Insurance Issues: Engagement with Insurance Companies

The minutes of the joint committee meeting on 1 December 2021 were agreed by the committee in private session. Today's meeting is our engagement with insurance companies. I welcome members and guests to the committee. We are joined today by Mr. Kevin Thompson, CEO of the RSA Group; Mr. Trevor Lowry, chief underwriting officer, RSA Group; we also have Mr. Tomás O'Midheach, CEO, FBD Insurance; and Mr. Aidan Connaughton, general manager, AIG Ireland.

The format of the meeting is that Mr. Thompson, Mr. O'Midheach and Mr. Connaughton will make some brief opening statements and members will then raise the various questions they are interested in.

I ask members and witnesses to be advised of the note on privilege, whereby full privilege is extended to members and those who are conducting the meeting from the precincts of Leinster House. If they are on a call from outside Leinster House, they may have limited privilege. I now invite Mr. Thompson to make his opening remarks.

Mr. Kevin Thompson

I thank the Chair and members of the committee for the opportunity to attend today. I am joined by my colleague, Trevor Lowry, chief underwriting officer. I would like to start by providing a brief overview of RSA and 123.ie. As RSA has been selling insurance in Ireland since 1721, we have been marking our 300th anniversary this year. We are a multichannel insurer selling insurance directly, through brokers, and through affinity partners. Our gross written premium was approximately €370 million in 2019. We employ almost 600 people across our offices in Dublin, Belfast and Galway. This year we became part of Intact Financial Corporation, the largest provider of property and casualty insurance in Canada and a leading provider of speciality insurance in North America and Europe. I note the committee's invitation focuses on general insurance and business interruption cover arising from Covid-19. On business interruption, BI, we appreciate this issue has been of significant concern to sections of the business community, particularly small businesses impacted by Covid-19. At the onset of the pandemic we implemented a range of customer supports including payment breaks and reduced exposures for our commercial customers, in addition to premium refunds for our personal motor customers. We also established an enhanced process for assessing and responding to Covid-19 business interruption claims, given the impact of the pandemic on businesses.

Each business interruption claim we received had a loss adjustor appointed to establish the individual circumstances and merits of each claim. At all times we have sought to provide clear communication to customers and brokers on our policy coverage. While some of our commercial policies have extensions which may cover BI losses arising from Covid-19, coverage only applies if certain criteria are met, and in the vast majority of claims this has not been the case. A small number of declined cases have been referred to the Financial Services and Pensions Ombudsman and these cases have been found in our favour. In our statutory accounts we reserve €46 million for Covid business interruption losses and we have paid out approximately €13 million to date, including through interim payments. We await the outcome of two court cases to help conclude these cases. One relates to policy interpretation and the other will provide guidance on the assessment of quantum. However we are maintaining our proactive engagement with claimants or their representatives to ensure claims can be progressed as quickly as possible once the court processes conclude. In addition, we are very mindful of the need to support a recovering economy and business is central to this. In 2020 to 2021 we increased our number of commercial policies in force by 7%.

The second key issue for customers is insurers' response to the new Judicial Council guidelines. We appreciate members' interest in this area, however, we are conscious of the requirements of competition law in this context. I know many members of the committee have worked on insurance and claims cost reform for several years. Like them, we welcome the revised guidelines and RSA has responded by passing on savings to customers. It is important to note that we are still in the early days of the operation of the new guidelines with low settlement volumes and reduced acceptance rates.

Insurance Ireland has estimated that its members settled approximately 1,100 claims following the introduction of the guidelines, which is estimated to be 10% of what would settle in a normal six-month period. There are also several challenges to the guidelines to be determined.

However, I can assure the committee that on our motor pricing, we have passed on the benefit of the reduced awards on price to date. We keep this area under close review and we will monitor and respond to any further developments in the claims environment.

In this regard, I add our support for the proposed additional powers for the Personal Injuries Assessment Board, PIAB, as well as the proposals for changes to duty of care legislation as outlined in the action plan on insurance reform. As highlighted by the national claims information database, for claims below €100,000, which are the vast majority of claims, PIAB settles claims faster with broadly similar average compensation and with significantly reduced legal costs. The implementation of these proposals, together with the Judicial Council guidelines, can lead to increased customer benefits and a less volatile insurance market.

I again thank the committee for the opportunity to present and we look forward to answering any questions members may have.

Mr. Tomás O'Midheach

I would like to take this opportunity to update the committee on insurance matters and developments from FBD’s experience since our last meeting in May. I was appointed as FBD’s chief executive officer in January and I am joined here today by my colleague, Kate Tobin, FBD’s chief underwriting officer. As Ireland’s only indigenous general insurer, FBD is the fourth largest general insurer in the country with a branch network of 34 offices.

At FBD, we fully understand and appreciate the impact the Covid-19 pandemic has had and continues to have on our customers. In 2020 and to date in 2021, FBD has provided approximately €18 million in rebates to our commercial and motor customers. We continue to provide rebates to impacted commercial customers.

Regarding business interruption cover, FBD is working to ensure it can pay valid claims as quickly as possible. To date we have processed €28 million in claims payments to 882 customers. This includes an interim payment offer to all customers and additional payments for the policyholders who have engaged with us. FBD has 1,076 customers covered for business interruption during the Covid pandemic. Interim payments were offered to all customers, of which 759 accepted. A total of 382 customers have engaged with us and accepted interim claims settlements.

There is an ongoing High Court hearing that will assist with the calculation of the final elements of claims. Following this judgment, we are committed to finalising claims as quickly as possible. We ask that members be cognisant of FBD’s case, which remains before the High Court.

In addition, following the Financial Services and Pensions Ombudsman's findings on business interruption, we have applied the Central Bank’s Covid-19 and business interruption insurance supervisory framework. As a result of that, FBD has provided for €13 million in compensatory payments to all our impacted policyholders.

Prior to the publication of the personal injury guidelines, FBD committed to reflect claims savings in reduced customer premiums. Upon the guidelines being published, FBD immediately applied a directly proportionate premium reduction. Based on six months' experience and following the PIAB report, we have introduced a further proportionate premium reduction. We are supportive of the Government’s insurance reform agenda to help reduce premiums for consumers, farmers and businesses. The average premium for FBD private car customers has reduced by approximately 10% in 2021 and 25% since 2017.

We are currently adhering to the judicial guidelines in our claims process. For claims which have not settled directly through PIAB, we await the outcome of court decisions and trust they will align with the introduced personal injury guidelines.

At FBD, we acknowledge the differential pricing report and are working to comply with the measures proposed. We also continue to be very supportive of the Government’s insurance reform agenda including the newly established fraud co-ordination office in An Garda Síochána. We welcome any legislation including amendment of the Road Traffic Act and the establishment of a motor third party liability database which will help to reduce the Motor Insurers Bureau of Ireland, MIBI, levy and ultimately the cost of claims.

Regarding commercial insurance, FBD operates only in the Republic of Ireland and we have ambitions to grow our farm and business book. We insure 11% of Ireland’s commercial market. We are growing our commercial offering but must do this in a measured and sustainable way. To date in 2021, we have grown business and commercial vehicle policies by 6%.

We are already the largest farm insurance provider in a sector which is deemed the most dangerous workplace in the country. FBD provides insurance cover for many vital community organisations including marts, men’s sheds and many local community events which are adjacent to the sectors where we operate. We sponsor over 100 community-based events and organisations along with providing a wide range of education, research and development grants and projects for Irish agriculture and rural life generally.

We will endeavour to assist the committee as far as possible but as members will appreciate, we are constrained in what we can say on sensitive competitive dynamics such as pricing, including potential price changes, and on our confidential commercial strategy.

We would like to thank the committee for the work it has done to bring about reform in the Irish insurance market and we look forward to engaging with members today.

Gabhaim buíochas leis na haíonna atá sásta labhairt linn. I thank the guests for appearing before the committee today. Many people had concerns over payments for personal injury claims and lost faith in the insurance industry as a result. The introduction of the personal injury guidelines on 24 April significantly reduced the cost of claims. As soon as the guidelines came into place the insurance industry warned that premiums would not fall immediately and I want to discuss that today. Insurance is priced based on the expected cost of claims in the future. What percentage of the insurance industry's total cost is absorbed by gross claims incurred for personal injuries?

Mr. Tomás O'Midheach

Regarding the growth, we can discuss the national claims database statistics for the proportion of claims absorbed by personal injuries but otherwise it would be confidential information for each individual company. We have determined the proportion of personal injury claims we believe are affected by the changes to the personal injury guidelines. We amended immediately on publication of the personal injury guidelines. After six months, we have considered and further reduced in light of that experience. Ours would be in concert with PIAB - roughly 40% reduction.

Would anybody else like to answer the question? I would like to get specifics on it rather than talking around the question.

When members put their questions, we would like both witnesses to respond. I will then allow the flow of the meeting between the witness and the member.

Mr. Kevin Thompson

We have seen a 45% to 46% reduction in general damages by PIAB. From our point of view, we regard that as 17% of the total loss cost. When we move that along in terms of other technical prices, it works out as a 10% or 11% reduction on our technical price.

That does not really answer it. My question really is: if the claims under the category of awards have fallen by 40%, by how much can we expect the cost to have fallen?

What would that be in nominal terms and on a euro for euro basis? We should expect premiums to have reduced by that amount solely as a result of the personal injury guidelines coming into effect. What percentage have the average premiums across motor and public liability reduced by since 29 April?

Mr. Trevor Lowry

For both private motor and fleet we have reduced premiums by roughly 10%, based on what we see in the context of an assessment of the new awards because the awards are heavily weighted towards the lower soft tissue and attritional end of claims. They do not impact all claims directly and what we are seeing come through from the Personal Injuries Assessment Board, PIAB, equates to that level of reduction in the cases we have seen, albeit a small number of cases.

Mr. Tomás O'Midheach

We have also reduced premiums by 10% this year. A significant proportion of that relates to the personal injury guidelines.

Will the national information claims database be able to monitor or show if the savings the RSA Group, AIG and FBD make as a result of the personal injury guidelines have been passed on to their customers euro for euro?

Mr. Tomás O'Midheach

The database will identify the reduction but not the context of the reduction. It will not show whether the reduction is down to the personal injury guidelines, market pressures or some other decision by an individual company but it will show the reduction.

I will move on to the RSA Group, AIG and FBD’s profits and Covid-19. We saw that during the majority of 2020 the economy and society were under stringent public health measures, there were fewer cars on the roads and businesses were closed. Traffic fell by 37% while the number of claims in motor insurance fell by 26% and the cost of claims per policy fell by 20%. However, the average premium only fell by 7%. The average rebate that the RSA Group, AIG and FBD gave to their customers was €17, only 3% of gross earned premiums before rebates. Will the RSA Group, AIG and FBD disclose their profit margins in motor insurance for the years 2017, 2018, 2019 and 2020?

We will start with the RSA Group.

Mr. Kevin Thompson

We look at it from a whole-portfolio point of view. Looking at our statutory result for 2020, we made a loss of €13.4 million across our company. We made a profit of €14.1 million the year before and in 2018 we made a profit of €8.1 million. Those were our results on an aggregated basis. When it is broken down per line of business, on a retained basis our motor insurance had a loss of €9.5 million and other lines such as-----

(Interruptions).

Mr. Kevin Thompson

-----had a loss of €3.6 million, property had a loss of €1.4 million and liability had a loss of-----

(Interruptions).

Mr. Tomás O'Midheach

For 2020 we made overall underwriting losses as a company as a result of the business interruption. We would have made profits as a result of the claims reductions in 2020 but I do not have the disaggregated figures for 2019 and 2018 on motor, farm or commercial insurance. I can provide those figures to the Deputy subsequently.

Mr. Aidan Connaughton

I am quite happy to answer the question and I do not want to interrupt the flow of the Deputy’s questioning but I have not yet had the opportunity to read AIG’s opening statement. Would the Chairman like to hear that statement before I answer the question?

That is entirely my fault. I ask Mr. Connaughton to give the opening statement now and then answer the question.

Mr. Aidan Connaughton

I am sorry again to interrupt the flow of the questioning. I thank the committee for the invitation to discuss issues related to insurance in Ireland. I would like to begin by acknowledging the role the committee has played, during both the current and the previous Dáil terms, in supporting the ongoing reform agenda that began five years ago with the establishment of the cost of insurance working group. These collective efforts are delivering results. One clear example of this has been the implementation of the personal injuries guidelines, approved by the Judicial Council in March and which came into effect in April. When I appeared before the committee in May, I said we were hopeful that as the guidelines were implemented, award levels would begin to fall, leading to a reduction in overall claims costs. The evidence available to date indicates that the new guidelines are having a noticeable impact. Figures published by PIAB in October show the value of the average award made by PIAB has fallen by 40% year on year. The Central Statistics Office, CSO, motor index shows that average motor premiums have also fallen and are now almost 20% lower than in 2018.

For the benefit of members in understanding the cover AIG provides and how we support businesses and consumers, I would like to provide a brief overview of our business in Ireland. AIG has been in operation here for more than 44 years. American International Group Inc., AIG, is a leading global insurance organisation and is listed on the New York Stock Exchange. Our Irish business, which is run from our Dublin office, employs 160 people in general insurance and we have more than half a million customers. AIG has been the insurance partner for large and small companies, not-for-profit organisations, and individual consumers in Ireland since 1977. We support the insurance needs of Irish-based companies expanding in the EU and around the world as well as the insurance needs of US and other multinational businesses in Ireland. Our business mix in Ireland is weighted towards larger, corporate customers and our principal products are financial lines, such as directors and officers insurance, liability and commercial property insurance, with motor, travel and accident and health plans in the consumer space.

I know that business interruption insurance is a particular focus for the committee in today’s session. AIG 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 and these would include cover, for example, from fire, explosion, machinery breakdown and natural catastrophe. We have had a small number of business interruption claims related to Covid-19. AIG’s priority for all our business customers is to support their efforts to return to pre-pandemic levels of activity by dealing with claims fairly and paying promptly where policies provide cover.

Following another year of considerable challenges and uncertainty in the face of the evolving pandemic, AIG remains focused on protecting the health and safety of our colleagues as well as continuing to serve clients, policyholders, business partners and other stakeholders. AIG has introduced a range of measures to support its customers throughout Covid-19. We have also applied discounts for policy renewals where this is appropriate, reflecting, for example, lower driving volumes while many people are working from home in accordance with the public health guidelines.

On the cost of insurance, the new personal injuries guidelines, as I have mentioned, are an important step towards achieving meaningful change in reducing Ireland’s high cost of claims. Enhancing and reforming the role of PIAB, as set out in the Government’s action plan for insurance reform, is also welcome. We support PIAB, we recognise its positive impact to date and we believe it should have more power.

Although average awards made by PIAB have fallen significantly since April, it is worth noting that there has been an increase in the rejection rate. This means more cases will be going to court and greater uncertainty will exist around the ultimate cost of claims. It is our view that where an injury is not catastrophic and if the PIAB award is not accepted within three months there should be a binding arbitration either to agree that the award was fair or make a different award. This would reduce the burden on the courts and eliminate unnecessary delays and legal fees, which inflate costs.

This year has been a difficult one for many customers and businesses. We do not underestimate the challenges that lie ahead as we look to fully reopen our economy and society. Against this backdrop, however, 2021 has also been a year of progress and reform which is delivering benefits to policyholders. We look forward to working with the committee, the Government and all our stakeholders to continue this progress.

I thank Mr. Connaughton. Could he address the question asked by Deputy Mairéad Farrell?

Mr. Aidan Connaughton

Could I ask the Deputy if she might repeat the question?

It was about profit margins in motor insurance for the years 2017 to 2020, inclusive.

Mr. Aidan Connaughton

In the period from 2017 to 2020, where 100% would be break even, AIG has returned 105% combined ratio, which delivers a €5 loss for every €100 taken in over that period.

I want to move on to dual pricing as we are moving along in this session. Recommendation 1 of the cost of insurance working group was for insurers to set out reasons for large increases in premiums to consumers. It was agreed between Insurance Ireland and the Department of Finance in 2017. I note that none of the insurance companies' websites gives price walking or dual pricing as a reason for customer premiums increasing. Would the witnesses accept that they deliberately misled the Department of Finance and their customers by not including that?

Mr. Tomás O'Midheach

FBD offers introductory pricing and a discounted price for new business. On the Deputy's suggestion with regard to price walking and so on, we would return introductory offers to a normal price and would not walk past the normal price that we would deem to be appropriate for everybody.

Would AIG like to comment on that?

Mr. Aidan Connaughton

We welcomed the Central Bank's report. It found that differential pricing as distinct from dual pricing can encourage competition and innovation and facilitate market access for some customers. We do not have a dual pricing strategy. We do not use price optimisation tools. We do not model our book based on propensity to renew. We comply with the Central Bank guidance.

Would RSA like to respond?

Mr. Kevin Thompson

Similarly to FBD, we provide discounts for new business. Ultimately when it comes to renewal we bring the price of that policy to what we would expect to cover the risk premium. We fully support what the Central Bank of Ireland is doing in respect of differential pricing. We have engaged with it regularly on this and we look forward to implementation.

I will just ask a yes or no question on this. Can each witness confirm if their organisation practises dual pricing or price walking? Can they confirm if this involves identifying customers who are more likely to renew and charging them extra?

Mr. Tomás O'Midheach

I will ask Ms Tobin to take that.

Ms Kate Tobin

As Mr. O'Midheach has already outlined, FBD does offer introductory discounts as part of our normal commercial practices. I suppose that can be considered as dual pricing. In terms of the specific practice of price walking connected to introductory offers, we would look to bring a customer back to the base price in the portfolio but importantly not beyond that over a number of years. That will be under review as we implement measures in response to the regulations. There would be potentially an unwinding of discounts over a short number of years, those being related to new business.

On the Deputy's question about the specific practice of using big data to determine who is more or less likely to renew and charging them more on that basis, it is not something FBD does.

I thank Ms Tobin. I would just like a yes or no answer on that question really.

Mr. Aidan Connaughton

No, we do not engage in a dual pricing strategy. We do have time-based discounts for new business. For example, if the Deputy were to purchase a policy online there would be a 10% discount but that is based on the ability to deliver that at a more efficient rate. We do not price based on propensity to renew.

I am grateful for that clarity. My question is if the organisations charge renewing customers premiums that are higher than the technical premium. I would like a yes or no answer from everybody.

Mr. Aidan Connaughton

I will continue as I have just answered that question briefly. I can tell the Deputy that our average renewal premium is lower than our average new business premium.

Mr. Trevor Lowry

Yes, from an RSA perspective, both higher and lower than the technical premium.

Ms Kate Tobin

For FBD, both higher and lower than technical premium but not higher than the base premium.

Is that okay, Deputy?

Go raibh maith agat.

Deputy MacSharry is next.

I am grateful to the regular committee members for allowing me to participate in this meeting. My questions are about business interruption, the subject matter of today's meeting. However, I want to focus on AIG and Mr. Connaughton if I may. My question relates to the 2,200 GAA clubs in the country. I thank AIG for its tremendous support of Cumann Lúthchleas Gael and the great Dublin team of recent years. I am grateful to all insurance companies and brokers throughout the country that support Gaelic games. Can Mr. Connaughton confirm that AIG provides cover to our 2,200 clubs?

Mr. Aidan Connaughton

As I am sure the Deputy will appreciate, I cannot talk about individual cases. I can say that we have property and commercial policies that typically provide business interruption cover where the business interruption results from physical damage to property. That is the basis on which our property and commercial policies are priced. Certain of those wordings will also provide further extensions for business interruption losses where there is an occurrence of disease on the insurance premises - not the wider outbreak - and where that outbreak of disease on the premises leads to the entity being closed either by Government or because of the disease outbreak itself. I hope the Deputy can appreciate that I cannot answer the question in respect of a particular client.

I certainly would not want to be getting into individual clients or to be arguing the case as to whether a claim was eligible. The reason I am raising this today and the reason I asked the Chairman to bring the insurance companies in is relevant to the 2,200 clubs. Some have come to me to ask these questions. What they think they are insured for, and what the Cumann Lúthchleas Gael website says they are insured for, is other than what a master policy document held by senior GAA administrators would say.

I will ask in a way that Mr. Connaughton might be able to answer. One would imagine that there are not too many GAA-type clients among AIG's 500,000 clients in Ireland. Each GAA club is covered individually and individually able to make claims relevant to its policy, which is on the GAA's website and is distributed to each club. Would it be typical that a master copy or other copy be held by the national body and would it differ?

Mr. Aidan Connaughton

It is difficult for me to answer about a specific client. The Deputy is asking me specifically about the GAA, but I-----

This organisation has a high level of visibility. It is difficult for 2,200 clubs to get face time with AIG individually. That is why they at times act through the likes of us in the Oireachtas.

Mr. Aidan Connaughton

All of the policies for business interruption that AIG insures are transacted through the broker channel. Each of the clients would have been advised on its specific policy coverage. Where AIG insures those clients, we are conscious of the legal and regulatory obligations to our policyholders and we seek to treat them with honesty and fairly and professionally. While I do not want to not answer the Deputy's question, I am constrained by the fact that he is asking about a specific client. Perhaps the best way for me to answer is to say-----

I am only getting into detail that is available on the GAA's website. I want to cut to the chase with Mr. Connaughton. The suggestion from some GAA clubs is that there is a clause in the policy with AIG whereby, subject to the courts, to AIG or adjudication on claims in the normal way - I am not coming down on one side or the other of that - each club could theoretically make a claim of up to €5 million for business interruption and that, while this is not reflected in the policy document that was provided to them, it is reflected in the master policy document that seems to be in the possession exclusively of senior CLG administrators. Under the consumer protection code, it seems to me that, as Mr. Connaughton rightly claimed, the broker, Marsh Ireland, would advise clients. My research indicates that no GAA club around the country has been advised that it may be eligible to make a claim. Whether such a claim would be successful is a different matter, but that clubs have not been advised seems to be a breach of section 7.1 of the consumer protection code. Would Mr. Connaughton be surprised to hear this?

Mr. Aidan Connaughton

As the Deputy said, there is a broker involved with this client.

No. Mr. Connaughton said that the broker managed the client. I just followed on from that.

Mr. Aidan Connaughton

I understand. I do not want to sound like I am being difficult or evading the question but we have a number of claims that are waiting for sufficient information to be provided to us to demonstrate that the cover specified in the policy has been triggered. In accordance with the terms of the policy, if there has been an occurrence of Covid-19 on the premises and restrictions were placed on the premises on the order or advice of a competent local authority, there is the opportunity for the policyholder to submit a notification to the broker, who would in turn submit that notification to AIG, which would then adjudicate on the policy.

I know the process but if the policyholder does not know about this, it is unlikely to make a submission. Is that not a reasonable deduction?

Would it be normal for AIG's policies, and this one specifically, to include a clause prohibiting a club from appointing a loss assessor?

Mr. Aidan Connaughton

I do not believe so but I am open to correction. There might be specific wording in a specific policy, but I do not know.

This policy does. We are talking about 2,200 GAA clubs around the country and the policy's wording seems to prohibit the appointing of loss assessors, which is a clear breach of section 7.1 of the consumer protection code. Will Mr. Connaughton investigate this specific situation? Is there a policy in existence with CLG telling it that clubs cannot appoint assessors? In other words, AIG will insure clients but it will also tell them how much it will cost to fix their houses, cars or business interruption costs, which would seem to be sharp practice. That is a personal view.

Regarding the Central Bank's code of conduct and guidance around test cases and so on, it has come to my notice that, unlike others before us today, AIG is the only firm that has not agreed to the test case process. Sticking to the GAA example, if St. Whoever's from whatever county decided that it wanted to investigate whether it could make a claim of up to €5 million, would AIG be prepared to go the test case route as opposed to the arbitration route, which as Mr. Connaughton knows would cost a minimum of €100,000 per claim?

Mr. Aidan Connaughton

I cannot talk about a specific client but if-----

Let us speak hypothetically and make up a client. Let us say that Marc MacSharry is insured by AIG. I want to go the test case route. Will AIG agree to do that? I do not have the €100,000 to take the arbitration route.

Mr. Aidan Connaughton

It is fair to say that the Deputy could present his case through his insurance broker and we would engage with the broker and all of the relevant parties and stakeholders.

Is it the broker that decides, so?

Mr. Aidan Connaughton

No, but the broker-----

Does the broker decide that AIG will go the test case route? Could Marsh Ireland decide for AIG, which is quoted on the Stock Exchange in New York, that Marsh Ireland is the designated authority and the claim will go the test case route? I would say that the shareholders would have a view on that if it were really the case.

Mr. Aidan Connaughton

We are happy to engage with the broker on the specific client if a notification is made in respect of the policy.

I have a final question, although I will speak again later if time allows. I have read the policy I referenced. Not the master copy, though, because the GAA will not give it to the clubs. It seems that AIG will not give it to individual clubs either. There is nothing in the policy saying that clubs cannot claim and nothing to suggest anything other than each unit of the GAA is individually insured. The clubs have not been individually advised of their right to claim. I ask that AIG address this through Marsh Ireland and whomever the former deals with in the GAA.

AIG changed the cap applicable to this sort of claim to €5 million in November 2019. This relates to business interruptions owing to diseases such as Covid and the like. Unless AIG had a crystal ball, I wonder how it managed to guess so correctly when the first cases were just three weeks away.

Mr. Aidan Connaughton

We are in the business of risk and we examine risk on a regular basis. That is as much as I can say in that regard.

I thank Mr. Connaughton.

If Mr. Connaughton has any further information to add, he can send it to the committee.

I thank the representatives of the insurance industry for appearing before us this afternoon. The only issue I wish to raise is that of the impact that the personal injuries guidelines have had upon insurance premiums.

As I am sure the representatives will be aware, the Oireachtas went through the considerable decision to enact legislation to give guidelines to the Judiciary under the Judicial Council Act 2019 for the purpose of reducing awards. The reason we did it was primarily because we were informed by the witnesses' organisations and others that if we could get awards reduced, this would have a consequential impact on premiums.

I will start by asking Mr. Thompson in respect of motor insurance in the first instance. I believe he mentioned in his opening statement that there was a reduction and that has been passed on to the consumer. Will he give me an indication of the percentage of reduction in premiums since the guidelines came in last March?

Mr. Kevin Thompson

As per the comments of my colleague, Mr. Lowry, there was a 10% reduction, which we passed on straight away. We welcome the work that has been done and the new award levels. We are sticking to the new award levels ourselves in terms of claims assessment, but as per my opening statement, we are cautious because we know that a number of settlements are far less than what one would expect in a normal trading environment for claims. We know as well that there a few cases before the courts challenging the guidelines. From the point of view of taking it on good faith that this will all roll through and the new low level of awards will stick, however, we have passed on those premium reductions.

Does Mr. Thompson envisage that there will be further reductions in premiums? Obviously, the personal injuries guidelines have reduced awards by more than 10%. I am not saying there should be an absolute correlation between a reduction in the awards and a reduction in the premium, but is it envisaged that the RSA Group will have greater reductions it will be able to pass on to the consumer?

Mr. Kevin Thompson

I do not want to give a forward-looking statement around prices or what we will do. What I will say, however, is that our commitment is there in that we will monitor the claims environment and the impact the new guidelines have and reflect those changes in our pricing.

If we find ourselves, say, a year from now and the guidelines have reduced awards down by 50%, would we not be confident in seeing a greater reduction in premiums than the 10% that has happened to date?

Mr. Kevin Thompson

Again, I agree with the sentiment but I do not want to give a forward-looking statement. We will monitor it. We wholeheartedly support what is being done. We advocated for it as an industry. The RSA Group is fully supportive of it. I come back to my earlier comment in which I was responding to a question whereby we have seen a 40% reduction already, although be it from low value claims coming through from personal injuries board. We know that is 17% of our total loss cost, which equates to 10% of our technical price. As those figures move, we will move in terms of what we see coming through.

Can I take it that from the point of view of this committee, Mr. Thompson is not telling us we will not see further reductions than those of 10% that have taken place to date?

Mr. Kevin Thompson

No, I am saying we have applied our pricing based on good faith and based on the limited number of claims that have been assessed by PIAB and the limited number of claims that have come through, and they are limited compared with what we would see in a normal year, so we have to have a slight air of caution around this in terms of how we approach it from a pricing point of view. Do not misread that for our lack of support in terms of monitoring. If we see the benefits, then the customer will benefit.

I will ask Mr. O'Midheach a similar question. I believe he indicated that there has been a reduction of 10% since the guidelines came in. Is that correct?

Mr. Tomás O'Midheach

Our premiums have reduced by 10% this year. A significant proportion of that is associated with the personal injury guidelines. We did undertake to monitor the impact of the guidelines and reflect them periodically as the impact is felt. Upon the initial publishing of the guidelines, we moved in good faith. The actual reductions we experienced on a very small population were above what we initially thought and we have moved again to bring that in line with the experience of that small population. We have undertaken that. As we see, the personal injury guidelines have an impact on claims. We are committed to giving that reduction to our customers.

I will again ask a similar question. If it is the case that in a year from now we see that awards have been consistently reduced by, say, 40% or 50%, will we see a greater reduction in premiums than we have seen to date?

Mr. Tomás O'Midheach

Yes, in my view. I do not want to price guide, but we have undertaken that if there are reductions, we will reduce in line with those reductions. Without offering a price guidance, if those reductions occur in the future, then we would look to be in line.

I will ask Mr. Connaughton the same question. Has AIG Ireland reduced it by 10% as well?

Mr. Aidan Connaughton

Since April - between April and the end of October - we have reduced motor rates by 5.1% or just under 5.2%. It is 5.16%, in fact. We are seeing the same green shoots everybody is seeing from the personal injuries assessment and the judicial guidelines. Our concern is very much around the rejection rate. The rejection rate is roughly 70%, which is phenomenally high and will lead to significant uncertainty. At a practical level, insurers would typically have approximately 50% of their claims in litigation. The litigated claims can take four to five years to get washed through the system, if you like. Although we are seeing reductions of up to 40% with regard to the awards, the current Government reforms do not address any of the legal costs associated with claims.

Two things are happening there. One is that we have a rejection rate that is very high, which will lead to uncertainty, more claims moving into the litigation process, and those claims taking longer to get sorted, which will delay any benefits that policyholders might hope to reap from the judicial guidelines change. We are also seeing the impact in the courts now, through the District Court and Circuit Court, where we have significant backlogs of litigated claims. To get a hearing now in the District Court could be as far away as 18 months at this time.

While we are seeing the green shoots and while we have started on the journey to reducing premiums, there is a level of uncertainty going forward. We perhaps need a little bit more certainty as an industry in terms of the judicial guidelines being stuck to. There are even a couple of, or even five or six, High Court challenges being taken against the judicial guidelines as they stand today. There is, therefore, a little bit of uncertainty but we have started on the road to reducing premiums.

That will cause some concern to people in the political world. I am not saying Mr. Connaughton gave this assurance but the political world was given an assurance that if personal injuries guidelines were introduced and imposed, there would be an immediate change in premiums. I am slightly concerned that Mr. Connaughton is saying there are other imponderables and factors that must be taken into account before we can commit to a full reduction in premiums. Does Mr. Connaughton want to respond to that?

Mr. Aidan Connaughton

We must be cautious with the level of uncertainty that is there. Back in 2004, when we had a significant breakthrough, we saw a number of years in which insurers responded very positively to the reduction in claims costs. Over time, however, matters crept back to levels that were there prior to 2004.

We have just implemented a significant catalyst for change in the judicial guidelines, but we are now beginning to see a little bit of pushback from certain parties with regard to the implementation and execution of that. As an insurer, we are accepting 100% of the assessments from the Personal Injuries Assessment Board but we are seeing from plaintiffs or claimants a 70% rejection rate. There is, therefore, an inevitable concern around taking rates down too rapidly.

We have responded based on the positive shoots seen to date. AIG has reduced motor rates by 5.1% since the implementation of the judicial guidelines in April.

Is there any reason AIG appears to be more cautious - that is a more complimentary way of putting it; one could say not as generous - in passing on the 10% their colleagues have passed on? Why has AIG not done likewise?

Mr. Aidan Connaughton

We have done a lot of work. The NCID report shows the average premium from 2017 to 2020 decreased in the industry by 10%. AIG in that period reduced its rates by 16%. We gave customers a 4% discount for reduced driving through Covid in 2020 and repeated that 4% discount, which is currently being applied to policies falling due up to the end of April 2022. We have taken significant action. Whether it is at the same level, a little behind or a little ahead of other players in the industry, that is a matter of timing rather than anything else.

The Oireachtas-enacted Judicial Council Act gave powers to the Judicial Council to bring in guidelines. It has resulted in a reduction implemented by the courts. I expect to see premiums come down significantly as a result of those new personal injury guidelines. We are only nine months out from the introduction of the guidelines but I want to see on behalf of the consumer a greater reduction in premiums from the representatives before us.

I welcome the witnesses. In relation to the slower than expected reduction in motor insurance premiums, will they give a single issue that might be a contributory factor? Is it because the new regulations, anticipatory or otherwise, are feared? Is it that they do not work as well as they should, that they do not apply in relation to motor accidents or that they apply less in relation to motor accidents?

Mr. Kevin Thompson

We support and welcome everything that has been done but we are cautious. We have taken what we have seen on good faith from a small sample of claims at the lower end of value which have been assessed by PIAB and one or two court decisions. We have looked to pass on the benefit to customers. Our area of caution is around how these cases will ultimately be contested in the courts. There are one or two cases before the courts contesting the guidelines. We have to watch the rejection rate, and that rate has increased. We are open-minded from an RSA perspective. We monitor it with an open mind and will adjust quickly as things develop. If they develop in a positive way, we will act in a positive way.

Mr. Tomás O'Midheach

Similarly, we applied the reduction in advance. Immediately on publishing and without any experience, we applied it. We reviewed it and applied an increased reduction based on the experiences of what had occurred. I do not believe the reductions are slower than expected. They are given in line with the publishing of the guidelines, effectively in advance of any experience and upon a six-month review of the experience.

Mr. Aidan Connaughton

We have responded positively. I will give an example. We had just under 700 claims settled in AIG between April and November 2021. Of those claims, only 86 went through the Personal Injuries Assessment Board settlement process. Of those 86 claims, we have a 70% rejection rate on motor claims and about a 40% rejection rate on liability claims. There is a concern about the elevated level of rejection.

The other item to address is that we have circa 50% of the claims in litigation. Evidenced by that, it will take longer for those claims to wash through and for us to see the deeper results of the reduced awards from the judicial guidelines. According to the last NCID report, the average claim settlement in PIAB is about €24,000 while in litigation it is about €24,000 in those lower level claims. However, the legal costs associated with PIAB are €800 while those associated with litigation are 20 times higher.

As I mentioned in my opening statement, it is important that if the award is rejected in PIAB, within three months we move to a binding arbitration within PIAB to identify whether that was a fair award or change it and bring the settlement through much quicker. Expediting the settlement and giving more powers to PIAB would be an even more positive step than what is there today.

What has the witnesses' experience been in relation to the speedy settlement of claims since the new regulations came into being? Has there been a reluctance among parties to settle? If so, what is the main thrust of that reluctance? Has there been readiness to settle speedily?

Mr. Tomás O'Midheach

The sample we have is limited but PIAB reported, and our report is broadly in line with PIAB, that the acceptance rate from the claimant has declined from 50% to 40%. They have chosen to go on into some form of litigation or pre-litigation settlement. It indicates claimants are somewhat more reluctant, which other parties referred to in their statements. There is an element of reluctance that causes us some caution. Claimants, by virtue of their decline from 50% acceptance to 40%, are at this point somewhat cautious.

Mr. Aidan Connaughton

It is a similar answer to Mr. O'Midheach. We are seeing a higher rejection rate. That means plaintiffs or claimants are refusing to accept the award. One can only assume they take the view the award is too low. There are five or six High Court challenges now. I read one in, I think, The Irish Times on Thursday or Friday where a lady received an award of €3,000 for an injury and felt that under the book of quantum the award would be between €8,000 and €16,000. If that level of uncertainty exists, we need to see those cases come through the High Court and be adjudicated on.

That is one area and the second is that throughout Covid-19 we have had lockdowns and courts are closed. We have backlogs now in the courts. Where a typical claim may be settled in PIAB with the acceptance of an award within a year, a litigated claim can go to four or five years. We are seeing a lengthening of the litigation process, I am afraid to report, rather than a shrinking of it.

In the case of motor accidents in which there are only two protagonists and no witnesses, what methodology is used to encourage an early settlement, if any? In respect of business interruption, can the witnesses indicate whether they have offered business interruption coverage to funds, banks or other lending institutions in the course of the past ten, 12 or 14 years?

I ask for short answers in that regard. We will start with the RSA.

Mr. Kevin Thompson

In answer to the second question, from memory, no. In regard to two persons and early settlement, we always try to settle claims as quickly and as fairly as possible. We also notify each claimant of the route by which they can access the Personal Injuries Assessment Board. We try to make it as speedy as we can, while being fair.

Mr. Tomás O'Midheach

To answer the question on funds, the answer is “No”. I do not believe we have offered that. On the first question, the answer is similar to Mr. Thompson’s in that we would ask that they do the process as speedily as possible.

Mr. Tomás O'Midheach

The answer to the question on business interruption for banks is “No”.

Mr. Aidan Connaughton

We obviously provide business interruption insurance to a number of corporate clients. In regard to funds, though, not to my knowledge.

Mr. Aidan Connaughton

In regard to bank funds, is the Deputy talking about investments?

Mr. Aidan Connaughton

Not to my knowledge.

I am referring to any business done by banks that might have an interruption which might come under business interruption coverage. Has that been provided?

Mr. Aidan Connaughton

If we insure a bank for physical damage to the building and if there is business interruption cover applicable to the bank’s property policy, then business interruption would apply. I think the Deputy was asking more to do with the funds and the investment of the funds rather than the physical damage to the property. In the event there was physical damage to the property which caused the property or the bank to close as a result of whatever might happen, such as an explosion or a fire, there would be business interruption cover available and subject to the triggering of the wording.

In the past, some banks or lending institutions sought cover for investments that were deemed to be sailing close to the wind, for want of a better description.

Mr. Aidan Connaughton

My answer to that is “No”, or not to my knowledge. In regard to the settlement of claims, we would work to try to settle claims at the earliest possible opportunity and as fairly as possible. The option is always given to customers and we ensure they fully understand the claims process that they can follow.

I thank the witnesses for their attendance today. I have two fairly straightforward and simple questions to put to the three companies. Would they support a 30 km/h speed limit in urban areas and towns and on residential roads in order to reduce the risk of fatalities by being struck at a speed above 30 km/h?

Mr. Aidan Connaughton

We would certainly support anything that will result in improving the behaviour of drivers on the road, including speed limits. As the Deputy may be aware, we have a telematics product currently in place providing coverage and driving behaviour statistics to us in regard to young drivers in particular, and we entered the young driver market with that technology. The sole aim of that technology is to give us additional protections. Therefore, we do have a product, we have shared that product with the Road Safety Authority and we believe that product provides very significant benefits to young drivers in terms of improving their driving behaviour. Overall, I would tend to agree with the Deputy that speed is a very significant factor on Irish roads, as is mobile phone use and a number of other things which, anecdotally, we would say are a concern, although it may be a bit more difficult to prove that on the ground.

I might expand the question a little.

The Deputy asked the question of the three companies. We have got one answer and we want to go to FBD and RSA. Is that correct?

Yes, but I might just to add to the question that the likelihood of a fatality at 50 km/h is about five out of ten people and when it goes to 60 km/h, it is about nine out of ten people. At 30 km/h, there is a 90% chance that there will not be a fatality, although there will be other injuries. I ask the question in that context. The prevalence of SUVs, crossovers and high-fronted vehicles also increases that risk. The question still stands. Would the companies support a 30 km/h speed limit in towns and villages and on residential roads? Do they recognise the increased risk from high-fronted vehicles in regard to fatalities?

Mr. Tomás O'Midheach

We would support all safety measures and support whatever the relevant authorities deem to be the appropriate speed limit for a given situation. In terms of the statistics the Deputy quotes on fatalities at 50 km/h and 30 km/h, I would not dispute them and I would accept them. We would fully support any safety measures that the relevant authorities are keen on.

Mr. Kevin Thompson

The RSA would support any recommendation by the appropriate authority to make our roads safer. We would fully support that.

I thank the witnesses. It is something we wish to pursue. My second question is also quite simple. It comes directly from a constituent who was shopping around for new home insurance and was told that a tree in his garden would be grounds for refusal of insurance. Do the three companies have any requirement on people taking out home insurance or looking to renew home insurance if they have trees in their garden? Do they consider trees of a certain height or age in gardens to be a risk? Do they place any requirement on landowners to remove trees to reduce any risk they might perceive?

Mr. Trevor Lowry

No, we have no requirements around property owners on that. We just require that property owners maintain their property, and that would include trees in the garden and ensuring they are trimmed and kept safe, and so on.

Mr. Tomás O'Midheach

Given the specific nature of the question, I will ask the chief underwriting officer to answer that one.

Ms Kate Tobin

Similar to the RSA, we have general conditions around maintenance of the property but not specifically relating to the scenario the Deputy was talking about.

Mr. Aidan Connaughton

Similar to the other two insurers, we have no specific exclusions in regard to customers who have trees in their private gardens.

I will be happy to refer this constituent to one of the three insurance companies and they can shop around for their new residential insurance from those companies without any fear of penalty for having trees in the garden. I thank the witnesses.

I call Deputy Rose Conway-Walsh. We are running against time.

In that case, I will be brief. I want to ask the three companies about their policies in regard to providing mortgage protection for people who have suffered from an eating disorder. They may know that a woman recently contacted me in regard to mortgage protection life insurance. Despite having a healthy weight for the last five years and no longer receiving any medical treatment, she was denied mortgage protection. I also know of cases where if people are receiving counselling, that is used to either refuse them mortgage protection insurance or to charge them extortionate premiums.

I ask each of the organisations to comment and outline the measures that are in place to ensure that people with eating disorders or who have had eating disorders in the past are not discriminated against.

Mr. Kevin Thompson

We are a general insurer so we do not provide that cover.

Mr. Tomás O'Midheach

We are the same. As a general insurer, we do not provide that cover.

Mr. Aidan Connaughton

Yes, it is the same response as my other two colleagues. We are a general insurance company so do not provide that cover.

None of the insurance companies provides the cover. Do the witnesses have any comment to make on the matter in terms of the insurance industry?

Does the Deputy mean relative to no cover being available?

The fact that cover is either not available or extortionate costs are being charge.

All the insurers have indicated they do not provide cover.

As such, none of them-----

Will the witnesses comment on the availability of such cover?

Mr. Aidan Connaughton

I suggest the question is more relevant for the life assurance companies. Perhaps the Deputy might like to raise the matter with Insurance Ireland, which might well be able to forward her question to the relevant companies.

I will raise my query with the other insurance companies and organisations when they appear before us.

Gabhaim buíochas leis na finnéithe as an gcur i láthair. How do insurance costs in Ireland per capita compare with the rest of the EU?

Mr. Kevin Thompson

I do not have that information at my fingertips.

Mr. Tomás O'Midheach

We do not have that information either. We do not compete in any other market.

Mr. Aidan Connaughton

I am sorry but I do not have an answer to the question.

That is disappointing. I ask the companies to look into this matter and furnish the committee with some information. In 2016, a report indicated that Ireland spends just over €12,000 per capita on insurance premiums, which is four times higher than the average rate in the European Union. That finding was skewed somewhat in that insurance costs also cover multinational companies, which have a bigger presence in this State than in others. However, the report points to the fact that insurance is a bigger cost per person in this State than it is in other countries.

The Competition and Consumer Protection Commission conducted an investigation into price signalling, a policy whereby companies signal prices to each other to reduce competition in the market. The motor insurance companies have indicated they will refrain from signalling prices in the future. By how much should this reduce the cost of insurance?

Mr. Tomás O'Midheach

We fully co-operated with the CCPC in terms of our commitments. As a result of the investigation, we undertook to implement training to ensure there were no further considerations by the CCPC. We also undertook to comply with an annual audit by a third party to confirm adherence to the CCPC. Given that there was no breach of competition law, I do not think there will be a straight line to the cost of insurance to which one could point.

Mr. Aidan Connaughton

As the Deputy correctly stated, the CCPC investigation into price signalling in motor insurance is closed. It closed with no evidence of anti-competitive behaviour on the part of AIG. We signed up to undertakings at the request of the CCPC. Similar to Mr. O'Midheach, I do not see a direct line in relation to the competitiveness of premiums as a result of the CCPC investigation. We would always look at premiums based on the trends of frequency and severity. We will continue to do that as we have done before.

Mr. Kevin Thompson

We were part of the CCPC investigation and were given a clean bill of health. We were not asked to be part of the commitments because it was not deemed necessary.

Why was price signalling carried out? What benefits accrued to the insurance businesses?

Mr. Aidan Connaughton

The CCPC undertook an investigation into price signalling. It found no evidence of anti-competitive behaviour on the part of AIG. We signed up to undertakings around compliance audit and various matters, as requested by the CCPC.

Mr. Tomás O'Midheach

Similarly, we were found not to be in breach.

Mr. Kevin Thompson

I restate that we were given a clean bill of health and we did not have to sign up to the commitments.

That is a pity. I understand that the two companies here that were involved signed up to a deal to reform their pricing structures.

On personal injury guidelines, while I do not want the witnesses to impart competitive information, roughly what proportion of costs are claims?

Mr. Trevor Lowry

Typically, it is in the order of between 65% to 70% on motor claims.

Mr. Tomás O'Midheach

Our percentage is similar.

Mr. Aidan Connaughton

Typically, the percentage is about 65%.

If claims make up 70% of business and there is a reduction of 40% in the value of claims, would that not make the reduction of 10% in the price of insurance seem quite small? If a 40% fall in the majority of the costs the insurance companies deal with translates to a 10% reduction in the cost for customers, does that reduction not seem small?

Mr. Aidan Connaughton

If the Deputy takes the example I gave earlier, about 700 claims between April and November were settled. Of the 700 claims, only 86 went into PIAB for judicial review. Of the 86 claims that went to PIAB, 70% of the motor awards were rejected and about 40% of the liability awards were rejected. It will take a number of years for claims to wash through the litigation process before we see the full impact. The Deputy is correct that the awards have reduced by between 35% and 40% since April, under PIAB. There has not been any impact on legal costs and we also have a significant number of claims that still have to wash through the litigation process, which could take a number of years.

The witnesses have given the Deputy a general answer.

I imagine settled claims are reflected in the new guidelines. Is that the case?

Mr. Aidan Connaughton

Yes. For those who have gone through PIAB and settled, they are being settled at the judicial guideline levels. AIG is following the judicial guidelines in the awards we would look to make. The issue is that the rejection rate is still significantly higher than it was pre-April, which is a concern for us as an industry.

Mr. Connaughton has made the points that many of these claims have to wash through the system and this is a new process. That would definitely indicate there will be further decreases in the cost of insurance to the punter at the end given that this is only the start.

Mr. Aidan Connaughton

For claims that are not litigated, I agree with the Deputy. For claims that are litigated, which is still a significant number, those litigated claims will probably still be washed through at the book of quantum level rather than the judicial guidelines level. There is, therefore, still a level of uncertainty.

In previous attendances of insurance companies at the committee, there was discussion with regard to the level of fraudulent claims the insurance companies deal with. What is the percentage of claims the witnesses deal with that are fraudulent?

Mr. Kevin Thompson

I do not have that percentage to hand, but I can tell the Deputy about the action we have taken around combating fraud. We have our own dedicated special investigation unit, part of which is staffed by former gardaí from the national crime unit. On our reporting to An Garda Síochána, from 2019 to 2021, we made 872 reports and we provided 196 statements to An Garda Síochána to help it combat fraud, both at an individual policy level and at a claim level.

Mr. Tomás O'Midheach

Roughly 10% of our cases are subject to some form of internal review by our claims department, the majority of which is trained in investigating fraud. We have a strong internal review. Ultimately it gets to a small investigations unit. This year, I think we presented 17 cases for follow through by An Garda Síochána for fraud. The figure may have been slightly less in 2019 and 2020 for prosecution.

Out of how many cases in total?

Mr. Tomás O'Midheach

When the Deputy says "cases"-----

Out of how many claims made to FBD for loss or adverse effect are these 17 claims that are seen to be fraudulent and sent to An Garda Síochána?

Mr. Tomás O'Midheach

It is 20,000.

It is 17 out of 20,000.

Does Deputy Tóibín have further questions?

Yes, I think only two companies answered me there. Is that right?

Mr. Aidan Connaughton

I am happy to answer the Deputy. We had five cases referred to An Garda Síochána for fraud in 2021. We have had one prosecution through the courts for fraud earlier this year. We fully support the new insurance fraud co-ordination office as a central mechanism to help identify false claims. We need to be careful about the difference, though, between fraudulent claims and exaggerated claims. The burden of proof regarding fraud is significantly higher than the burden of proof for a claim that might in our view be exaggerated.

May I ask if the insurance companies would at least furnish us with the percentage of fraudulent claims they deal with? This was brought up previously by another Deputy in this committee. There was a controversy at the time between the estimated percentage of claims that are deemed, understood or at least priced to be fraudulent within the insurance companies and the amount that actually go to the Garda. As legislators it is important we know the difficulties. If many fraudulent claims are coming in and if, for whatever reason, insurance companies cannot act upon them in a legal capacity, with a cost being added to insurance as a result, we need to know why that is, how much it is or what proportion it is.

We can ask each of the companies to submit as much information as they can on the issue.

I have two final questions. What is the witnesses’ analysis of the duty of care situation in Ireland and the costs that brings to the system?

Mr. Aidan Connaughton

The burden of proof on the policyholder is way too high. A much more common-sense approach needs to be taken to the duty of care. Our view in AIG is that reform in that area would be welcome.

Mr. Tomás O'Midheach

I would echo that. There is a high bar, which results in increased costs.

Mr. Kevin Thompson

We would echo those comments as well.

On the community base, I have worked with a number of community organisations that are finding it nearly impossible to get insurance cover. I was listening earlier on, and one insurance company - I apologise that I cannot identify which one said this - claimed it had 100 community organisations on its books. Is it not true that insurance companies are stepping away from or retreating from this space of community-based events?

Mr. Tomás O'Midheach

I will ask my chief underwriting officer, Ms Tobin, to answer that question.

Ms Kate Tobin

I thank Deputy Tóibín for the question. We were the insurer, I think, that mentioned its involvement with community organisations. We also mentioned that FBD is an indigenous Irish insurer. We are a small insurer in the context of the global insurance market, even though we are fairly significant in the Irish insurance market. How we approach our underwriting and risk assessment for community organisations is that we try to write business that we already know or that is adjacent to our traditional types of business, which is around rural and farming backgrounds. That is where most of our share of community organisations has come from. We find it difficult to write in segments we do not know, and this is for two reasons: one, a lack of expertise within the area, and two, the item the Deputy just raised, namely, the difficulties with occupiers’ liability and the duty of care. However, we endeavour to build out into adjacencies with our customers based on our local knowledge with the branch network we have.

Mr. Aidan Connaughton

We are probably in a different space from some of the other insurers on the panel here today insofar as we are heavily weighted towards the insurance of large corporates and multinationals rather than small to medium-sized enterprise and community entities. However, we would look at our knowledge base and at our expertise and try to focus on our understanding of those risks we can underwrite and can price appropriately.

Mr. Kevin Thompson

We have never underwritten in that space and we have no underwriting expertise in that space.

I thank the witnesses for their presentations. Some of my questions have been covered but I have one about insurance to do with the diverse leisure industry, such as ice skating rinks and bowling alleys. All those fun or leisure facilities are finding it very difficult to get insurance. Some of their insurance premiums have doubled and trebled. Will the companies comment on that, if relevant?

Mr. Kevin Thompson

Again, this is not our area of expertise. We do not have underwriting expertise in this area.

Mr. Tomás O'Midheach

As Ms Tobin outlined, we look to underwrite activities that are adjacent to our normal activities, such as farm, farm extensions, marts etc. We would not typically underwrite in this area.

Mr. Aidan Connaughton

We underwrite what we know and where our expertise lies. As I said earlier, that is in the area of large corporates and multinational clients that have global exposures. Unfortunately, we do not underwrite in this area.

That is lovely. I thank the witnesses. The rest of my questions have already been covered.

I want to raise with all companies the letter they received from the Central Bank on 11 June 2021. It covers the Covid-19 and business interruption insurance expectations in relation to costs and the criteria for test cases. The letter sets out the Central Bank of Ireland’s expectations, which include arbitrations, proceedings before the courts, or indeed the Financial Services and Pensions Ombudsman. I want to get the companies’ reactions to that letter and see what actions they have taken arising from it. The letter talks about an impact assessment to ascertain whether there should be wider beneficial impacts, and it requires the companies to do this. Will the companies brief us on what they have done to date? The letter asks that the companies consider the publicly available outcomes of legal actions.

It then goes on to state: "In light of the expectation that an impact assessment will be carried out, certain legal actions may be capable of acting as a test case." I ask the witnesses for their attitude towards that. Further down in the letter, it mentions that "the Central Bank's expectation is that where the outcome of a legal action could be said to apply to a number of other policyholder customers, the plaintiff in such a case should not suffer financial prejudice as a result of taking the legal action and the relevant insurer should agree to pay the reasonable costs of such customer plaintiffs." The final page of the letter states: "The Central Bank may request insurers to produce their analysis of whether a legal action is likely to have a broader application to the position of customers other than the plaintiff." The letter goes on to say that the Central Bank expects insurers "to take an appropriate position in relation to the costs of any test cases." What is the witnesses' general reaction to that? Have the organisations represented responded in detail to the Central Bank on each of those points? What steps have the organisations taken in compliance with those requirements? I ask for a general comment on the impact assessment and the legal analysis. Have the organisations represented provided their legal analysis of the requirement for a test case to the Central Bank and will they provide a copy to the committee? I will start with the representative of FBD Insurance.

Mr. Tomás O'Midheach

There are test cases under way and we have undertaken to pay all reasonable costs. There has been a judgment and we are awaiting a quantum hearing associated with that judgment. As I have said already, we have undertaken to pay reasonable costs associated with that. It is providing a test case. It has been brought by four plaintiffs. It will be applied to the 1,076 customers, as I have already articulated.

With regard to some of the other questions from the Chairman, on the consideration of the framework and the wider beneficial impacts of any decisions, we had four adverse decisions with the Financial Services and Pensions Ombudsman, FSPO. We considered those decisions collectively. We consider them to be universally applicable. The decisions concerned inconvenience caused to the plaintiffs. We considered whether that was applicable to all publicans covered by business interruption under the framework and deemed that it was. We made a provision for €13 million and have gone about paying the 1,076 customers with regard to that FSPO judgment. We have probably paid €10 million of the €13 million out to date. We have considered the framework and we have engaged with the Central Bank. We have applied it and we have paid. I think that covers the Chairman's questions.

Do the representatives from AIG wish to respond?

Mr. Aidan Connaughton

In very simple terms, we have ring-fenced all of the business interruption claims from Covid-19. We are monitoring any legal actions or results that unfold in the market. We respond on a monthly basis to the Central Bank in relation to business interruption claims, the status of those claims and also any changes to legal outcomes. We will continue to monitor the situation. In the event of a legal outcome impacting any of the existing notifications that we have already ring-fenced, we will go back and review all of those cases again in line with the Central Bank guidance.

In terms of the request by the Central Bank to do a test case, how has AIG complied with that?

Mr. Aidan Connaughton

To my knowledge, we have not had a test case as yet. We have had one ombudsman decision in our favour in relation to wording on policy relating to the event of an outbreak on the premises. As I said, we monitor actions on a weekly, if not monthly, basis and respond to the Central Bank. If there is anything there that we need to respond to, we will do so in the appropriate manner.

I ask the representatives of the RSA Group to respond.

Mr. Kevin Thompson

We have sought to abide by the framework. We submitted details of our policies to the Central Bank. We have one test case in train. We observe very closely other test cases that are ongoing in the market which may be applicable to our policy terms and conditions.

I ask the witnesses to comment on whether there is an arbitration clause in their organisations' Covid-19 business interruption policies for any disputes, for claims cases to be sent to secret arbitration that is not open to the public, the information arising from which is not available to the public, and the whole notion that this process will cost the individual €100,000.

Mr. Kevin Thompson

An arbitration clause is a standard clause in what are predominantly commercial contracts between the insurer and businesses. When we enter into arbitration, we enter into it in co-operation with the potential claimant. Before going into arbitration, we seek to negotiate the fee structure around that with the claimant. At all times, we seek to act in fair manner around arbitration.

The cost of €100,000 was mentioned.

Mr. Kevin Thompson

I cannot comment on that. Depending on the nature of a claim and complex-----

Is that process not going against the spirit of-----

Mr. Kevin Thompson

In the complexity of it, there may be different fees.

Mr. Kevin Thompson

Depending on the complexity of the claim linked to arbitration, there may very well be different fees. Ultimately, in an arbitration process a senior independent legal counsel is put in to adjudicate, and there is also legal representation from each side. The length of time that it takes to work through ultimately has a bearing on the cost. I come back to my point that we negotiate with the claimant and try to be as fair as possible and to make the process as seamless as possible.

The arbitration itself is behind closed doors so the public, the industry generally, the Central Bank or indeed, any other interested party, will not know the outcome of such a process. The Central Bank "expects insurers to consider publicly available outcomes of legal actions". In other parts of that correspondence of 11 June 2021, being more open and transparent is mentioned. Before I move to the other witnesses, does Mr. Thompson wish to comment on that part of it?

Mr. Kevin Thompson

We have sought be as open and transparent as we can. I return to my earlier comments. We have reserved €46 million for Covid business interruption losses, a net cost to us of €9 million, and we have made interim payments of €13 million to claimants where we have not received the full information yet. We took it upon ourselves to make sure that we softened the financial blow. We try to be transparent. Where a test case is taken, we support the test case and also from a cost point of view.

I ask Mr. O'Midheach to respond.

Mr. Tomás O'Midheach

There is a standard arbitration clause. To my knowledge, we have not invoked it with regard to the business interruption event. We did go to test cases, which are obviously transparent and publically available in terms of outcomes and the applicability of those outcomes. We have not had an arbitration on this issue because we have effectively been in court, where the issue is pressed open.

Mr. Connaughton.

Mr. Aidan Connaughton

We have settled five claims in relation to Covid business interruption. We have one awaiting acceptance. As I said earlier, we had one case that went to the Financial Services and Pensions Ombudsman, which found in favour of AIG. In relation to arbitration, we do have an arbitration clause. In the small number of business interruption cases that have been taken to date, that clause has not been activated.

Finally, on the wording of business interruption policies, did the organisations represented change the wording of these policies in 2020 or thereafter, when all of this kicked off? In relation to the timelines, will the organisations suspend the application of any timelines in their policies for policyholders making claims under the business interruption policies for affected businesses, until the result of the test cases generally are decided upon?

Mr. Tomás O'Midheach

I might refer to our chief underwriting officer, Ms Tobin, to answer that.

Ms Kate Tobin

We have made changes to our business interruption policy wording following the advent of Covid-19.

The primary purpose of the business interruption coverage on policies is related to damage, including property damage, and covering losses for the customer in respect of restoration of their businesses following damage. What we have sought to do through the changes we have made to the wording has been twofold. The first was to clarify the situation in respect of Covid-19. The second was in response to the fact that we purchase reinsurance ourselves and in response to a limitation that was put on our reinsurance coverage.

I am not sure I fully understand the Chairman's second question but it probably relates to the renewal of policies where there was business interruption during 2020. Those policies, when they renew, will not confer the same coverage as before by virtue of the wording change but they would have the benefit of the coverage as per the original contract up until renewal.

Was the wording that FBD changed defective in some way, loosely worded or open to interpretation?

Ms Kate Tobin

As per the outcome of the court judgment, it was open to interpretation. We have accepted that there is such coverage now. Our contention at the time was that the intention of the policy was something different. Our wording changes have been in line with making that intention much clearer with the benefit of hindsight.

Does AIG wish to comment on that?

Mr. Aidan Connaughton

In the majority of our policies there was no cover for Covid claims. We changed the wording on some of our larger corporate and commercial policies to exclude any pandemic cover very clearly in order that it would be clearer and more transparent going forward.

Mr. Kevin Thompson

Similar to what has been outlined, we have made changes on the back of reinsurance exclusions and points of clarity as some of the cases have been heard. Ultimately, if there are claims for coverage prior to that change in wording, they will be considered on their merits in line with the wording that would have applied at the time.

Does Deputy MacSharry have a question before we finish? We are obliged to wind up now.

Yes, I have a question for AIG. Why, heretofore, has it not opted for the test case route? Arbitration is in secret, costs on average €100,000 per claimant and is non-binding, whereas a test case, according to the guidance outlined by the Central Bank, prescribes that AIG as the insurer would pay the reasonable cost, it would all be in public and that if the test case were to prove beneficial to a client, those benefits would accrue to other clients insured with the company. Is it not, therefore, fairer? At the risk of my being totally wrong, and I will give the representatives of AIG an opportunity to defend themselves, is AIG actively avoiding the test case route because of the fact that it may expose the company?

Mr. Aidan Connaughton

Arbitration as a clause is a standard part of virtually every contract. As for the test case route, it would be only reasonable for me to point out that we do not have a significant involvement with the tourism and hospitality sectors. We have a handful of claims for business interruption, which we are dealing with. I think we had almost 628 claims in total, with almost 600 of those falling under a wording that had very clear coverage as being not applicable in respect of Covid-19 claims. The ombudsman route is a free route, so we have not had-----

It takes years, though.

Mr. Aidan Connaughton

I am not sure I agree with that. We have an ombudsman case that has come through very quickly - I think within 18 months. As I said, we have not had an arbitration case presented to us yet, and the vast majority of the claims and notifications that have been presented to AIG have no coverage.

On the test case for the sporting clubs where AIG has substantial exposure, would it go the test case route?

Mr. Aidan Connaughton

Again, it is very hard for me to talk about a specific case. In respect of the sporting clubs, I have had an update from my subject matter expert on that and the coverage does not apply to the product. I think I was asked earlier if we would restrict the appointment of a public loss assessor. That is not the case. We would certainly allow the appointment of a public loss assessor.

It is in the policy document.

We are due to wind up, Mr. Connaughton. You might send us a further clarification-----

Mr. Aidan Connaughton

Deputy MacSharry may wish to present that to the broker and have the broker present it to us. My understanding from our subject matter expert on the ground is that we do not restrict the appointment of a public loss assessor, but I can double-check that for the committee. As for the sporting organisations, my understanding is that there is a test case in place relating to radius wording. That is the case we would look to regarding that particular coverage.

I thank all the members and thank the insurance companies for appearing before us today. I am sorry the meeting has gone over time but I am thankful for their contribution. I will ask the clerk to the committee to send some questions that I did not reach in my contribution to all the companies and they might write back in response to each and every one of them. As for other queries that were raised, the last few by Deputy MacSharry and others, where full responses have not been possible today, the witnesses might give us a written response in a timely fashion. Thank you all very much for attending.

We will now suspend for three minutes while we change over. I ask the members to use their second link to the committee meeting for the next session.

Sitting suspended at 3.28 p.m. and resumed at 3.31 p.m.