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Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach debate -
Wednesday, 8 Dec 2021

Insurance Issues: Central Bank

I wish to confirm that the minutes of our meeting on 24 November, 2021 were agreed at our recent private meeting.

We are joined today by representatives from the Central Bank to discuss insurance. With us are Mr. Gerry Cross, director of financial regulation policy and risk, Mr. Donal Cullinane, director of insurance supervision and Dr. Mark Cassidy, director of economics and statistics at the Central Bank of Ireland. The format of the meeting is that we will hear the opening statement from the Central Bank and then members will ask questions on both the statement and the wider issue.

Witnesses are reminded of the long-standing parliamentary practice to the effect that they should not criticise nor make charges against any person or entity by name or in such a way as to make him, her or it identifiable or otherwise engage in speech that might be regarded as damaging to the good name of the person or entity. Witnesses who are attending remotely from outside the parliamentary campus have been made aware that full parliamentary privilege may not apply. Members and those witnesses attending on the campus are covered by privilege. I now invite Mr. Cross to make his opening remarks.

Mr. Gerry Cross

Good afternoon. It is a pleasure to be with the committee today to discuss matters relating to insurance. As the Chairman said, I am joined by my colleagues, Dr. Mark Cassidy, director of economics and statistics and Mr. Donal Cullinane, director of insurance supervision.

Under our mandate the Central Bank seeks to ensure that the financial system operates in the best interests of consumers and the wider economy.

In our recently published multi-year strategy we have again made clear that securing the best interests of consumers and citizens is at the heart of what we do. In regulating insurance we seek to ensure that customers and the economy are served by a well-functioning and resilient sector that policyholders can rely on to treat them fairly and to pay out on relevant cover when required. We perform this function as a committed participant in the European system of financial supervision in respect of an insurance market that it is multifaceted and integrated in the overall EU insurance market.

The Central Bank prudentially supervises almost 200 insurance and re-insurance companies operating in the life, non-life, health and reinsurance markets. Most of these firms are foreign owned and more than 70% of their business is written outside of Ireland. At the same time approximately 30% of non-life insurance provided in Ireland is provided by companies located elsewhere in the EU. The sector has a very important role to play in the economic life of the State. While it has delivered, and continues to deliver, many benefits for policyholders, at times the performance of the domestic non-life sector has been called into question. As regulators, we view confidence in the sector as very important. The topics we will be discussing today, including differential pricing, business interruption and recent reports from the Central Bank’s national claims information database, provide good examples of how we are seeking to deliver on this, having regard, of course, to the limits of our mandate and powers.

In our review of differential pricing, where customers with the same risk profile are charged different premia, we found that certain pricing practices can lead to materially unfair outcomes for car and home insurance consumers. In particular, we found the practice of price walking, where customers are charged more upon renewal of their insurance simply for being loyal customers, to be one where the interests of the customer are unfairly subjugated to the interest of the firm. In our consultation paper published in July, therefore, we proposed to ban this practice of price walking. Banning the practice will remove the loyalty penalty on consumers who remain with their insurer for more than the short term. We also propose to introduce new customer consent and disclosure requirements to ensure that any automatic renewal process is more transparent and more clearly agreed to by the policyholder. In order to maintain the benefits of competition for new customers, we propose to allow insurers to maintain new customer discounts as long as these are clearly flagged as such and the likely renewal cost is also set out. The consultation on our proposals closed on 22 October and our team is currently reviewing and analysing the submissions received. We believe that these requirements will have an important impact in themselves and make clear that in a well-functioning financial sector there is no room for practices which take unfair advantage of consumer behaviours and habits.

An important initiative and area of focus for the Central Bank in recent times has been the development and ongoing enhancement of the national claims information database, NCID. The establishment of the NCID was one of the recommendations made by the cost of insurance working group, which was established by the Minister for Finance in 2016 as a key element in understanding the drivers of the costs of insurance and of underpinning policy measures to address them. One of the issues identified by the cost of insurance working group and the reports produced on motor and employer and public liability insurance was the lack of credible and accessible data relating to premiums and claims costs. The establishment of the NCID and the annual reports produced have served to significantly improve transparency in the Irish insurance market and to support data-driven analysis, which is contributing to addressing the issue of high costs of insurance in a number of areas.

The classes of insurance that are in the scope of the NCID are private motor insurance and employers' and public liability insurance. Aggregate data are collected from insurers, including trends in the premiums, the cost of claims, how claims are settled, how costs vary depending on how claims are settled and an analysis of the various types of cost that make up settlements. Among other things, the data have highlighted the percentage of premium that is paid out in claims, the considerable legal costs and significant time period associated with settling injury claims through litigation and the performance of the sector since 2009 and the profit making and loss making periods.

We are acutely aware of the difficulties faced by policyholders where there are significant increases in and high costs of insurance premia. Rates are to a significant extent driven by the overall cost of claims. As a financial regulator bound by European law, we have a strictly limited role relating to the pricing of insurance products. We seek to ensure, first, that insurers are not treating customers unfairly, as in the context of the price walking practices that I mentioned, and, second, that the pricing and underwriting practices of firms underpin a sound and sustainable business. The detailed transparency provided by the NCID and our reports allow for a much clearer understanding to underpin analysis and to assess the effects of wider policy actions. For example, in our most recent motor insurance report we provided analysis of the costs associated with different claims settlement channels. Between 2015 and 2020, 94% of injury claimants had total claim costs of less than €100,000. For claims settled directly, average compensation was €13,111 and legal costs were €1,414. For claims settled through the Personal Injuries Assessment Board, PIAB, average compensation was €21,845 and legal costs were €665. For claims settled through litigation, average compensation was €23,454 and legal costs were €15,235. What we see from these data is that the very significant differences in legal costs greatly outweigh the differences in compensation outcomes.

Policy actions that result in a reduced level and uncertainty of claims are likely to contribute to reducing average premium levels. In this context, the personal injuries guidelines adopted by the Judicial Council have the potential to lead to greater stability and certainty in the claims environment and reduced volatility of claims, and to reduce legal costs and in time create a more stable reserving environment for insurance firms. This in turn should contribute to an increase in the availability of insurance and a reduction in premium levels, provided the insurance industry passes on the benefits of these changes to policyholders.

Turning to business interruption insurance, the Covid-19 pandemic and subsequent business closures that were mandated on public health grounds focused attention on business interruption claims. This has been an enormously difficult and challenging time for many businesses as well as for society. From the outset of the pandemic, the Central Bank identified the significance and potential impact arising from business interruption issues on businesses across Ireland and made it a priority area of focus. We took a proactive approach to ensure that firms fulfilled their obligation to prioritise the interests of their customers. We focused on identifying all groups of policies where, in our view, the relevant contractual provisions provided cover for Covid-19 related interruption or interference to businesses or provided a strong or reasonable basis for such an interpretation. We made clear our expectations to firms in this regard, including, importantly, our expectation that ambiguous language be interpreted in favour of the policyholder. We engaged intensively with firms to ensure delivery on these expectations.

We identified 27 firms that were actively providing business interruption insurance cover for infectious diseases across more than 200 individual policy wordings. By the end of this process, we had identified the policies that we considered responsive to Covid-19. We engaged with the relevant firms throughout, making clear our expectation that firms identify and contact potentially affected policyholders and assist policyholders in making a claim, and were operationally ready to deal with claims and have adequate governance and oversight of the process. As a result of our supervisory interventions, a number of insurers accepted and commenced settling valid claims early in the process. Others sought legal confirmation and clarification. When the decision of the High Court was published, from February 2021, the remaining firms accepted that cover existed for these policies.

We directed all the relevant firms to contact all the policyholders who, in our view, held a policy which was responsive to business interruption, along with details of how they could make a claim if they believed their business suffered an interruption or interference related to the outbreak of Covid-19 in Ireland. At the end of October 2021, more than €146 million has been paid to policyholders through settled claims and interim payments. This figure includes 3,929 claims that have been fully settled and 868 that have received interim payments. For the material number of claims that remain open, mostly awaiting further information, we are monitoring progress on a monthly basis and are generally satisfied that such claims are being progressed appropriately.

As I said at the beginning of this statement, the insurance sector has a very important role to play in the economic life of the State and the economic well-being of citizens. This is even more true when we consider the current context of rapid change and significant uncertainty due to, among other things, the speed of technological innovation on the one hand and the urgent need to address climate change and the transition to a net-zero economy on the other. To play its full role in this regard, the insurance sector needs to be well run, financially sound and resilient, and trusted to act in a way that prioritises the interests of its customers. At the Central Bank, we are committed to seeing this achieved. I thank members for their attention. We look forward to their questions.

Cuirim fáilte go dtí an coiste roimh an Uasal Cross agus a chomhghleacaithe. I welcome Mr. Cross and his colleagues to the committee. There were fine words from the Central Bank at the end. There is definitely a lot to do regarding the insurance market. I will delve into that. I have a lot of questions. I will try to get through them as quickly as possible, as time permits.

I welcome the engagement I have had with the Central Bank on the issue of the loyalty penalty, dual pricing, differential pricing or price walking. Many different terms are used in this regard. Back in October 2019, over two years ago, I made that major complaint to the Central Bank and, in fairness, the Governor met with me. We can see the work that has flowed from the initial reports, the final reports and the consultation that is now complete in the Central Bank's decision to ban that practice, which is a victory for consumers. It has been outlined well in the different reports the Central Bank has issued that, for example, if you renewed your motor insurance with the same provider seven times, you would be paying 20% more than the technical premium, that is, the actual cost of insuring you under the policy. For someone paying a premium of €1,000, the actual cost of the policy would be about €800. It is actually worse in respect of home insurance. This is the message that needs to go out from this committee because it will be a while before this is banned. If you have renewed your home insurance six times, you are likely to be one of those paying 24% more than the actual cost of your policy.

With regard to the way in which the Central Bank is going to ban price walking, Mr. Cross will be conscious that, in just over two weeks, dual pricing is to be completely banned in the North of Ireland and in Britain. The way in which this practice was going to be banned was tweaked following the consultation the Financial Conduct Authority, FCA, undertook. Is the Central Bank considering any changes to the way in which it is going to ban price walking on the basis of the submissions it has received so far? Will Mr. Cross give us any information on that? I made a detailed submission to the Central Bank as part of that process. As part of this question, will Mr. Cross also confirm the Central Bank has all the legal powers necessary to ban this practice and that it does not need any further legislation?

Mr. Gerry Cross

I thank Deputy Doherty. As he has said, this work has been under way for quite a bit of time for a number of reasons. One is that, with an intervention of this kind in the market, which is very important and which will yield very significant benefits for consumers, it is very important to have a good understanding of what is happening in the market. I refer not only to how competition is working and what the practices within firms actually are but to how consumers are both understanding and reacting to the situation. For us, a key piece is that what was at the heart of this practice was firms observing a habit and a behaviour, that behaviour of loyalty, and taking advantage of that to their own benefit rather than to the benefit of the policyholders. We see that as unfair and, therefore, something to be proscribed.

As the Deputy has said, we have, in some respects, taken a different approach from that adopted by the UK in this regard. In particular, when we looked at the importance of stopping this harm and the way to do so, we could also see there were some benefits for new customers. New customers who shopped around and looked for better pricing could get a better deal. We discussed very closely among ourselves the question of how to retain that benefit, and we have ended up with a proposal in which the ban on price walking effectively kicks in from the second year, thereby allowing discounts for new customers. However, very importantly, it must be extremely clear that a price reflects a new customer discount and that the renewal price will be somewhat different. This addresses the question of behaviours being taken advantage of.

We believe we have the legal powers necessary for this. We set that out in our consultation paper. We can implement these requirements effectively and well through our consumer protection code. We have received a number of high quality and very valuable responses to our consultation paper. We are going through those and looking at whether there are aspects of our proposals that might be tweaked or improved. It is very important to say the substantive thrust of where we are going with this is not changing. I do not envisage that changing.

I thank Mr. Cross for that response, which brings me on to my next set of questions. I note the language Mr. Cross is using as we look at this practice. I am very clear I do not trust the insurance industry. I would not send it out to get a pint of milk for me. That is the reality. We know it has been the subject of dawn raids and European investigations and that what is happening here is price gouging. It is very important that, until this practice is banned, we inform people that they should shop around as renewals come in. This affects 3.5 million policies between motor insurance and home insurance. The analysis the Central Bank itself has carried out provided that figure as to the number of those renewing at a higher cost than the actual premium. Has the Central Bank been able to calculate the additional costs charged to customers every year as a result of this rip-off practice?

Mr. Cross mentioned a different approach from that of the FCA. In developing its view on banning this practice, the FCA considered the pricing policy the Central Bank is putting forward, which differs from the legislation I drafted. My legislation is more in line with what is happening in the North of Ireland. Unfortunately, that legislation was stalled for nine months by the Government parties but it just passed Second Stage last week. The question now is whether the Central Bank has overtaken that Bill, which is what we intended it to do when we made that first complaint. The Financial Conduct Authority looked at the Central Bank's proposal and said it "did not consider these options to be appropriate as they would also still allow firms to price walk, only limiting the extent to which they could do so".

That takes me back to my first point, which is that I do not trust this industry. The issue here is we know the percentage of people renewing motor insurance and home insurance annually is in the region of 80% over all the categories. No matter what and how much advice is given, for different reasons people will just renew. They may be too busy, they may forget or they may mean to get to it but not have time. That is why, as politicians and as the Central Bank, which has a role in consumer protection, we need to step in. The problem is price walking can still happen, although the duration is shortened. The increased premium may now only apply in the first year. We are going to allow insurance companies to charge a reduced premium for the first year to try to hook the customer but they can then substantially increase it in the second year. I am sure the Central Bank's argument is people should shop around, but the problem is, as I have said, that even though we know the industry is price gouging, 80% of people do not shop around. Is there therefore not a danger the insurance companies will just do what they have always done but just make the increase more heavily felt in the first-year renewal, resulting in this measure not being of any real benefit?

There will still be a dysfunctional market because there is a legal requirement for people to have motor insurance but what is basically being stated is that every single year they will have to go through this rigamarole. Discounts are important. In the North, in three weeks' time people will still be able to get a discount as a new customer. The only thing is that renewing customers must be afforded the exact same discount.

Mr. Gerry Cross

I thank the Deputy. There are two or three aspects to that. One is specifically on the proposal, the reasons for it and whether it is the right one. The second, which is the heart of the matter, is how we make sure it works and is not circumvented. That is a really important question. The third aspect goes to the overall culture within parts of the insurance sector.

The Deputy asked about the data. We looked at the data in great detail, as he is aware. Many of the figures and details on that are set out in our consultation paper and the final report accompanying it. It shows that although there are definitely significant benefits to policyholders from this ability to get discounts, they are, on balance, outweighed by this aspect of, as we described, price walking. The benefits are less than the detriments. It is very important to allow discounts to continue to be effective. What is crucial, and this goes to the Deputy's point in respect of prices being hiked up in the second year, is that in purchasing their insurance, customers are not tempted in by a misunderstanding of what they are buying or a misunderstanding of the reality of the premiums. That is why it is really important that in this new regime in respect of new customer discounts it will be clear what the amount of the discount is and what it will go to in year two. That is the right balance. The Deputy is correct that this is not a straightforward equation, but we believe that is the right balance to retain the benefits for new customers while being clear that they are not being misled and do not misunderstand the situation. That can be addressed.

The second part of his question, which is enormously important, is how do we ensure this is working as it ought to work. Of course, that comes down to the insurers. There is no question about that. As I stated at the start of the meeting, the insurance sector and insurance firms need to be trustworthy. That is crucial to the functioning of any financial sector and it is certainly the case for the insurance sector. It will be our role to supervise this. We have introduced requirements in our proposals. The first is that the board and the company will, each year, assess the pricing practices of the company. We are putting responsibility on the board to check and confirm not only that it is complying with these rules but that, in general, it is complying with pricing practices that respect and prioritise the interests of customers. We will be supervising that. We have designed the regulation to be clearly worded in what it demands. We will be supervising it to ensure it is implemented in spirit and more generally to ensure the interests of customers are prioritised.

Third, there is the broader issue of the overall level of behaviour and culture in the insurance sector. I will be happy to come back to that issue. It is very high on our agenda and I am happy to say more about how we have supervised and will continue to supervise it and how we are enforcing it. Ultimately, it is the issue here. It is one thing solving the price walking issue, which is an important aspect, but, more generally, we wish to ensure the behaviours of the industry are in the interests of policyholders.

I ask Mr. Cross to address the issue of the overall quantum of price gouging or additional charging that is going on, affecting 3.5 million customers per annum. Has the Central Bank carried out analysis on that? The Financial Conduct Authority, FCA, in the UK , in the context of its ultimate ban, which does allow for discounts but no price walking from any year, estimates that a benefit to consumers of up to £11.2 billion as a result of that ban. Has the Central Bank carried out any type of analysis on that issue?

I would not oversell the benefits in terms of the discount, particularly in the context of the motor insurance sector. The Central Bank's own analysis has shown that the actual premium compared with the technical premium is 0.98, which means it is a reduction, on average, of 2% on the actual premium or the cost of the policy, and that is recouped immediately in year one. It is a bit more beneficial in the context of home insurance. My key point, which relates to the last thing Mr. Cross mentioned about behaviours, is that I do not believe that is where people are at. I do not believe that if a person gets an insurance policy today that is €300 but the company is kind of flagging that it will be €550 next year, the person will be deterred from taking it. He or she will take it because it is a good offer today. Unfortunately, we have this behaviour whereby people renew. We have the same issue in the context of financial institutions, where not enough people are switching and so on. That is a problem.

That takes me to the core issue. These insurance companies are looking at the behaviour of customers. They are using artificial intelligence and machine learning. They are doing so in two ways. One is to try to retain the 20% of customers who switch every year, but they are also looking at pricing levels for the other 80% of customers. Does the Central Bank have sight of those pricing models, which are repeatedly run through using machine learning to ensure they hit the pinch point or the sweet spot at which the companies can charge at a certain level without losing custom? Has it been able to go deep into those models? Can our guests assure us that those models do not discriminate against the elderly, those with disabilities, those who have low levels of financial literacy or those with learning difficulties, for example? Has the Central Bank done that? This is an ongoing and very common practice.

Mr. Gerry Cross

My colleague, Mr. Cullinan, may wish to come in on that question.

Mr. Domhnall Cullinan

I thank the Deputy for his question. As part of our deep dive into the differential pricing practices in recent years, we have looked into the so-called propensity models that insurers were using. We are satisfied that what we are planning to do now will take that kind of discriminatory element out of it. As the Deputy pointed out, if you renew with the same firm for seven years, you will be charged a higher amount, not necessarily by design but certainly as a result. That will often discriminate against people who are less in tune with digitalisation. Where these things work in the main part is on what we call the flow business, that is, where there are high volumes of 3 million policies, as the Deputy pointed out, and as that flows through the system. There is a need to have those large numbers to really make those propensity models work. Although we are taking very seriously the representations that have been made to us as part of the consultation process, we believe the proposals we have put forward will strip out many of those practices and ensure the insurers themselves have the responsibly to make sure that any models or artificial intelligence are used appropriately and are ethically sound and in the best interests of customers. That is the aim of what we are trying to do.

Coming back to that issue, obviously, the Central Bank is allowing for that type of machine learning to take place for a renewal quote. This is how it works. Perhaps this is not being put into the equation, but undoubtedly what is spitting out from this machine learning is that the sectors I outlined are being targeted with higher premiums. The problem is that by allowing the first renewal premium to be price-swapped to allow that to happen, the Central Bank is not protecting customers in that regard.

The committee will look at that in a later session. Time permitting, I would like to come back in on the issue of public liability insurance. If not, it will be picked up by my colleagues. I will make two final points now.

The legislation I produced, namely, the Consumer Insurance Contracts Act 2019, was unanimously agreed by the Houses of the Oireachtas. Section 5 of that Act mandates the Central Bank to come forward with a code of practice. This code of practice would be used by the courts and by the Financial Services and Pensions Ombudsman in regard to cases that would be taken against insurance companies. When will the Central Bank produce that code of practice?

On business interruption, I have made the point over and over again that the Central Bank has done the bare minimum on business interruption. We are late to the game here. Again, I am comparing the Central Bank with what has happened within the FCA. We are speaking about hundreds of individual policies across Britain and the North of Ireland. A business person can look at any of the companies and the policy number and identify that this or that policy is affected or has an element of business interruption in it and so he or she would have a valid claim. The FCA has put a calculator on its website. When people insert their postcode, it provides information, for example, that there was a Covid case within 25 km, to satisfy the making of a claim. In Ireland, business people who are fighting all of the different issues in terms of the pandemic are left to fight on their own. There is no publication by the Central Bank in regard to policies that are covered under business interruption. In fairness, the Financial Services and Pensions Ombudsman has anonymised cases and that helps, but the Central Bank has done nothing of that nature.

I would strongly urge the Central Bank to up its consumer protection and to assist these businesses. It needs to be providing that type of support and level of assistance to businesses. Why has the bank not done that? The witnesses are obviously aware of what is happening across the water and in the northern part of this island. Perhaps they would update the committee on the number of businesses that have been compensated as a result of the interruption caused by the pandemic.

Mr. Gerry Cross

I thank Deputy Doherty. On business interruption, I share the Deputy's sense that this is an enormously important issue for businesses, in particular businesses that have been struggling, as we know only too well, with a huge amount of challenge and disruption to their business over the past two years. Not only do I share that view, we moved very early to ensure our powers and resources were deployed to achieve the optimal outcomes in that context. On the point regarding the wording, we very quickly engaged across a very large number of types of policy, wording, firms and cover. We engaged with the firms to see how they were assessing the situation and, on the Deputy's precise point, we looked at the different types of policy wording to consider which policies we thought were clear in their cover and which policies were either strongly supportive of cover or could be considered to be reasonably supportive of cover. We also identified those which were thought were not supportive of cover. We engaged with firms very directly in that regard. We required them to be in contact with their customers and to be acting in line with our expectations.

On whether they had the possibility of going to the court on the wording to see whether we were right and the court supported our view, they did. What we do not have in Ireland, but which does exist in the UK, is the ability for the Central Bank to take a test case in that manner. We not only provided that level of clarity around the wording, we also made it clear that where cases were being brought, there should be a supportive approach from the insurers and the costs of those bringing those cases should not be in question. That has been taken through. As a result of our interventions, some insurers simply fell into line with what we were saying should happen but others, as I said, went to court. When the court judgment came down in the first part of this year, then all of the insurers fell in line with that and implemented it. That has resulted in a significant number of payouts. My colleague, Mr. Cullinan, may have those here and we are happy to share them if the committee so wishes.

Mr. Domhnall Cullinan

I do have them. Of the total number of policies identified with this cover, we felt 31,000 could have been responsive. Of those 31,000, 8,642 claims have been submitted. Some 3,856 of those claims have been settled, 778 were declined and 1,331 have been withdrawn. Some 1,809 cases remain open and no payment has been made, and in a further 868 cases an interim payment has been made. The total amount paid in compensation thus far is €146 million. We anticipate that the number of claims notified will probably not go up. We insisted the insurers write to all policyholders to inform there was potential for a claim to be made and that they should submit a claim if they felt they had suffered a loss. At this point, we do not feel that those 8,642 claims, in terms of numbers, will go up significantly. We expect the €146 million in compensation that has been paid could increase depending on the outcome of one of the cases that is before the courts in January, which relates to certain issues in relation to quantum.

The point I was making is that none of that work the bank has done in terms of looking at the policy wording is available to the shop owner, the hairdresser or the publican in trying to assess if the Central Bank views his or her claim as being in scope. The Central Bank has done this work privately with the insurance companies. That work is to be welcomed. I recognise there has been a shift since the Central Bank stepped onto the pitch. The FCA has published and has gone through the courts. The Financial Services and Pensions Ombudsman has published its findings, which informs business persons of whether they have a valid claim. I acknowledge the witnesses have recognised this, but we are in the middle of a pandemic that is causing great difficulties for businesses in terms of the continual restrictions on opening and closing. Many businesses wonder if they will be open in 2022. It is very difficult for a business to have to make an interruption claim against an insurance firm in a situation where the Central Bank has not pointed to the policy wording that is in scope. The Central Bank needs to step up in that regard.

I also ask that the witnesses come back to me on the issue of the insurance contracts and when the Central Bank proposes to bring forward the code of practice. One of the provisions of the aforementioned legislation, which is crucial in business interruption, is that the terms of a contract, if ambiguous, have to favour the consumer over the insurance industry. That is one of the issues the Central Bank is pressing. That is important legislation, but there is a specific role there such that the Central Bank can assist consumers in their dealings with the Financial Services and Pensions Ombudsman and the courts but, to date, the Central Bank has not done that.

Would Mr. Cross like to respond?

Mr. Gerry Cross

On the points regarding the business interruption insurance and publication, this is always a tricky area. We were focused on how we could deploy our resources to get the quickest, best outcome for the policyholder. That has been and is what is happening. We do not have a role. The Central Bank is not the courts, the UK FCA, which has its own specific powers, or the Financial Services and Pensions Ombudsman.

For us, it has been hugely important that we have been able to take that very strong engagement with firms and drive those outcomes, which I think have really left policyholders in a very good position notwithstanding the clear challenges that are still there.

In terms of the code of conduct, the point made about the ambiguity of claims is really important. I very much agree that there has been a shift in expectations, be it in this sector or elsewhere, so that any ambiguity will not be interpreted favourably, which is a huge step. In the context of codes, we are currently considering the consumer protection code and the review relating to it. Aspects such as this one will form part of that review.

I welcome our guests and thank them for addressing the committee. First, I would like to know the attitude to companies from outside this jurisdiction coming in here and offering insurance that is often at cut prices and is detrimental to the industry. In more than one case, companies have returned to their homelands when the damage has been done. What is the attitude of the Central Bank to that kind of thing? What is the it to counteract this type of activity? On the one hand, such activity might be referred to as competition but, on the other, it is not competition if these companies are predatory and decide to leave the jurisdiction afterwards. What are the effects or perceived effects of this activity and are of these firms left? Also, is it quite clear across the business sector that business interruption is clearly defined so that everybody knows what it means and if they make an application that they can then assured of a fair and early hearing?

In terms of online applications for life cover, I have seen questions that asked the applicant whether he or she had an illness, is being treated for an illness or is visiting a doctor. Let me outline the problem. There are cases where an applicant answers the question to the best of his or her ability. He or she may attend a doctor occasionally and the doctor may have information that he or she has not made available to the patient for a variety of reasons. There is no variety in the way in which insurance companies react, however. It is quite clear that because people do not provide the information sought - that is, whether they suffer from a particular illness - and even though a diagnosis might be pending and might not have been conveyed to the patient, the fact that a doctor was involved and knew the nature of the illness means that the spouse of the patient does not get cover.

Does the ban on price walking infer a possible increase in insurance cover for motorists or anybody by way of retaliation? Those are my questions for the moment.

Mr. Gerry Cross

My colleague, Mr. Cullinan, will respond.

Mr. Domhnall Cullinan

I thank the Deputy for his questions. In terms of passporting in from other jurisdictions, any firm that is licensed within the European Economic Area, EEA, is entitled to passport into any country within the EEA. That is a matter for the home state regulator. As indicated in our opening statement, we supervise 200 insurance and reinsurance companies and 70% of their business is actually done outside of Ireland. So firms operating here have a passport into other jurisdictions. Equally, there are many firms that passport into Ireland from other jurisdictions. The vast majority of firms, not in terms of cover provided but certainly in terms of the number of firms, passport in from other jurisdictions. All of those firms, regardless of whether they are prudentially supervised by the Central Bank or by a counterpart of the Central Bank in another one of the EEA member states, are subject to all of the consumer protection measures, especially the consumer protection code that operates here. As a result, every policyholder has an equal amount of protection from the local conduct of business rules, as we call them.

From a prudential perspective, the Solvency II directive introduced in 2016 is a maximum harmonisation directive. It sets very high bar in terms of the capital and governance arrangements, etc., that all firms right across the EEA must have in place. The prudential regime that operates throughout Europe and the local conduct of business rules that operate within Ireland apply to all firms regardless of whether they are prudentially supervised here or in another member state. That is slightly different from the position that existed prior to 2016, when there was a minimum harmonisation regime and certain minimum standards yet member states were still free to subject entities to different levels of prudential supervision. However, a complete new risk-based solvency regime was introduced in 2016, which has seen far greater results. The whole purpose of which is stated in the legislation. It is there for the protection of policyholders and beneficiaries. It has brought a new level of protection from the perspective of making sure that firms do not get into difficulty and policyholders can have a degree of confidence with the regime regardless of where a firm is prudentially supervised.

In terms of business interruption, as I mentioned earlier, we initially thought that 145,000 policies might be covered. We whittled the figure down to 31,000. It would be better if there was a very strong definition for business interruption. Our understanding is that most firms have now gone out. I mean that since the crisis happened, firms, when they sought renewal, clarified exactly what is covered under a policy in order to remove any ambiguity that might have existed before that.

I must admit that I did not quite grasp the question on life policies, but I will mention a couple of things. Our understanding is that very few applications for life cover are declined within the jurisdiction. Some may be deferred or postponed for a period because if somebody is under investigation for a particular sickness, disease or whatever else it might be then the insurer will not put them on cover until such time it has been decided whether there is some risk to mortality for that person. Our understanding is that even at that, numbers would be quite low. We will examine the matter if the Deputy supplies further information. I ask the Deputy to forgive me for not grasping his question. I am quite interested in hearing about the case.

Deputy Durkan's microphone is on mute.

Our guests might comment on price walking and the possibility of an increase in insurance premiums as a result of the ban.

Mr. Gerry Cross

This is a very important aspect of this. As I mentioned in response to Deputy Doherty, one of the possibilities - we see an aspect of this in the data analysis we use - is that as firms have been able to charge more for loyal customers, and increasingly more as customers remain, as Deputy Doherty described, one thing they have been able to do is use that additional revenue to provide discounts to new customers. Our data show that is not an even balance, whereby one goes up and the other goes down in the same ratio, but it is certainly a possibility there will be some increase in the price for new customers, for example. That is why we have retained the ability to provide discounts for new customers and it is also why it will be very important we continue, as we will, to analyse the impact and effects of this new set of requirements. It is not only about how firms are implementing it, and this goes back to Deputy Doherty's concerns about it being implemented in spirit and not in a technical way, which is important, but also to assess the overall market impact, given that, clearly, the aim is to ensure the market is not only working fairly but also working well.

My next question relates to the rangers, as I call them, that provide services from outside the jurisdiction. Does the Central Bank operate a monitoring process to be able to identify, for instance, dangerous trading practices? I refer not necessarily to reckless trading but that which might be regarded as a trading practice that would require attention or could lead to difficulties further down the line. Does the Central Bank monitor their activities to ensure customers will not eventually become victims, if and when they leave the jurisdiction? Does it evaluate the extent to which the insurance industry might be damaged by companies practising in a way that is very close to reckless trading?

Mr. Gerry Cross

My colleague, Mr. Cullinan, set out the matter very well. This issue of the cross-border provision of services, which, as he said, works in terms of both outgoing business from Ireland, to a very significant extent, and incoming business, is at the heart of our membership of the EU from an insurance perspective. As we know in this jurisdiction, it has been problematic at times. Firms here have been doing precisely as the Deputy described and it has ended badly, as we have seen continuing over a number of years where firms failed and policyholders were left in bad circumstances. We have seen, for example, the adjustments to the compensation arrangements, which I discussed with the committee at a previous meeting.

Nevertheless, this is one of the reasons our participation with our European counterparts, particularly through the EIOPA platforms, were designed precisely to ensure we would be well joined up. Where there are difficulties, challenges or emerging problems, we are able to engage with them and they with us. That has been something of a journey over recent years, where it has grown closer and closer. Interestingly, in the current solvency review, there are proposals from the European Commission to make that process even more closely aligned, some aspects of which might be a little troubling from various perspectives. In principle, that idea of collaboration and co-operation is at the heart of success here.

The Deputy is correct that the approach needs to come from all perspectives. Of course, we are concerned about how companies do their business here, but their resilience, their soundness and their ultimate risk management, governance and underwriting practices are, as was said, matters for their home supervisors. For us, it is very important that engagement through EIOPA, the European authority, be very tight, and it continues to improve.

Is the supervisory regime in this jurisdiction as alert and incisive as those that are applicable in other EU states or in the general EU policy?

People have had difficulties in obtaining public liability insurance. Have those issues been resolved to the extent desired or is there still an overhang that might come back into focus?

Finally, is there a precise definition of "business interruption", such as one relating to force majeure or something entirely outside the control of the insured or the business person? Is there an area that both the insured and the insurer can agree on as what might be likely to be considered business interruption?

Mr. Gerry Cross

I will take the first and third questions and hand over to my colleague, Mr. Cassidy, to comment in response to the Deputy's important question on employment liability, public liability and the trends we are seeing in that regard.

On the issue of our supervisory regime, we would describe ourselves as first in class. As a member of the European system of financial supervision, with a very large home market of firms that are resident here doing business throughout Europe, it is very important for Ireland, the economy and all of us that the Central Bank be seen as a very credible, high-quality and successful regulator. I think, although I speak from my own book here a little bit, that is the perception that exists among our colleagues.

One aspect that gives us an enhanced voice among our peer organisations in Europe is the fact we integrate not only central banking and financial regulation but also prudential and conduct regulation. In our engagement throughout Europe, we are able to say that everything we do in the regulation and supervision of firms' resilience, governance, risk management and soundness, as well as their behaviour, conduct and culture, is about the consumer and the policyholder. That resounds loudly with our European colleagues. I appeared before the committee a few weeks ago to discuss the individual accountability framework. That the Central Bank has played such an important role in the development of that concept is an important aspect in discussions we have with our European colleagues.

On the definition of "business interruption", one of the challenges relates to the fact insurance policies are not standardised. Companies will choose to cover different types of risks and to deal with risk in different ways. What has become much clearer is the types of policies where there clearly is cover, and that is a result of the work we and the Financial Services and Pensions Ombudsman have done, as well as High Court judgments.

That is not to say that in relation to other issues there are not some legal engagements still under way, but at least, from our point of view, there is now a great deal of clarity around what is covered by the policies that are in force. I will ask Dr. Cassidy to address that point.

Mr. Domhnall Cullinan

Before Dr. Cassidy speaks, I would like to add one small point to Mr. Cross's answer to the first question. I agree with Mr. Cross that we are at the forefront of supervision in Europe. As he said, we are deeply involved in the European supervisory authorities. However, that is not just simply a thought process on our part. We are part of and subject to the European Insurance and Occupational Pensions Authority, EIOPA, under which we have what we call peer reviews where we review each other's works all the time. We always come out very much as best in class as part of those reviews. EIOPA often comes to us, as a small country that has, as Mr. Cross said, a footprint right across Europe and the world, to see what the best practices are it uses us almost as the base case. That goes some way towards showing where we are in terms of European supervisors. I will hand over to Dr. Cassidy now.

Dr. Mark Cassidy

Deputy Durkan raised a very important issue of the challenges in relation to public liability. This is something into which we now have enhanced insight following the collection of the new database we have, the national claims information database, NCID. This provides us, for the first time, with very detailed information regarding premiums - the costs of insurance for public and employer liability - and in relation to trends in the costs of settling claims, how claims are settled, comparing the different channels through which claims can be settled and, ultimately, the profitability of firms operating in this sector.

I will provide the committee with a little of the flavour of what challenges the sector is facing. First, it has been the case that premiums for public and employer liability have been increasing over recent years. In fact, premiums are up across that sector by 24% since 2015. It is not the case that this has corresponded with a period of profit making for this part of the sector. Indeed, since 2015, the provision of employer and public liability has been a loss-making activity. Following a number of successive years of losses, the sector returned a modest profit in 2019, the most recent year for which we have data.

The trends we are seeing in the cost of settling, including the process of litigation, are contributing to the higher premiums. We know that the cost of settling claims is the key determinant of the level of premiums. Over the entire period, the average cost of claims has increased. For public liability, the cost has increased by 16% since 2015, while for employer liability, it has increased by 30%. There is no doubt that is a very important factor behind the increase in premium costs in that sector.

In addition, a key element in the cost of claims relates to legal costs. In relation to legal costs for this type of public and employer liability, the proportion of cases going through litigation has increased from around half in 2015 to around two thirds in 2019. Many more cases are going through the more expensive legal route. The combination of the trends of more cases going through litigation and the high contribution of legal costs to claims, and therefore the increase in the cost of claims, is the main factor driving premiums for the sector and has made it extremely challenging.

What we do not have are data on businesses that are not able to get insurance. Naturally, our data only relate to insurance that is provided. A key alternative issue is the challenges in some sectors where it is difficult to get insurance for various reasons, particularly due to the high risk associated with them, and the potential costs of premiums.

My colleagues might follow up on some of those questions.

Gabhaim buíochas leis na finnéithe as ucht teacht os comhair an choiste. Many of the questions I intended asking have already been asked. I will follow up on two issues. First, in relation to the conversation with my colleague, Deputy Doherty, I am interested in the powers available to the Central Bank. In Britain, the Financial Conduct Authority is able to take cases instead of consumers. Does the Central Bank require additional powers to be able to do that?

My second question is on personal injuries guidelines. Since the guidelines came into effect in April, the data from the board shows that the average personal injury award has fallen by 40%. However, we have not seen that translated into a euro for euro reduction in insurance premiums. In Britain, when similar guidelines came into effect with respect to whiplash awards, legislation was passed requiring insurers to provide information to the Financial Conduct Authority outlining the average premium since the whiplash guidelines came into effect, the average premium had they not come into affect and the quantum of that reduction in awards which was passed on to consumers in the form of reduced premiums. Can the national information claims database provide that same level of information?

Mr. Gerry Cross

On the first question around whether the Central Bank should have additional powers equivalent to those of the FCA, it is always instructive and valuable to look to what others are doing and have done and to see their achievements. It is also important to look elsewhere to see where challenges have arisen and things may not always work as well as they should. Ultimately, it is a matter for the Houses of the Oireachtas to determine the powers of the Central Bank. My sense is that there is something important about being focused and clear in the mandates of an organisation. There is great clarity around the importance of the Central Bank regulating insurance and other financial firms so that they serve customers and the economy. That is very clearly what our focus is. There is nothing inconsistent with that in what the Deputy described. However, we will need to always weigh up whether, if we create more tasks and roles, that would potentially detract from the central focus. That is as much as I would say on that.

Does the Central Bank require extra powers to do what the FCA does? I am not saying whether it should or should not do it. I am just asking if the Central Bank would require additional powers?

Mr. Gerry Cross

It is my understanding that we would need additional powers to take legal cases. That is a power specifically provided in the UK legislation.

On the personal injury guidelines, as Deputy Farrell said, the very good news is the data from the Personal Injuries Assessment Board, PIAB, showing a reduction in compensation as a result of the personal injury guidelines. It is, of course, early days. As my colleague, Dr. Cassidy, explained, the settlement channels that are used give very different outcomes in terms of costs. I hope what we will see is that the implementation of the personal injury guidelines will result both in the reduction in claims costs and a far more predictable use of non-litigation based approaches.

The national claims information database will give us a very significant window into how this is feeding through it. It is not there yet because the data are simply not there yet. We think it will give us a significant window into understanding how the reduced compensation outcomes driven by the personal injury guidelines are feeding through. What the NCID will not do is create a sort of counterfactual scenario, as the UK version does. We will be able to see what is happening and how the data are driving through but we will not be able to see clearly what the data would have been if something had not been the case because the database is very much based on the reality. Perhaps my colleague, Dr. Cassidy, would like to add to that.

Dr. Mark Cassidy

The Deputy asked what we are planning in this regard. The information that we have published so far goes up to 2020, so it does not yet cover the impact of the personal injury guidelines. We have some tentative evidence. The Deputy mentioned the main evidence from PIAB, which suggests an initial average reduction in awards of 50%, which is extremely promising. These are early days, but the less promising evidence is that there has also been a reduction in the rate of acceptance of awards. Some of the early evidence is that with reduced awards, some claimants are less likely to accept them. I think that over time, these guidelines will bring good alignment of litigated and personal injury awards. These will be extremely useful. We do not have evidence of the impact on premiums. It will be a number of years before we can disentangle the impact precisely. We can look at the overall trend of premiums. Our data only extend to the end of 2020, but we have anecdotal data and data from alternative sources such as the CSO, which show that premiums continued to decline during 2021. From our current collection of data, which will relate to 2021, we will be able to compare settlement costs before and after the introduction of the new guidelines.

I concur with what Mr. Cross said. The UK does not have anything similar to the national claims information database, NCID. It does not have a comprehensive set of data to allow it to look at all elements of the claims process, premiums process and settlement channels, which will be extremely useful and will help us to see the impact that these guidelines will have on the market. Does that answer the Deputy's question?

Is Dr. Cassidy saying that it will take years for that information to be in the NCID? Is he saying that the Central Bank will be able to look at the trends in premiums but not euro-for-euro changes?

Dr. Mark Cassidy

From next year, we will be able to compare trends settled under the new personal injury guidelines with those settled under the previous book of quantum. We will have that information immediately. We have also continued to publish what is happening with overall premiums in the market, profitability, and so on. It is more difficult to attribute a change in premiums to any single factor, such as a change in personal injury guidelines. To give a specific example, in 2021, there was a pre-existing trend of declining premiums that we think would have continued regardless of any external factors. Covid has had a positive impact on the profitability of banks because there have been fewer claims. We expect this will be passed on to some extent in the form of lower premiums. There is also the impact of judicial guidelines. It is difficult to disentangle what part of the decline in premiums is due to a pre-existing trend, what is a Covid effect, and what relates to the personal injury guidelines. As we get more information over the years, it becomes easier to make that analysis.

We have to conclude shortly as we have another meeting with a bank. I ask members to bear that in mind.

To pick up on Deputy Farrell's point, do we need a new data source for the database? If we are looking at motor insurance, for example, seven out of the eight largest motor insurance providers in the State are the same as seven of the eight largest motor insurance providers in Britain. When the costs of whiplash were reduced by legislation there, the companies, including AIG, AXA, Allianz, Aviva and Zurich, all the same companies that operate here, were mandated to provide information to the Financial Conduct Authority to state what premium they are charging today and what premium they would have charged the same customer if it was not for the reduction in rewards. Unfortunately, we will now have to fiddle around with the national claims information database, look at premiums that are reducing, and figure out whether it was because of Covid, trends in increasing investment income as we move out of lower returns, or if it was actually because of awards. That is the crucial point. There is no way that that can be determined, unless the insurance industry provides its own algorithms and costings, which have to be independently audited as a result of what happens in Britain. Is that type of information not the only way that we can really verify that, euro-for-euro, pound-for-pound?

The industry came into the room that I am sitting in, sat over there, and told us that it wants us to legislate to cut awards. We delivered on that. The Judiciary delivered on that. The insurance industry is pocketing the money. Businesses are not seeing any reduction. Motorists see some reduction but not at the scale that the CEOs of those companies told us they would delivery. Some of the reduction that is being seen in motor insurance is because there are fewer accidents, since there are fewer cars on the roads with the restrictions that are in place. Surely we need a new data source that is verifiable and independently audited if we are ever to be able to actually say that the reduction as a result of the personal injury guidelines has been passed on euro-for-euro, or that 90% or 80% of it has been passed on? I will never know and the Central Bank will never know unless we ask the same companies to provide the same information that they provide in Britain.

Mr. Gerry Cross

I fundamentally agree with the Deputy's point that it is important that the industry lives up to its commitment to show that these costs flow through to policy holders and that they are seen to flow through to policy holders. There is a question about the best way to do that, which is ultimately one for this committee and these Houses. As I said to Deputy Farrell, it is possible to say that we will create a new data source, put new obligations on the sector and have new activities in the Central Bank. That is one option. All that I would say is that, over the last three years, we have built something unique, the national claims information database, at the behest and valuable impetus of this committee. It is a rich and comprehensive set of data about the performance of the sector and what is or is not happening. It is a question for members as legislators. Is it best to use the existing technique, which will give an awful lot of information, or do we want to create something separate? As I mentioned in my response to Deputy Farrell, there is a cost to there being more tasks and ways of doing things for the Central Bank. That is ultimately an issue for these Houses.

I genuinely think that the industry has taken us for fools. Some of the commentary from the Central Bank in the latter part of this is in that space. I have agreed with much of the assessment. I really feel for businesses. If we look at employers' liability and public liability insurance, the cost of claims has reduced substantially since 2015. It has reduced for the last four years. The number of people who are claiming has reduced substantially for the last years. I have the figures here. There was €203 million in claims in 2015, which was down to €161 million in 2019. The number of claims reduced from 5,200 to 4,900. Public liability claims have gone down from 10,000 to 8,700. Those have reduced but the businesses are not seeing the reduction in awards. On top of that, we have slashed the awards. The awards going through PIAB have been slashed by 40%. There are legal challenges at the courts. The courts are holding firm. This was agreed in April. We are nine months on and businesses are not seeing the reduction. The Alliance for Insurance Reform is doing a survey. Nothing is happening with employers' liability and public liability insurance.

These guys are just filling their boots. The cost of awards and the number of people making claims for the insurance industry are going down. The industry's profits are going up and the only cost going up is the re-insurance. Re-insurance over the past five years has gone from 4% in the five years previous to that, to approximately 8% or 9% in the past five years, which is basically paying their mothership or parent company. It is a way for the industry to shift money and look as though it is not as healthy as it is.

This is very frustrating and where the Central Bank needs to step in. I would like to know, as I am sure businesses would, what the Central Bank will do about this? Everybody has delivered, from the Oireachtas and the Judiciary, to the Personal Injuries Assessment Board, PIAB, and all the rest, but the insurance companies are not delivering. A comment was made about high claim costs and litigation, but it should be remembered that litigation only makes up 3% to 4%, depending on whether one is talking employers liability or public liability that is settled in the court. Approximately 63% of cases, in one category, are settled outside the court.

The insurance companies are the ones guilty of this. They settle claims that they know, in some cases, are exaggerated or in others are bogus, but they settle them because it is easier for them. They can take the reserves they had for that claim back in profitability. It makes them and their quarterly and annual reports look good and they get more bonuses. However, who suffers? It is the people who see their premiums going up because a bogus claim was settled. We can talk about PIAB and the judgment that judges make, but they are tiny compared to what happens by the insurance industry, either on the steps of the court or settling cases because it is easier to settle than to challenge through the system.

I want to make a last point, because I know the Chair is very generous-----

We have to conclude.

It is something I will be in communication with the Central Bank on. We need to deal with the fact that the Equal Status (Amendment) Act 2012 is failing people and the Central Bank needs to step up. In Britain, we have the strategic environmental assessment, SEA, with a memorandum of understanding, with the relevant agency there, to make sure it has the teeth to make sure insurance companies do not deny life insurance cover to classes of people who should be getting that. These are people who went and told their own story on public radio last week, in terms of eating disorders that are historic. People with diabetes and people recovering from Covid have been told they cannot get life insurance.

That should not be and is not allowed under the Equal Status (Amendment) Act 2012 but, unfortunately, the only body charged with implementing that is the Irish Human Rights and Equality Commission, which does not have the teeth to deal with this. I ask that the Central Bank go into a memorandum of understanding with that organisation, to make sure insurance companies cannot do to people what is happening. Denying mortgage cover to people who are trying to secure their first or second home is a growing trend. It is not a requirement in Britain to have that cover, but it is here.

I ask Mr. Cross for a short answer, if possible. For the parts of the question to which he cannot or does not have time to respond, I ask him to correspond with the committee, because we were due to finish at 3 p.m. for another meeting.

Mr. Gerry Cross

We very much share this sense that the availability and cost of insurance to businesses is a crucially important matter. We understand, as Deputy Doherty has described, how challenging it is when that insurance is not available or very highly priced. I agree with the Deputy that is a question that needs to be addressed. I do not have time to turn to my colleague on this, but data from the national claims information database, NCID, on employers and public liability shows profitability is not at a high level and it is a difficult area for the firms. That data is in the NCID and is available.

What we have to ask, as a Central Bank, is what role we can best play in helping to address that question. We have been doing so over the past years. That relates to ensuring, first of all, that insurance companies are well run and their pricing, underwriting and model are appropriately risk managed and carried out and they do not treat their customers in any way that is unfair, as we have seen through our approach to differential pricing and business interruption insurance.

When it comes to the question of the cost of insurance, our central and very important role, is to bring as much transparency, light and clarity to the situation as we can. In the comprehensive change the availability of the NCID data brings, we very much play, commit and contribute to improving outcomes in that regard.

Beyond that, as we have seen in the context of flood insurance and discussions around that, there are challenges for all of us, the legislator, the Central Bank and businesses, to find the root or combination of approaches which leads to better outcomes for the availability and cost of insurance. However, fundamentally, those questions are about how the insurance sector is organised under legislation. We have referred in our discussions on flood insurance to arrangements in the UK with its Flood Re approach and Spain, with its consortia of-----

I have to cut across Mr. Cross. If he needs to answer any other issues, I ask that he communicates with the committee. The meeting will be suspended for five minutes, until we introduce Ulster Bank. I thank the witnesses for attending.

Sitting suspended at 3.07 p.m. and resumed at 3.13 p.m.