mobile phones and to remove their masks when speaking because it will help the recording of the meeting. Today we are dealing with insurance issues. We have representatives of the industry with us. I welcome Mr. Michael Lyons, chairperson of the fire and safety division in Engineers Ireland; Mr. John Power, vice president of Engineers Ireland; Mr. Aidan Connaughton, general manager of AIG Insurance Ireland; Mr. Philip Bradley, CEO of AXA Insurance Ireland; Ms Antoinette McDonald, partner in customer experience marketing with AXA Insurance Ireland; and Ms Deirdre Fagan, senior claims manager of AXA Insurance Ireland.

The witnesses from Engineers Ireland will give a brief opening statement, which will be followed by questions and answers. The representatives of AIG Insurance Ireland and AXA Insurance Ireland will then give brief opening statements to be followed by an question-and-answer session.

Those in the House or in the precincts of the House or the convention centre have full privilege. Witnesses attending remotely from outside the parliamentary campus have been made aware that full privilege may not apply. I invite Mr. Lyons to make his opening statement on behalf of Engineers Ireland.

Mr. John Power

That might actually be me.

That is fine.

Mr. John Power

To put our contribution into context, we all know the scale of and how critical the construction sector is to Ireland's economy. Engineers, and I am talking about qualified professional chartered engineers, are critical to the construction sector. However, all engineers involved in the sector - structural, civil and fire safety engineers - face a problem securing professional indemnity, PI, insurance. While I will focus today on the fire safety specialists where problems can result in catastrophe, unfortunately the problem is wider. We are not here to allocate blame but to help to find a solution. Without a solution, today's housing and other construction infrastructure projects will just get worse for everybody.

I thank the committee for the invitation to give evidence on the serious concerns and difficulties faced by engineering professionals in obtaining PI insurance in 2021. I am the vice president of Engineers Ireland and a chartered engineer. At 186 years old, Engineers Ireland is one of the oldest and largest representative bodies on the island of Ireland, with over 25,000 members. This membership, comprising third-level engineering graduates, incorporates all disciplines of the engineering profession in Ireland in consulting and contracting organisations, the public sector, semi-State bodies and educational institutes. Our members are organised into regional branches, engineering divisions and societies, including our fire and safety division.

A professional engineer offering a professional advisory certificate or opinion is required to hold PI insurance. The PI insurance issue is quite broad for engineering professionals and affects fire safety sign-off, procurement and structural sign-off. It is intended to protect professionals and their businesses in the event of a claim arising from a loss as a result of non-performance or negligence in the services provided. In addition, the policy can cover legal and other costs and expenses incurred in the defence of any claim, which can, in many cases, be a substantial portion of the overall costs in processing a claim. PI cover is also required for any work to existing buildings, including refurbishment, extensions and change of use.

An important difference between PI insurance and other insurance policies is that PI insurance is written on what is called a "claims made" basis. It is the policy in force at the time that the claim is made that deals with the claim rather than the policy in force at the time when the work was done. An example would be where a practice was asked to complete a project in 2016 but the client did not make a claim until 2021. As a result, it is the policy in force in 2021 that deals with the claim rather than the cover in place in 2016. Therefore, PI insurance is generally required to be kept in place for a number of years after the project's completion. That is an issue in itself. I will now hand over to Mr. Michael Lyons, chairperson of the Engineers Ireland fire and safety division and a chartered engineer.

Mr. Michael Lyons

Our members work in both the public and private sectors. The PI insurance issue affects those in the private sector immediately but the crisis will have adverse implications for the public sector, particularly when it comes to delivering housing completions. Those engineers having PI insurance would include sole traders and fire safety engineering practices with three to four engineers, up to practices with over 20 to 30 employees. Generally, engineering practices would typically carry out fire safety design, inspections and certification of fire-resisting construction, fire safety systems, electrical and mechanical systems for fire detection, emergency lighting, smoke control and active fire suppression. Activities requiring inspection and certification include the construction of fire-resisting floors and external walls in houses and smoke detection systems in houses as well as specifying proper materials on cladding systems, wall and ceiling linings. All such design and construction is required to comply with Ireland's building regulations for fire safety. It should be noted by the committee that 12 years of PI insurance cover is the norm when a collateral warranty is in place. This requires that a practice be able to renew its PI insurance cover for each of the succeeding 12 years.

In respect of PI insurance in 2021, insurance underwriters, which are mostly UK-based, have withdrawn from the Irish market.

The amount of capital to cover PI insurance claims has reduced, precipitating a prohibitive and exorbitant rise in premiums, excess and the imposition of more restrictive terms, including the exclusion of covering fire safety-related work. The high levels of PI insurance required as part of procurement contracts and the multiple risks involved mean that cover is replicated and risk is pushed down the insurance supply chain. As a result, many engineering practitioners are finding it increasingly difficult if not impossible to obtain cover at reasonable costs. Some fire practitioners are being refused cover or are just not quoted. Many are only being offered policies with fire safety being excluded from cover and policies are offering much lower limits on individual and aggregate claims.

If the current trend persists, after a year of restrictive renewal notices, there will be relatively few firms in a position to offer fire safety certification for design and construction. This will impact on all of the construction industry, on the approval of designs, on the commencement of projects or on the handover of completed projects such as housing, flats, nursing homes and factories.

PI insurance premiums are priced on a number of factors including the practice’s turnover and the values of projects that the firm is involved with. The culture of below-cost tendering, inappropriate risk transfer and costing in tenders directly impacts on the estimated level of capital required in the PI insurance market. The underwriting of the insurance industry in Ireland is Anglocentric. There are impacts from Brexit but also from contagion due to developments in the UK market, for example, the liquidation of Carillion in 2018 and the Grenfell Tower fire in 2017.

In conclusion, Engineers Ireland has been raising this issue along with our colleagues in the Construction Industry Council. We welcome the attention that the committee is giving to PI insurance and we look forward to working with the committee, the Government and other stakeholders towards a solution or solutions. I thank the committee.

Can Mr. Lyons or Mr. Power tell the committee what the premium cost is? How much is covered? Is it €1 million or €2 million? Mr. Lyons is saying that the impacts from Brexit and the contagion from the UK, etc., are going to affect housing, flats, nursing homes and factories, etc. Is Mr. Lyons telling us that housing estates or apartments that are currently being constructed are going to be affected by this and will not be able to be handed over because certification cannot be given? Is that correct?

Mr. Michael Lyons

That could happen. I know from discussions with different colleagues that when a project begins, a consulting engineer practice will have PI insurance. During the course of the construction of the building, it will be inspected and materials will be approved. At the end of the project, depending on the set-up, the assigned certifier may be relying on a fire safety consultant or on another engineer who is acting as the fire safety certifier. In order for the fire safety certifier to issue an opinion of compliance and an ancillary certificate, there will need to be PI cover at the end of the project. If during the course of the project they cannot renew their PI cover, they will not be able to issue the certificate that the rest of the team were relying upon. Either there will be delays, replacements will have to be found or the development of the project will founder.

I have many colleagues who are in the middle of projects and are finding it difficult to get their policies renewed, or in getting the renewal of their policies they are finding that the terms are very heavy. For instance, I have a colleague in Waterford who has been in practice for over 20 years. In 2020, the firm had a PI policy for €6.5 million insurance cover at a cost of €10,000. In 2021, it was offered just €1 million cover and was quoted over €40,000 with a significant number of exclusions attached to it. I will explain the implications of that. If a project the firm is involved in requires having €6.5 million insurance cover, and mid-race it loses that €6.5 million cover, it is no longer able to meet the terms of the contract it entered into at the very beginning of the project. In the case of a housing estate worth €2 million, €3 million or €4 million, the firm can no longer cover the fire safety risk that the policy was intended to cover because its level of cover has been reduced to €1 million. In addition, the exclusions that have been attached to the policy may mean that the engineering firm cannot certify the external walls or something like that. It could have something to do with some aspect of the construction. Current projects could be under threat. Certainly, the ability of fire safety engineering firms to get involved in new projects is most definitely at risk.

Have Mr. Lyons and his colleagues carried out an analysis on the various sites around the country to determine where this might happen? Where are the locations where housing estates might be held up? We are in the middle of a housing crisis. Mr. Lyons seems to be saying that housing estates which are about to be finished and handed over may very well experience very long delays because they have not got the necessary certification. Has Mr. Lyons carried out an analysis of what sites - or what colleagues - throughout the country this is likely to affect? What is going to be done about it within the industry? It poses a significant risk for the delivery of housing by the Government, and indeed within the private sector, and for any other construction that may be in the process of being completed. Am I reading what Mr. Lyons has said correctly?

Mr. Michael Lyons

In most housing developments, there is an assigned certifier. Typically, depending on the scale of the project, the individual practice may or may not have difficulty renewing PI insurance. What has been happening in the last two months and what I can disclose anecdotally today is that I have had numerous discussions with colleagues who have been finding it very difficult to get renewals. One colleague, for instance, has a deadline of the middle of June and has no offer of renewal of PI insurance. From the middle of June, this firm will have to cease providing inspection and certification cover for any particular project it is involved in. I have a colleague who has a housing estate beginning in Wicklow in July with over 110 houses. His general engineering and architectural practice has been told that fire safety will no longer be covered under its particular policy. He has to inform the developer and the client that they need to engage a new engineer or architect to do all of that inspection and certification work, or they need to employ a specific specialised fire safety consultant on that type of housing project. That would be very unusual because engineering and architectural practices are typically able to cover domestic fire safety issues, particularly on single-storey and two-storey housing, because the degree of fire safety work is limited and domestic. If the firm's PI policies exclude it from having anything to do with fire safety work, it will have to buy in additional external fire safety specialisation, which obviously adds additional costs. The pool of fire safety specialists is finding it very difficult to get renewal terms. Some of them are being refused new renewal terms at the moment.

Are they being refused?

Mr. Michael Lyons

Yes, they are getting zero offers of renewal. Some of this has occurred because some insurance companies have stopped writing PI policies. When a fire safety engineering practice that was insured by company X last year goes for renewal and discovers from its broker that company X no longer writes a policy, it must then go to a new company.

The brokers are finding it difficult to get new entrants for an engineering practice and to get a new policy written by an alternative insurance company because the insurance companies are reluctant to sign up to our safety policies.

I welcome the witnesses. I will commence with questions to Engineers Ireland. The committee has received correspondence from fire safety engineers who are concerned about the huge rise in the cost of PI insurance. One particular company said that the cost of cover in 2019 was €2,500, that it then rose to €7,000 in 2020 and that in 2021, initially, it was unable to get a quote and when it did the annual premium quoted was €65,000. In a two-year period, the cost of cover increased from €2,500 to €65,000. That is unmanageable for many companies.

We are all aware that this issue has come to a head as a result of the Grenfell Tower tragedy. It needs to be recognised that the systems in Britain and Ireland are very different. In the main, British underwriters are not differentiating between the Irish fire safety risk exposure and that in Britain. We have a report which confirms that Ireland does not have the same fire safety risk exposure as Britain, but that does not seem to be recognised by these underwriters. It is essential that the Minister of State, Deputy Fleming, engages with underwriters in Irish construction and with the engineering industry to understand these concerns, provides underwriters with the assurances that are needed and clarifies the differences between the systems in Britain and Ireland. We are aware of 15 businesses that have withdrawn from the market as a result of this issue. This impacts on businesses, but also on construction because this is a key component in regard to the construction of office buildings, etc. Does Mr. Lyons agree that the Minister of State, Deputy Fleming, needs to engage on this matter and that the Government needs to take strong action in this regard? This is a huge issue and it is putting companies out of business. The cost of €65,000 for 2021 is not possible for many businesses. I would welcome Mr. Lyons's views.

Mr. Michael Lyons

We would support any solutions that can be offered to improve the provision of PI policies for fire safety consultants, structural engineers and all of the other engineers represented by Engineers Ireland. I am aware that the Minister of State is open to being approached. I hope that it would be a priority of all of the Ministers to ensure there are not any delays in the construction industry delivering on projects. Mr. Power would like to comment as well.

Mr. John Power

It is important to point out that the technical competence in terms of engineers is available all over the country. There are plenty of qualified and competent engineers in this space. I think the issue may be a little bigger than that. There is a problem manifesting and it is only going to get worse unless we do something about it. We cannot do anything about this on our own. We need to have a fundamental look at why we are in the situation we are in and to identify the winners and losers. At the end of the day, without a win-win situation for everybody involved, we will not get a sustainable solution. Engineers Ireland is happy to play its part in coming forward with the expertise that is required to develop a solution. We believe there has to be a solution because without a solution, the construction sector, be that in regard to housing or infrastructure, will be in trouble. We have to find a solution and that requires all parties to get involved, including the insurance companies, Engineers Ireland, most certainly, the legal profession and anybody else we believe can play a part in finding the solution.

Perhaps, Chairman, the committee could follow up on this by way of communication to the Minister of State, Deputy Fleming. I am interested in knowing if the witnesses are aware of other increases like the significant increases I have just outlined that are affecting the sector.

Mr. Michael Lyons

Is the Deputy speaking about increases in terms of construction costs or in regard to PI insurance?

I am asking about increases in other costs that might impact the sector. For example, we know of the massive increase in PI insurance cover to €65,000, which companies will not be able to pay as to do so would make their businesses unviable into the future. Have there been similar significant increases in costs in other areas? It is important we would be aware of any such increases in costs in order that we can address all of the issues going forward.

Mr. Michael Lyons

I thank the Deputy for the question. In terms of additional costs, for our members the issue of PI insurance started manifesting itself in February and March. The implication of additional running costs for any business is an increase in fees to compensate for that. There will be always secondary and knock-on effects to the increases in running costs. At this particular time, our focus needs to be on trying to put in place solutions and controls around PI insurance. Practising engineers can operate only if they carry a current PI policy. That needs to be our focus in all of this going forward.

I thank Mr. Lyons. I take on board what he said. I have a number of questions for the witnesses from AXA Insurance Ireland and AIG Insurance Ireland.

I apologise for interrupting Deputy Farrell, but we are engaging with the witnesses in two stages. We are engaging with Engineers Ireland now and we will come to the insurance companies later.

I thank the Chairman and I advise him that I would like to come back in later.

Yes. I call Deputy Doherty.

I welcome the witnesses to the committee meeting. Deputy Mairéad Farrell touched on some of the points I had intended to raise in regard to the experience and the evidence of what we are seeing happen in this sector. The figures in terms of the increase from €2,500 to over €65,000 in the space of two years are shocking and they point to the need for urgent action. Is that an outlier or are rapid increases of this nature happening across this State?

Mr. Michael Lyons

I thank Deputy Doherty. I can confirm it is not an outlier, unfortunately. There are 1,240 affiliated members in the fire safety division of Engineers Ireland. I would have regular contact with scores of different fire safety consultants and engineers. Practically everyone is telling me that since the beginning of this year their policy renewals have trebled or quadrupled, the excesses have increased significantly and all of the conditions attached to the polices have excluded various things.

For instance, one of the fire safety consultant firms came back and informed me that when it applied for its renewal, the first offer of renewal excluded fire safety construction, fire safety systems and any fire safety aspect of external walls. What that effectively meant was that the firm ceased being a fire safety consultant, which was its primary work. It went back and its broker did a lot of negotiating on its behalf. It ended up being offered a policy but the cost quadrupled from what it had been in 2020. That firm was allowed to do fire safety work even though external walls were excluded from its future works. The firm was happy with that because it was better that it was able to do the core part of its business, even though it was not going to be allowed to carry out its normal function on the fire safety aspects of external walls. That is a simple example that has been repeated in Waterford, Cork, Galway, Louth, Donegal and Dublin. The location makes no difference and the same story is being repeated throughout the country. The bite has occurred this year in particular.

It is also happening with structural engineers who are finding some of the same difficulties. In terms of fire safety work, practically everybody involved on a building site has a fire safety aspect of some type attached to their work. That includes mechanical and electrical engineers who are doing ducting for air conditioning, fire dampers and the like. There is always some aspect of their work that contains an element of fire safety.

I thank Mr. Lyons and have a couple of final questions on that matter. I am looking for an understanding of what it will mean if this problem is not rectified. Will costs be passed on to the customer? What will it mean in terms of the prices of homes? Have any calculations been done in that regard? We are also talking about offices and hotels, etc., which all require this type of certification. What concern would Mr. Lyons have for companies that are not able to deal with these increases? Will they fold? That is one of the concerns relayed to me by some of the companies. They do not think that these levels can be dealt with on an ongoing basis. That will result in unemployment and a bigger issue for any sector that depends on these certificates.

I will turn to the level of underwriting that is taking place. How many underwriters are we dealing with here? Are they all British underwriters? Is there a small number of them? We have had similar issues in the childcare sector, for example, where we were down to one insurance company to underwrite the sector. Other sectors, such as companies providing soft play areas and so on and so forth, have seen the appetite to underwrite withdraw from the market. There have been other issues about which we will talk.

My final comment relates to something close to my heart. Mr. Lyons talked about the north west. We are currently dealing with a serious problem, and have been over the past number of years. Homes are falling apart as a result of the mica scandal in Donegal, Mayo and Clare. Some 6,000 homes have been affected, predominantly in Donegal. One of the issues may concern Mr. Lyons' profession. The scheme as currently drafted is flawed and we are hoping for a 100% redress scheme. One of the problems with the scheme is that it is in the form of one home, one scheme, which means that the engineer must certify whether a home is affected by an outer block problem or an inner block problem, whether the house must be demolished and so on and so forth. If it is an outer block problem, it is cheaper than both outer and inner, and cheaper than demolishing the house, but the problem is that if the engineer gets it wrong, it is he or she who will be sued. As a result of that, the engineer needs insurance and indemnity. It also forces engineers to be ultra cautious and go for the more expensive option. Has Mr. Lyons had interaction about the scheme? Is he concerned that we have a Government scheme that potentially leaves engineers liable in that scenario? A number of claims in that area will cause insurance costs to spiral in terms of indemnity for engineers.

Mr. John Power

I will come in there, if the Deputy does not mind. Mr. Lyons will address the specifics of some of the Deputy's questions. The Deputy mentioned passing some of the costs on to the customer. Unfortunately, that will probably not be able to happen because the customer will probably not be able to pay. In terms of sign-off on the project, it will not happen and the customer will not take delivery of their house, development or whatever at the end of the day. I emphasise that the expertise is here. We have plenty of engineers who have the expertise to sign off on this throughout the country. However, if we cannot get to the bottom of this issue, the inevitability is that the construction sector will suffer significantly and there will be a significant number of job losses at a professional level. Mr. Lyons will address the other issues.

Mr. Michael Lyons

If running costs go up for one business, the increase will be passed on to somebody else and eventually the customer will ultimately pay. One of the mechanisms that a professional team can use if it no longer has PI cover for fire safety is to pass the responsibility on to the builder and require the builder to employ a specialist contractor or fire safety consultant engineer, or whatever, to carry out the role. The builder will, of course, pass the cost on to the client. One way or another, if additional expenses are introduced to the construction phase, they will be passed on to the ultimate payer, the customer.

We have done some basic research on the numbers of underwriters. Most of the information that is coming back to me is that the underwriters are based in the UK. I understand there are one or two in Dublin but the vast majority involved in fire safety appear to come from the UK.

In terms of employment, if firms find that the running costs are too expensive, they will fold and close. As I mentioned earlier, I am aware of one particular fire safety consultancy that has no offers for renewal of its PI insurance. It has a date looming in mid-June and if its insurance is not renewed, it will close. That will be a loss. It is also important to realise that the smaller professional companies and practices are far more at risk from this crisis. Smaller practices are dotted all over the country, in Wexford, Waterford, Galway, Louth and Donegal. It is affecting the whole of the country.

There is a registered scheme for concrete blocks, the mica registered scheme, but I have not had any interaction with it and would not feel confident to give any comment on it. It is a registered scheme that is operated through Engineers Ireland. As Mr. Power has said, there is great expertise in the country. There is no shortage of expertise and Engineers Ireland has a full register of professional engineers who can carry out that function.

I thank Mr. Power and Mr. Lyons for their submissions and contributions. They have painted an extremely worrying picture of the undersupply of insurance to the sector in which they are engaged and have described the real threat to the viability of practices and firms in the sector. There will also be a spillover effect to the wider construction sector and the possibility of delays if fire consultants and engineers cannot access insurance. I want to understand a bit more about the reasons underwriters have withdrawn from the Irish market.

I have several questions in that regard. Were Irish underwriters ever active in underwriting the type of public liability insurance and fire safety insurance that is required? If they were, have they simply exited the market now? In their submission, the witnesses detailed some of the reasons the British underwriters have exited the market. I refer in particular to the aspect of compliance with building regulations. There seems to be a suggestion that there has been a change in the degree of compliance required. I ask the witnesses to give some more detail regarding why they believe the underwriters have exited the Irish market.

Would Mr. Lyons or Mr. Power like to respond to that question?

Mr. John Power

I will start again. I thank Senator Sherlock for her question. Regarding the building control amendment regulations, BCARS, that were mentioned, we regard it as positive that professionals have increasingly become involved in this area. Competence is now employed throughout the process and paper trails exist. It is a very positive change and we are very happy with it. Turning to the market, and I should say that I am not enormously competent in this area, one must ultimately look at the risk versus reward element in this regard. Many of the British operators have left the Irish market, obviously, because they were not receiving a return on their investment for some reason. I am not stating where the fault lies for that, because it is not our job to blame people. Our job is to recognise that there is an issue and that we must all get together around a table to sort it out for the good of the construction sector in Ireland.

However, an obvious reason for companies to leave would be the risk versus reward factor. We are all aware of situations where some awards have been very significant. Clearly, only a certain amount of money is available to balance awards against claims and that is the perspective from which the insurance companies are looking at this situation. It may, therefore, be a matter of us looking at all the elements involved, namely, the premiums, the availability of those premiums, how the whole area is structured in respect of where the money goes and who gets the most out of it in the end. We must ask ourselves which organisation will ultimately be left standing, because that entity will generally see a significant benefit in remaining involved in the market. If we look at this whole area collectively, I think we can probably come up with some better solutions.

Mr. Michael Lyons

Profitability is a major factor in this area. I refer to the experience in the UK regarding difficulties for professionals. Many of our colleagues in the UK are probably having the same difficulties when it comes to fire safety PI insurance. Several major events in the UK, such as the collapse of the Carillion construction company in 2018 and the Grenfell Tower fire in 2017, have had knock-on effects on the confidence of underwriters to support various policies. Regarding Irish underwriters, I learned a great deal about the insurance industry in 2021 as a result of all the complaints from my colleagues. Our colleagues here from the insurance industry would be far better able to answer this question about Irish underwriters in the market, but my impression so far is that the majority of underwriters of such insurance policies were based in the UK.

That is fine. I call Deputy Durkan.

I am sorry, but can I just get one last question in?

Yes, the Senator can.

It neatly follows on from what Mr. Lyons said. There is a reference in the document to the insurance scheme created by the UK Government on foot of the Grenfell Tower fire. Mr. Lyons mentioned that one of his colleagues referred to the concept of project insurance. Does he believe that the UK scheme is the answer or is project insurance the answer? I would like to get a better grasp of what the witnesses believe is the answer to this issue.

Mr. Michael Lyons

I do not think there is a single answer, unfortunately. Several possible solutions and parameters will be required to address this difficulty concerning the underwriting of insurance policies for professional indemnity. The Grenfell Tower fire in the UK triggered the awareness of the difficulty with external cladding on buildings. Insurance and mortgage providers in the UK then introduced an external wall system, EWS, scheme and an EWS1 form, whereby the issue of external cladding was separated and removed from the normal process. Chartered fire engineers now assess external cladding on buildings and subsequently fill out these EWS1 forms. That was the solution arrived at in the UK to deal with the particular aspect of the difficulties that arose from the Grenfell Tower fire. The EWS scheme was supported by the UK Government and a fee and cost was set in that regard.

There is probably not a major difficulty in Ireland in that area, because a review was done here following the Grenfell Tower fire by the then Department of Communications, Climate Action and Environment. Fire officers reviewed all the tall buildings in Ireland and we do not appear to have the same difficulties with that type of construction as exist in the UK. We do have a problem, however, with the delivery of PI insurance policies. The solution will come from several different factors working together to assist with delivery in this area. Engineers Ireland wants to assist as much as possible in delivering such a solution.

I thank the witnesses.

I call Deputy Durkan.

I find this entire scenario extremely distressing. It comes right in the middle of a housing crisis and at the same time as the pyrite and other issues mentioned by other members. We are looking at situations where consumers must shoulder the burden and have become the victims in that regard, despite it now being 30 years since the creation of the national house building guarantee scheme, Home Bond. I remember some 35 years ago having the roofs of all the houses in an estate replaced because of a structural defect. Compare that with the pyrite situation we have now, where a limit was applied. I cannot understand on what basis that was done, because there is either a guarantee or there is not. In addition, it will be done subject to whatever evaluation must be done. Many people have been severely impacted by the defects that have now emerged in their properties. Several houses have had to be demolished and some of them have been gutted. Ultimately, in most cases, the people involved must carry the full responsibility themselves.

After all these years of improvements to the systems we have put in place to protect the public, I find it very hard to accept that we have now arrived at a situation where we cannot get PI insurance cover for fire safety and it is being conducted from outside the country. Deputy Mairéad Farrell raised the question of what other companies are underwriting in this area and what changes have occurred. I am also conscious that we are in the European Union and the UK is not. I do not know if that difference is affecting this situation. If it is, however, we must do something about it urgently.

I reiterate that I am deeply dismayed to hear the subject matter of this discussion. It is a terrible blow to consumers. Those buying houses are already badly enough beset by all the obstacles they face every day. An urgent reappraisal is required in this area and it should be done with a view to ensuring, whatever else might fail, that our hard-pressed consumers are protected, and most especially in the area of housing.

I thank Deputy Durkan.

Mr. John Power

Clearly, the Deputy paints a bleak picture. Things are bleak enough, certainly, but there is good news also.

We talked about Grenfell Tower and Carillion. We have learned in this country from what happened in the Celtic tiger era. The Building Control (Amendment) Regulations are a tremendous example of a significant and positive move forward. We need more of that to recognise what the problems are. If we begin to implement things like that into the future, we will come through this.

I would like to set out my real concern. We were able to give protection to the general public 35 years ago on the construction of a house through the structural guarantee scheme, the premium bond scheme, or whatever it became later. All these things fell into the dustbin during the course of the Celtic tiger. However, the general public, the consumer, had to pay up. The consumer was left swinging and was punished for it. I dealt with scores of it, as every other Dáil Deputy did. It was distressing. I remember suggesting one time at a meeting with all sectors that the insurance sector, the construction sector and the local authorities with a function in the area might come together as one with a view to addressing the issues. For instance, if substandard materials are used in the construction of a building, there is a liability on someone. It should not be on the customer. There is a liability on somebody. It is a question of who the customers are and how they are going to be protected. I do not hear anybody saying anything other than that we should continue as we are and that we learn from our experiences. Quite honestly, I do not think that is good enough.

In the absence of Deputy Matthews, we will move on to the second part of our meeting. I apologise to the insurance companies for having to wait during that exchange. However, it is no harm that they would see at first hand the frustration of members and indeed of the industry. I call Mr. Connaughton from AIG to make his opening remarks.

Mr. Aidan Connaughton

I thank the Cathaoirleach and the members of the committee for the invitation to discuss issues related to insurance in Ireland. I wanted to start by welcoming the publication of the Action Plan on Insurance Reform and the adoption of the Judicial Council’s personal injuries guidelines. Both of these developments are significant steps in our collective endeavour to bring meaningful change to Ireland’s high cost of claims.

The work of this committee has been invaluable in helping to bring about these and other reforms for the benefit of consumers and businesses. I also wanted to acknowledge the profound impact of the Covid-19 pandemic on our society and our economy. It has been a huge challenge for us all. Our customers and our colleagues have remained our priority throughout this extremely difficult period. Before briefly addressing the specific topics, I hope it will be helpful to the committee if I provide an overview of AIG’s business and its history in Ireland.

AIG has been in operation in Ireland for over 44 years, having entered the Irish market in 1977. American International Group, Inc., AIG, is a leading global insurance organisation and is listed on the New York Stock Exchange. Today, building on over 100 years of experience, AIG member companies provide a wide range of property casualty insurance, life insurance, retirement products and other financial services to customers in more than 80 countries and jurisdictions. These offerings include products and services that help businesses and individuals to protect their assets, manage their risks and provide for retirement security.

Our Irish business, which is run from our Dublin office in North Wall Quay, employs approximately 160 people in the general insurance division. We have approximately 500,000 customers. Since 1977, AIG has been the insurance partner for large and small companies, not-for-profit organisations and consumers in Ireland. 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 throughout the world, as well as the insurance needs of US and other multinational businesses in Ireland. Our principal products are financial lines, for example, directors’ and officers’ insurance, motor insurance, leisure and travel insurance, liability and property insurance. Throughout the Covid-19 pandemic, AIG has remained focused on continuing to serve policyholders, business partners and other stakeholders, as well as protecting the health and safety of our colleagues and partners. Helping individuals, businesses and communities to prepare for times of uncertainty is at the heart of what we do.

AIG has introduced a range of measures to support its customers throughout Covid-19. For motor insurance policyholders, these measures include priority repairs, free breakdown service and courtesy cars for HSE and front-line professionals. We have also applied discounts for policy renewals where this is appropriate, reflecting, for example, lower driving volumes due to travel restrictions in place to contain the spread of the virus. AIG’s policies that include business interruption cover are typically property and commercial policies where the business interruption results from physical damage to property. This is the basis on which our property and commercial policies are priced. Typical examples of covered physical perils include fire, explosion, material breakdown, machinery breakdown and natural catastrophe. Our priority for all our business customers is to support their efforts to return to pre-pandemic levels of activity as society and the economy begin to reopen, by dealing with claims fairly and paying promptly where policies provide cover.

In relation to the cost of insurance, AIG welcomes the publication of the Action Plan on Insurance Reform and the principal recommendations aimed at reducing the cost of insurance for the benefit of policyholders. The adoption of the personal injuries guidelines by the Judicial Council last month is an important step in this regard. While each insurer is responsible for its own pricing, the industry has a track record of responding quickly to change, as is evidenced by the 40% decrease in insurance costs following the establishment of the Personal Injuries Assessment Board, PIAB, in 2004. The guidelines will apply to cases that have not yet been assessed by PIAB. We are hopeful that as the guidelines are implemented, award levels will begin to fall, leading to a reduction in overall claims costs. The strengthening of the authority and powers of PIAB as set out in the action plan is also a positive step.

Finally, we welcome the Government's commitment to the review of the duty of care laws. A more balanced approach to the duty of care applied to policyholders is central to achieving meaningful reform, which will in turn impact overall claims.

In conclusion, the reforms introduced to date have been the culmination of many years of work by the Government, the Oireachtas, insurers, consumers and other stakeholders. We look forward to continuing to collaborate with the committee and the Government to deliver change and meaningful reform to the benefit of customers.

Mr. Philip Bradley

I am the CEO of AXA Ireland. I thank the committee for the invitation to this meeting, in particular for its flexibility in facilitating the meeting today when I unavoidably had to decline the invitation to the meeting last week. I am joined Ms Deirdre Fagan, who is a senior claims manager at AXA Ireland and Ms Antoinette McDonald, who is our customer and marketing director.

AXA Ireland is the largest general insurance company in the Irish market, with approximately €900 million of premium income and over 1 million customers. We operate across the island of Ireland and we employ over 1,400 people here. We operate in all channels of the market and offer products direct to consumers and via intermediaries and partners. Our direct channel is supported by an extensive branch network, including call centres and online capability. We offer a wide range of insurance products, including motor insurance, home insurance, farm insurance and insurance for small businesses. AXA Ireland is part of the AXA Group which is one of the world’s leading insurance groups, with operations across the globe.

I took the opportunity to review the committee’s meeting with a number of companies in the sector last week and, to my mind, there was a clear focus by the committee on two issues in particular. The first was how individual insurers were responding to the decision of the Judicial Council to review its guidelines and whether the companies would reflect that decision in respect of motor premiums. The second was how individual insurers were dealing with business interruption claims arising from the Covid-19 pandemic. I am sure we will get the opportunity to discuss these issues in more detail momentarily, but I will make a few comments on both.

I am constrained by competition guidelines in commenting on the specifics of pricing action. However, on the issue of the Judicial Council decision and its impact on car premiums, I can confirm that AXA Ireland has already begun passing on premium reductions to customers as a direct result of the positive decision of the Judicial Council in March. Indeed, the benefits of those rate reductions are evident in premiums written by AXA Ireland since March, and we have now begun writing individually to customers to formally confirm to them that their premiums will be lower as a direct result of the decision of the Judicial Council. On business interruption insurance linked to the pandemic, AXA Ireland acted quickly, applying a fair, transparent and proactive approach. Two core principles underpinned our actions: first, to honour all claims within the terms of existing policies; and second, to provide certainty and consistency to customers. On that basis we wrote to customers and brokers shortly after the first lockdown commenced at the end of March last year and we confirmed cover under the AXA shop, office and surgery policy. We made first claims payments in early June of last year. To date, 94% of claims for our shops, offices and surgeries have been settled.

We have also received 459 separate claims under a different policy, which is called AXA enterprise commercial property policy and does not provide cover for business interruption from Covid-19. Some of these customers understandably challenged this position and to progress the matter quickly, AXA Ireland funded a legal challenge, which will act as a test case under the Central Bank of Ireland business interruption supervisory framework. That case was heard in January of this year. In recent weeks, the High Court made its decision on this matter, and the court found in favour of AXA Ireland. That decision may yet be appealed and if that is the case, we will support an early hearing on the matter in order to bring certainty to the companies that have made the claims.

Last week, some members of the committee asked whether, in business interruption claims, the insurer would deduct the value of State supports linked to the pandemic which were received by businesses. From our perspective the answer to that is "Yes", because that is the basis on which the policy was written and the risk insured. One of the general principles of insurance is to place customers back in the same financial position before the loss, neither better nor worse off. The AXA product is consistent with this guiding principle in that it was specifically designed to incorporate such deductions to reflect the mitigating actions that policyholders have made to reduce the scale of their financial losses. AXA Ireland did not deduct any State supports which were intended to support a business in reopening or to help it to manage future cashflow, such as future rate waivers or reopening grants. I recognise that others, including members of the committee, have a different view on this issue. We will welcome discussion with the Minister to tease out this important and complex issue further.

Finally, I thank the committee for its commitment to supporting efforts to reduce the cost of insurance and to ensure a sustainable insurance sector at the heart of this economy. AXA Ireland will continue to do all we can to support this work. I thank members for their attention and look forward to their questions.

Thank you, Mr. Bradley. The meeting must conclude at 2.30 p.m. so I ask members to concentrate on the questions they wish to put directly to the insurance companies. I had called Deputy Matthews in the last round.

I apologise, Chairman, that my unmute button would not work. If you give me the opportunity to contribute now, I will be brief. It is directly related to insurance costs. Is that okay?

The representative from Engineers Ireland is gone. That is unfortunate, as I would have directed some of my contribution to him. In terms of the impact and the costs that insurance companies must include because of climate events, the impact that is having and the billions it has cost due to storms, flooding, roads being washed away, trees being brought down and businesses being closed, is the cost of climate change being directly applied to insurance premiums and are people paying for climate events indirectly through increased insurance premiums?

Mr. Philip Bradley

I am happy to take that question. There are two points I wish to make. Clearly, if the insurance products cover damage that lies at the heart of climate change, we would pay those claims and that is reflected in the premiums we charge. Second, from the group perspective, we are in the top two or three in the world in taking action on climate change in the context of where we invest our money and the significant action we are taking in that regard. Yes, it is reflected in premiums. We are also very practically contributing to that subject.

I might clarify the question a little, and I thank Mr. Bradley for his answer. I take it that would also be the answer from Mr. Connaughton. I understand that if somebody has made a claim because of an event that has occurred, such as flooding or damage, the premium may go up. That is the nature of insurance. Across the board in insurance premiums throughout the world, across everybody's insurance regardless of what it is, insurance companies have to look forward and anticipate increasing costs and apply premiums based on that. Do the witnesses accept that, across the board, climate events are putting up premiums for everybody, not just in claims situations?

Mr. Philip Bradley

I certainly accept that the extreme weather events we are seeing are inevitably affecting premiums. That is inevitable for society and for us as a business.

When we look at the capital we have to keep to support our business, that reflects future weather patterns and a one-in-200-year event. The more weather changes, the more we see these events, the more capital we must hold and the more claims we must pay. Premiums go up to cover that.

Mr. Aidan Connaughton

Like Mr. Bradley and his colleagues in AXA, we take a risk-based approach to this. We are looking at the exposures as they reflect across the portfolios and we will be buying reinsurance to protect ourselves from the level of volatility. There is also an element of the potential for reinsurers to be looking at this equally, perhaps to see the insurance prices going up as a result of actions they would be seeing on their portfolios across the globe.

If I could come back in on that, Mr. Bradley referred to one-in-200-year events. Flood defences are designed and constructed to anticipate one-in-100-year rain events or one-in-200-year coastal or river floods. In some areas where flood defences have been put in, people are still not in a position to get insurance. Given that all these flood defences are designed for a one-in-100-year event, a one-in-200-year event or a one-in-300-year event, why are people not able to get home or business insurance in areas that have historically flooded but which now have flood defences with that design capability built in?

Mr. Philip Bradley

Certainly, my understanding is that the availability of insurance in Ireland and the frequency of flood cover is very high compared to other markets. As an industry, we have been working closely with the Government to provide cover when protection is put in place.

I have been contacted by people who say they cannot get home insurance because of flood risk, even where flood defences have been constructed. Is Mr. Bradley saying there is no issue there then, for any insurance companies? If there are flood defences constructed by the OPW, with a one-in-100-year, a one-in-200-year or a one-in-300-year event design capability and they are signed off on, insurance companies will provide home and business insurance in all those cases. Is that correct?

Mr. Philip Bradley

I cannot speak for all insurance companies. What is can say is where people are living in areas where defences have been put in place to the right standard, we will certainly look at providing a quotation for those customers.

Does AXA build in a risk factor there or does it take the flood defences as being adequate for a one-in-200-year or one-in-300-year event? Do people get charged more, even when flood defences are constructed in their area, than people who do not live in an area at flood risk?

Mr. Philip Bradley

I am probably generalising now but flood is an element of the premium and if the flood risk is higher, the premium will be higher to reflect that. There is a difference between a person living on top of a mountain and one who lives on the coast and prices would reflect that. It is one of many pieces of evidence included in the pricing calculation.

Okay. Would that be the same in Mr. Connaughton's experience?

Mr. Aidan Connaughton

Yes. We are more than happy to look at these on their individual merits and assess them individually.

Okay. I thank the Chairman.

I have five straightforward questions. If the representatives of the two companies can just answer them, we will get through them very quickly. What were the companies' operating profits for 2018, 2019 and 2020, in nominal and percentage terms?

Mr. Aidan Connaughton

I thank the Deputy very much for her question. Over the three-year period in question, that is, 2018, 2019 and 2020, AIG had a gross pre-tax-----

Apologies, but there are some issues with the sound.

If Mr. Connaughton can hear me, there are some sound issues. I ask him to address them and answer the question later.

Mr. Aidan Connaughton

Very well. I thank the Chairman.

We will turn to Mr. Bradley.

Mr. Philip Bradley

Our profitability for those three years would be between 8% and 9% of premium income. It is important to bear in mind that we must look at profitability of insurance companies over the longer term. If one looks at our profitability over the last ten-year period it has averaged about 5% of premium.

I would like it if Mr. Bradley could specifically outline in nominal and percentage terms the operating profits for 2018, 2019 and 2020. I am conscious of the fact we are under a bit of time pressure so if he does not have it now, I ask that he forward the figures to the committee. That would be fine too. I am conscious of time as we only have about 45 minutes left.

Mr. Bradley can do that.

Mr. Philip Bradley

Okay, we will forward them to the committee.

I will move on to my next question. Do the companies price the premium based on the risk profile of the customer and expect a cost of claims for the following 12 months or for the contract period?

Mr. Philip Bradley

We price the product based on the anticipated cost of claims over the next 12 months, assuming it is a 12-month contract. The only thing I would add to that is that injury claims, certainly, and large injury claims can take three years to settle or sometimes even longer. We must therefore take a longer-term perspective on some elements of our pricing.

Okay. What percentage of a premium charge is due to the cost of claims? What is the cost of claims arising from personal injury awards?

Mr. Philip Bradley

For every €100 the customer pays, €45 covers the cost of injury claims.

Okay. What percentage of AXA's total costs are attributed to claims costs and then claims costs arising from personal injury awards?

Mr. Philip Bradley

I hope I have taken that question.

I am sorry. Has AXA projected the new personal injuries guidelines to reduce its claims costs arising from personal injury awards?

Mr. Philip Bradley

I cannot talk about future pricing. I can talk about the changes we made between March and April. On average, the 600,000 AXA car customers in the Republic of Ireland are paying €80 less than they were 12 months ago.

Okay. I will now put those same questions to Mr. Connaughton if his sound levels have improved. Does he have in front of him the figures for AIG's operating profits for 2018, 2019 and 2020, in nominal and percentage terms?

Mr. Aidan Connaughton

I apologise to the Deputy. I think I am okay now. For the three-year period of 2018, 2019 and 2020, we had a pre-tax underwriting loss of €16.2 million and we had a combined operating ratio of 104.6%.

Okay, go raibh maith agat. Does AIG price a premium based on the risk profile of the customer and expect a cost of claims for the following 12 months or for the contract period?

Mr. Aidan Connaughton

We take a view at the beginning when we are doing our reviews. We do a rate-level indication on a regular basis and the pricing takes into account what we call future trends, the prospective trends and historic trends so we make assumptions about the trends going forward in order to be able to price the premiums today.

What percentage of a premium charge is due to the cost of claims? What is the cost of claims arising from personal injury awards?

Mr. Aidan Connaughton

I do not have the spilt between the two of those, but roughly speaking, about 65% represents the claim’s cost.

How has AIG projected the new personal injuries guidelines to reduce its claims and costs arising from personal injury awards?

Mr. Aidan Connaughton

We have completed our analysis based on the Judicial Council guidelines. I am uncomfortable, given competition law, in talking too much about what we have done. We have begun to implement rate changes as a result of the anticipated benefits which we see streaming from the implementation of the personal injury guidelines.

That is all from me.

How do the witnesses foresee the insurance industry progressing in the time ahead, given that there may be more claims and changes in the value and type of claims? How do they see the viability of the industry into the future?

Mr. Philip Bradley

I am happy to lead off on that question. There will always be a need for protection. There will need to be a viable insurance sector. In the general insurance sector in Ireland, taking the motor market as an example, there are 35 active underwriters in this market. It is not as concentrated as other sectors. What people see is a change in the structure of the industry. We are likely to see the motor market getting smaller because of driving behaviour, the technology in cars and, of course, the work done by this committee in bringing down the costs of injury claims. I see the structure of the industry changing. Another significant factor is customers changing how they choose to buy. They are predominantly moving online. We see a significant amount of consolidation in the broker sector so there will be fewer large intermediaries. They are some of the trends I anticipate.

Does Mr. Bradley see issues such as natural disasters impacting on the industry? Does he anticipate situations arising in the future where insurance cover may not be available to businesses based on their location and their liability to flooding etc., as has happened in the past?

Mr. Philip Bradley

There are some kinds of risks which are difficult to insure. If we were to take the example of Covid and the worldwide pandemic, it affected all areas and countries at the same time. They are difficult risks for an insurance company to cover because they are systemic. A similar issue is around cybersecurity which can affect numerous companies in numerous countries at the same time. The market will get more sophisticated. It will focus more on advising people about the protection they should take rather than just paying claims. There will continue to be a healthy insurance market, but we must buy protection from reinsurers for the bigger events so that it does not endanger our balance sheet.

What areas do witnesses expect to be at greatest risk in the future? Having regard to the cyber sector and natural disasters, how do they anticipate the situation progressing in the coming years, given the experiences so far?

Mr. Philip Bradley

My colleague, Mr. Connaughton, wants to say a few words.

Mr. Aidan Connaughton

Can everyone hear me?

Yes, Mr. Connaughton. It is a very poor connection.

Mr. Aidan Connaughton

I apologise for the connection. As mentioned, I am having some difficulty and I apologise sincerely to the committee.

In response to Deputy Durkan’s question, it is a positive step that the Government will form a new office to set up and look at the increased competition in the insurance market in Ireland. More competition will increase the capacity and availability of joined solutions in the market, which will ultimately benefit the consumer.

As Mr. Bradley said, there will be some changes going forward. Reinsurance is an important part of what insurers do. Buying reinsurance gives us protection against the volatility of some of the events Deputy Durkan has alluded to, such as natural disasters and cyber insurance. We will have a vibrant and competitive insurance industry. I welcome the reform actions which include the setting up of the competition.

How did the companies previously insure risk-based investment funds? I raised that question in the previous meeting. It arose from a parliamentary question I put down to the Minister about ten years ago. The reply stated that normally it did not happen. I did not ask about what “normally” happened. I asked whether there were any such offers offered and were payments made on foot of losses incurred arising from high-risk investments or ventures by investment funds.

Mr. Philip Bradley

As a company, AXA Insurance Ireland did not provide any kind of specialist cover for those sorts of events. As an insurance company, it is important that we invest our assets prudently so that they are available to meet claims. The majority of our assets are in government or corporate bonds.

Mr. Aidan Connaughton

To be fair, I am not clear on the question. I am not familiar with whether AIG has been involved in any such transactions.

Were the witnesses’ organisations approached by any investment funds for cover at any stage, to the best of their knowledge?

Mr. Philip Bradley

It is difficult to talk about ten years ago. I was not in my current role then. We can certainly research it and come back to the Deputy on that. I cannot answer it definitely.

I would love if Mr. Bradley can do that.

Mr. Connaughton might do likewise.

Mr. Aidan Connaughton

Not to my knowledge.

I thank our guests for attending the committee. The sound quality is not great, but we will proceed anyway. Can Mr. Bradley elaborate on the point made about the 600,000 motorists who have seen a premium reduction of €80 compared with where they were 12 months ago? Can he elaborate on that? Does it include the €30 rebate that was issued to AXA customers as a result of reduced traffic on the roads earlier this year? Can he provide more detail?

Mr. Philip Bradley

No, the €30 refund is separate. This is in addition to that.

Can Mr. Bradley talk to us about the points made? Take, for example, people who renewed their policy in January.

Is Mr. Bradley saying these people have had an 80% reduction on average from the price 12 months ago?

Mr. Philip Bradley

No, I am not saying that. What I have said is that we made changes to our prices, particularly in late March and April, to reflect the judicial changes that have come in. As a result, customers renewing in April this year saw a premium that was approximately €80 cheaper on average than this time last year.

So it is not the 600,000 customers because many of them have not renewed. It is only those renewing at present and who will renew in future.

Mr. Philip Bradley

That is right, yes.

What Mr. Bradley is telling the committee is that those renewing over the past month or so, since the guidelines came into effect, are seeing an average of a 10% reduction in their premium, given that the average premium in the State is €676.

Mr. Philip Bradley

It is slightly over it. It is nearer 12%. This is what people saw in April.

What should those customers do who may not have seen a reduction in premium when they renewed in the past month with AXA, and who may have seen increases despite the fact they have the same policy, the same car, no claims, no additional penalty points or any penalty point? The CEO is telling us there is an average 12% reduction across the board.

Mr. Philip Bradley

I cannot speak about individual cases but I can speak about the average reduction and we saw that in April. If people have questions about their renewal premium they should contact us, as a lot of people do, to discuss it.

In advance of the insurance companies coming before the committee, we wanted to get a sense of what is happening in the sector and we asked people to give us unvarnished information. Some of them sent in their policy documents and we really appreciate it. So far, we have had 1,361 responses. Mr. Bradley will be glad to know we got the most responses from people with policies with his company. As of this morning, there are 225 respondents with AXA and 132 of them had seen their premium increase in the past four weeks. These are individuals who have not upgraded or changed their cars, they have had no claims in the past 12 months, and they have not changed the level of cover they have. If I am right, one in four customers saw a reduction, with the other 15% to 16% saying there was no change. What does Mr. Bradley say to these statistics?

Mr. Philip Bradley

We have a 30% share of the market so I am not surprised the Deputy had a volume of response from people insured with AXA. All I can say is we know from our analysis of renewals in April that the vast majority of people paid less than they paid last year. There will always be some exceptions and I encourage those people to contact us so we can explain what is happening.

Is Mr. Bradley giving a commitment that people who have a like for like policy should see a reduction in their premium if they renewed in the past three to four weeks?

Mr. Philip Bradley

I cannot give a commitment for every customer but this is what I would expect to be happening.

Not only have people given us their policy documents they have also given us their comments. One individual saw the premium increase from €850 to €880. When asked for views on this, the person said that it is extortion, that the prices are way too high for customers who prefer to stay with one company, that they get punished for doing so and that there is no loyalty. When asked for views, another of the 132 AXA customers who saw the premium increase from €800 to €850 said it was a rip-off and having been a loyal customer for years got no loyalty back. The person was able to get insurance €300 cheaper with more added on and will never go with AXA again. This person, who was a customer of AXA, was a victim of dual pricing. The person was a customer of AXA for nine years and saw the premium increase by €50 at a time Mr. Bradley is telling us average premiums should be decreasing by 12%. Are people being punished for their loyalty?

Mr. Philip Bradley

I would not say people are being punished for their loyalty. AXA has very high customer retention, much higher than the market on average. As customers are with us for a period of time, we do not have price walking, which is where prices increase year on year. As customers are with us for a period of time, we give them additional protection for free. If people are with us over five or seven years we give them lifetime no-claims discount protection and comprehensive insurance for driving other cars. We do not have a practice of price walking and we do have a practice of giving additional cover to loyal customers. Of course, we also have an AXA loyalty scheme. Yes, there are some differences between new business prices and renewal prices and we started to address this in 2017. Over half of our renewal customers get a lower price than new business along with some of the benefits I mentioned.

A total of 59% of the 132 AXA customers who have been in contact with me, who Mr. Bradley says are not being punished for their loyalty, have seen a premium increase at a time generally when premiums are decreasing and should be decreasing. As a result of the personal injury guidelines, premiums should further decrease, as the insurance industry told us, by up to 20%. The industry told us we should be asking serious questions if we do not see this. Mr. Bradley is the CEO of one of the biggest insurance companies for motorists in the country. He is speaking about a 12% decrease, which brings in a number of factors including the fact there is less traffic on the road as we still have restrictions. Where is the 20% decrease as a result of the personal injury guidelines? The fact is these claims have been slashed, by up to 60% in some cases. Why are we not seeing the reduced cost of claims being passed on to consumers euro for euro? Any saving is beneficial, and we welcome it, but do we not need to see every cent saved from reduced awards being passed on to consumers instead of going into the pockets of companies such as AXA?

Mr. Philip Bradley

The commitment I made at a previous meeting of the committee was that we would pass on savings from the judicial review to customers and I reconfirm this commitment.

Will Mr. Bradley sign up to the same level of scrutiny the company is subject to in Britain? Since the cost of awards for whiplash was cut, AXA, along with AIG and other companies, has to provide to the UK Financial Conduct Authority the level of premium that would have existed if the claims had not been cut and the overall level of awards. Will Mr. Bradley sign up to the same level of scrutiny in Ireland to ensure the company is passing on euro for euro the reduction in awards?

Mr. Philip Bradley

There is already a detailed report into the national claims information database, which is managed by the Central Bank and is independent. It goes into quite a level of detail on claims costs and profitability. We provide information to this. If the database were changed to ask additional questions, we would support it.

Mr. Bradley would be happy with the same level of oversight as exists in Britain. As I am sure Mr. Bradley is aware, in Britain the company has to show the UK Financial Conduct Authority what the level of premiums would be if the awards had not been cut, so it can be very clearly identified whether all of the reductions in awards have been passed on to the consumer. Is Mr. Bradley saying that he would be happy if there were changes and that he would subscribe to them?

Mr. Philip Bradley

We would be happy to work with the Government and the Central Bank to change reporting as is needed for the benefit of consumers and to bring some clarity and transparency.

Mr. Bradley said AXA does not price walk and this is the second time he has told the committee this.

The Central Bank, in its initial report, called into question the views of some companies in the insurance industry, without naming them, and the suggestion they are not involved in price walking. Have the witnesses satisfied the Central Bank, in their communication with it, that their companies are not involved in price walking or dual pricing?

Mr. Philip Bradley

We have co-operated fully with the Central Bank and provided it with an extraordinary amount of data for its analysis. We have had subsequent meetings with representatives of the bank to demonstrate the action we have taken and we look forward to the report in July. I am very supportive of what is happening and we will implement any further changes required.

Will the representatives of AIG answer the questions on premium reduction? I am not asking them to look at price signalling into the future, although I note both companies were far too happy and well able to signal when they pushed up premiums by 21% year on year. Not only did they do it publicly but we find from the Competition and Consumer Protection Commission, CCPC, that they were doing it privately as well. That is why it called the companies out for the cartel-like activity that both companies were involved with, along with other major insurance companies. Do both companies agree with the interim findings of the CCPC? Have they engaged with the CCPC under section 14B of the Competition Act 2002 to offer commitments on their future behaviour; specifically, that the type of activity the CCPC found going on for 21 months between 2015 and 2016 will not happen again? During that period, collusion in the industry resulted in a lack of competition and a dramatic increase in the rate of premiums for customers.

Mr. Aidan Connaughton

I will answer in respect of AIG. I thank the Deputy for the question. The CCPC investigation into AIG is ongoing and we have engaged fully as part of its investigation into price signalling in the Irish market. We have engaged throughout the entire investigation, which commenced in 2016, and we will continue to co-operate fully with the CCPC. We have not seen any evidence of co-ordination or collusion between AIG and other insurers in the private motor insurance sector. Over the course of 2016 and 2017, AIG provided the CCPC with a significant amount of documentation in the context of that investigation. A number of relevant staff were interviewed. It is an ongoing investigation and I cannot comment further.

May I take it the witness is rejecting the main assertion, which is the interaction, price signalling and collusion, both privately and publicly, between the named seven firms? Do the witnesses reject the CCPC's initial findings? They are aware that the next option for the CCPC is to begin civil proceedings, unless under section 14B of the 2002 Act assurances are provided by the companies that the type of behaviour it found will not be engaged in again. Is the central argument of the companies that they reject the idea that AIG or AXA were involved with this type of practice?

Mr. Aidan Connaughton

We have absolutely not seen any evidence of collusion between AIG and any other insurers. We are engaging fully with the CCPC.

Mr. Philip Bradley

From AXA's perspective, at all times we complied with competition law and at no point did we make any public statements on future pricing. As Mr. Connaughton has said, it is kind of an ongoing investigation.

What about private interactions with other companies mentioned by the CCPC?

Mr. Philip Bradley

There is no evidence of that.

So has the CCPC just made this up? Did its personnel wake up one morning and dream this up after an ongoing investigation lasting four years?

Mr. Philip Bradley

It is an ongoing investigation. All I can speak for is AXA's position. I am very constrained in what I can say.

Okay. I will get back to AIG. Is AIG or has AIG been involved with price walking and dual pricing?

Mr. Aidan Connaughton

Our average renewal premiums are much lower than our average new business premiums. We are actually rewarding our loyal customers.

Hang on a second. New business premiums are made up of a different cohort of motorist. For example, they include younger or first-time drivers coming to the market, so premiums will naturally be higher. Just answer the question please. Is AIG involved with price walking or dual pricing? Will the witness state this clearly? Has the company been involved with the practice?

Mr. Aidan Connaughton

We do not engage in the dual pricing mentioned by the Deputy, which is the propensity to look at customers' behaviour around renewal. It is not something AIG does. As I stated, our average renewal premium figure supports the view that we support our loyal customers.

We can go through this with every insurance company and they will all tell us the same bloody thing, which is that none of them is doing this. Again, the Central Bank must be dreaming this up. A comprehensive report has been published that indicates very clearly that a loyal customer of an insurance firm in Ireland is punished as a result of that loyalty. For example, if a customer has renewed with a company for five years or more, at that stage he or she has paid more than €350 in a loyalty premium. If a customer has renewed nine years or more with the same company, he or she would pay 35% more than the technical premium. Does the witness accept the findings of the Central Bank?

Mr. Aidan Connaughton

We have engaged with the Central Bank on the review for differential pricing and as I mentioned, we are co-operating fully with the bank. We are very mindful of the Central Bank's guidance on the subject. Again, our overall average renewal premium is lower. It could well be we are different from the overall picture within the insurance industry but I assure the Deputy we are rewarding our loyal customers. We model our portfolio taking into account many customer satisfaction scores that come to us. They come from the same surveys that the Deputy refers to. We complete those same surveys ourselves.

The banning of dual pricing would not be a problem for either of these companies as one does not do it and the other suggests that it rewards loyalty. Is that the case if we considered the banning of dual pricing?

Mr. Aidan Connaughton

There will be some differences between new business and renewal rates. When it comes to renewals, we know more about those customers. The exception might come from an online discount, a channel discount to encourage customers to go online or indeed a promotional discount.

Okay. I will ask about fraudulent claims. The industry continues to assert that up to 20% of claims are fraudulent. How many fraudulent claims were made in 2019 and 2020, according to AIG and AXA?

Mr. Philip Bradley

My colleague, Ms Fagan, will respond on that.

Ms Deirdre Fagan

I have figures to hand for 2020 and we can get the figures for 2019 and send them to the committee afterwards. With regard to fraudulent claims, 3,794 such claims were referred to our special investigation unit, with 1,348 investigations opened. The number of cases with a reduced settlement was just in excess of 1,118. Those are the numbers we investigated during the course of 2020.

What were the numbers for AIG?

Mr. Aidan Connaughton

There were 13 cases reported to the Garda with concrete evidence of fraud in 2019. There were 11 cases reported to the Garda in 2020.

So far this year, we have reported three cases of concrete fraud to the Garda. Over recent years, we have seen two convictions relating to fraud, one a number of years ago and one very recently, which I believe will come before the judge at the end of June.

I thank Mr. Connaughton for that information-----

Deputy Doherty, may I interrupt you?

I want to leave time even if it is a few minutes - we have ten minutes left - for the insurance companies to answer the questions that were posed in the first session and to give their view on what was said and what they heard from the witnesses. If you want to conclude, then we can ask the witnesses for a short statement in that regard.

I will conclude on this. Fraud in all forms has to be stamped out. AXA has a big part on its website about how fraud is increasing year on year, but the reality is that only 48 cases were referred to the Garda last year and only 63 cases the year before. There has actually been a reduction in the number of cases that have been referred to the Garda for fraud. If insurance companies are telling us they have 1,018, 1,048 or 3,794 letters inspected, why the hell are they not being referred to the Garda? That is the point. I am not asking the witnesses to respond but I am asking the insurance companies to tighten their ship in this regard and to stop claiming this is about fraud.

My final point is for AIG. One of the big issues we have seen probably in the past ten years has been the reduction of investment income, which has hit the profitability of the insurance firms, which has in turn resulted in an increase in premiums. We see now that AIG is investing heavily in the funding of apartments. For example, it announced €147 million in funding to Marlet, the construction company, for the construction of 596 apartments in the Grand Canal area, in Dublin 8. Is this something that insurance companies will be more involved in from now on? These apartments were funded by AIG without an end buyer, so there is no advance purchase agreement at the end. Obviously, finance is important for the construction of apartments. Is this a new trend that we will see more and more?

Mr. Aidan Connaughton

I saw that note in the newspaper. That was done as part of the wider AIG group under a specific division, namely asset management. It does not fall under my remit of general insurance so, unfortunately and regrettably, I am not in a position to comment any more than that, but yes, the Deputy is quite correct. That was done as part of a different division, namely the asset management division of the global company.

Maybe a note to the committee from that division on where it has been in recent years and where it expects to go would be helpful to our committee.

Would Mr. Bradley and Mr. Connaughton please comment on the first session we had, specifically on the availability of insurance and the threat it poses to those involved in the sector?

Mr. Aidan Connaughton

I will take that question first. AIG was involved in engineers' professional indemnity insurance up to 2015. We exited that market in 2015 following very heavy losses. One of the big issues we found with providing professional indemnity insurance for engineers related to certain areas of the Civil Liability Act. During the recession there were a number of issues with houses. There were builders who had gone bust. Under the Civil Liability Act, finding even a 1% element of liability means that the engineer or architect, as the case may be, ends up having the whole book thrown at them and the insurer has to stand behind that indemnity, which is exactly what the problem was before. Regrettably, there is not a whole lot more I can say about the matter except that AIG was in that sector and exited it in 2015 as a result of the heavy losses. It just did not make business sense for us to continue in the sector.

Mr. Philip Bradley

AXA in Ireland is predominantly a motor and home insurer but over the past few years we have entered into the commercial non-motor sector, first the farm sector and now the small business sector. We grew that business last year by 30% and we keep extending our footprint but we are still a small player, with maybe 3% of the market. We are investing heavily to grow, and that will provide more choice for customers, including commercial customers.

There is nothing either Mr. Bradley's company or Mr. Connaughton's company can offer regarding the dilemma faced by engineers, fire consultants and so on. It is a matter for bodies outside of this country. Is that correct?

Mr. Philip Bradley

For us, that is correct. It is obviously a very complex specialist market in which we are not directly involved, so-----

Mr. Aidan Connaughton

It is not a segment of professional indemnity insurance that AIG has-----


We have come to the end of our meeting. I think I have dealt with all the members who had questions to ask. I thank-----

Could we just get an answer to the question that was put to AIG? Sorry. I know we have three minutes left. AXA has told us there has been an €80 reduction in premiums renewed in April. Can AIG provide us with similar information? Has there been a reduction at all and, if so, at what level? Again, this is not price signalling; we are looking at what has happened in the market.

Mr. Aidan Connaughton

We have done a couple of things. As the Deputy will probably have seen, we have introduced a 4% discount for customers as a result of the reduced driving discount. We had a 4% discount that applied to all renewals from 1 August. We have applied a further 4% to all our renewing customers from 1 May, which will run for a 12-month period. Therefore, some customers, between 1 May and 31 July, will receive a combined 8% reduction as two 4% reductions. We have also reduced premiums since the beginning of the year, separate from that 4%. In addition, during last year we reduced our private car premium by almost 10%. We have certainly taken into account the judicial guidelines and we have a further review of prices, which will take place imminently. Obviously, I cannot say what that number will be today but I can assure Deputy Doherty that we have further changes coming through.

I thank all the witnesses who attended. I thank the members for their questions. Could I offer a word of advice, Mr. Connaughton? Get up to date with your IT. These are public meetings, broadcast live. I will leave it to the public to make up their own mind on that. Thank you all very much.

The joint committee suspended at 2.28 p.m., resumed in private session at 3.20 p.m. and adjourned at 4.11 p.m. until 12.30 p.m. on Thursday, 27 May 2021.