Ba mhaith liom buíochas a ghabháil le gach éinne sa Teach a ghlac páirt sa díospóireacht seo faoi árachas agus fadhbanna árachais na tíre. Molaim na daoine a chuir síos an rún a thug seans duinn an díospóireacht a bheith againn.
I thank all Senators for giving me the opportunity to address the House on the important issues being discussed this evening. While some of the issues addressed are outside my direct remit, I propose to respond in some measure to the wider issues raised and, in particular, in relation to the pursuit of activities for reducing the burden of insurance costs overall.
It is generally recognised that liability insurance premium costs, including motor insurance costs, are higher in Ireland, in gross and average terms, than in other EU countries, including the UK. From the time of my appointment as Minister of State with responsibility for the insurance sector, I have given considerable attention to the initiation of policies and programmes aimed at reducing the burden of insurance costs on the economy in general and on small business and the consumer in particular.
In devising effective policies and programmes to reduce the insurance cost burden, it is necessary to identify the key factors contributing to the high cost of both liability and motor insurance in Ireland. Empirical research undertaken by my Department has found the main cost factors are a high claims propensity among the Irish public; high delivery costs of personal injury claims, including legal costs; high levels of medical inflation and disproportionately high awards of general damages in smaller personal injury claims.
The cost of delivering compensation claims has a major bearing on the premium rates ultimately charged in the marketplace. While good risks will always attract cheaper quotations, prudent insurers must set their premium levels to match compensation payments and other costs. Disadvantages are also caused by economies of scale of insurance operations here in Ireland, as there is a much smaller pool of insurance risk relative to other EU member states.
The Department's examination of the factors contributing to the relatively high level of insurance costs in Ireland has focused on a few key cost elements, including the levels of personal injury compensation and the costs associated with settling compensation claims. Concurrent with this examination, we are trying to identify measures which both individually and cumulatively could have a moderating effect on insurance costs.
It should be borne in mind that Government action of itself will not solve the problem of high insurance costs. The general public, the insurance industry, trade unions, employers, employees and their representative organisations all have a role to play in tackling this complex problem. Successive Governments have sought to contain the rising cost of insurance premiums while recognising that, for prudential reasons, insurers must be free to set their premium rates based on their claims experience in order to ensure the projected level of future claims costs can be met.
The system of compensation for personal injury in operation in Ireland could be described as reflecting a "claim and blame" culture. It is grounded in the law of tort which entitles the individual to seek adequate monetary compensation for damage to person or property caused by the acts of another and has been validated by the courts' recognition of the constitutional right of the individual to bodily integrity. This compensation system is underpinned by the capacity of the insurance industry in Ireland to generate sufficient premium income to indemnify tort feasors against liability for damage and personal injury, over a wide spectrum, including employers, occupiers, producers, motorists and the professions.
Given the adversarial nature of the tort system and the high claims propensity in Ireland, the cost of establishing and defending claims is high, particularly in terms of legal costs and the expenses of expert witnesses. The high settlement costs of claims are reflected in the levels of premiums charged by the insurance industry. Over-reliance on the tort system as a mechanism for pursuing personal injury compensation claims in Ireland makes the delivery costs of compensation extremely expensive when compared with other EU countries which have a greater reliance on no-fault systems.
In 1995 a major in-depth consultancy study of insurance costs in Ireland by Deloitte & Touche was commissioned by my Department to identify the key factors contributing to high insurance costs, to evaluate their economic impact and to make recommendations aimed at reducing them. The consultants' 1996 report found that the main contributory factors in rising premium costs were the high legal costs component of small claim settlements, the faster rate of medical cost inflation and the high level of general damages awards relative to special damages in smaller claims.
The consultants also found, based on a survey of about 500 small and medium-sized enterprises, that the economic impact of high employers' and public liability premiums fell largely on small firms. These were generally categorised by insurers as a high-risk category which did not have adequate risk management systems in place.
Following consideration by the Government of the consultants' report and recommendations, a special working group was established under the aegis of my Department with two substantive terms of reference: first, to advise on the establishment of a personal injuries tribunal and, second, to examine issues surrounding alternative systems of personal injury compensation in operation in other jurisdictions. The special working group completed the first part of its remit and recommended a structure for a voluntary mediation system for occupational injuries which could be operated within the reformed courts system.
While the special working group had discussions with representatives of the Bar Council, the Law Society and the working group on a courts commission in preparing its report and recommendations, there is no indication as yet that the courts are putting such a system into operation. The working group is currently researching and evaluating alternative systems for compensating accident victims in the EU, Canada, New Zealand, the USA, Sweden and Denmark and it aims to submit its report to my Department over the next few months.
Consideration of alternative compensation systems, including no-fault systems, would have significant legal, constitutional and socio-economic implications here. However, if we are to succeed in reducing the excessive burden of insurance costs on our economic activity, especially the high cost burden on consumers and small business, we must confront the underlying systemic problem inherent in our system for dealing with personal injury and other third party damage and injury claims.
Experience in other EU countries suggests that their lower insurance costs are directly related to their higher levels of State expenditure on social protection, including rehabilitation, with less emphasis on establishing liability in the area of occupational and other personal injuries. This raises the question of whether a no-fault approach to personal injury compensation would offer a more cost effective option if introduced in this country, either as an alternative to or complementary with our existing compensation system.
If our existing insurance based compensation system is to remain viable, greater attention to safety in the workplace and on the roads must be achieved by us all. Increased safety measures reduce the risk factor and reductions in the rate of serious accidents in the workplace can significantly moderate the cost of claims settlements. A higher level of risk management in companies and initiatives to stave off spurious and potentially costly claims can further reinforce insurance cost reduction measures taken at governmental level.
Last year I formally launched the voluntary code of practice adopted by the initiative on workplace safety group established in May 1996. Under the chairmanship of Mr. Frank Cuneen of the Health and Safety Authority, the group represents the key players in the area of accident prevention and claims mitigation and includes representatives from my Department, ICTU, the Health and Safety Authority and IBEC. Regional launches of the code have also taken place in the last number of months.
The group has developed some of the themes referred to in the Deloitte and Touche report with regard to accident prevention, responsibility for health and safety issues, training and a special approach for SMEs. The group has adopted a twin-track approach – health and safety and accident prevention, on the one hand, and the compensation process on the other.
The code of practice has been agreed between IBEC and ICTU and has the support of the Irish Insurance Federation. Essentially, the proposed code provides for agreement between employers and employees on actions without prejudice in the event of an accident occurring in the workplace. It is proposed, for example, that all necessary fees and medical costs be borne by the employer whose best endeavours will be pursued to find an internal settlement among the parties without recourse to the courts. The object is to have in place a set of agreed steps to be followed through by agreement where injury or accidents occur in the workplace. This approach, by working from management to shop-floor level, will inculcate a new partnership approach to health and safety in the workplace and provide a fruitful climate for voluntary mediation of claims.
The cost of motor insurance is relatively high here in comparison to other EU countries and, some would say, excessively so in the case of young and inexperienced drivers. The 1996 Deloitte & Touche report on an economic evaluation of insurance costs assessed the Irish motor insurance market in relation to consumer choice and price competition. The report's survey of motor insurance premiums indicated that there was no uniform market price for motor insurance due to factors such as differing assessments of claims histories by insurers, strategies towards niche markets and specialisation and segmentation of the market. Within these parameters, motor insurers quoted widely different premiums for similar risks and this is characteristic of a competitive market. While mature drivers with good safety records benefit from competition between insurers in segments of the motor insurance market, the consultants' survey found that young drivers were regarded as a high-risk category and that certain insurers refused to quote for them.
The primary focus of initiatives aimed at reducing the cost of motor insurance must be on reducing the frequency of accidents and the associated cost of claims. The key, therefore, to reducing insurance costs for young drivers is to create appropriate conditions for improving their standards of driving and their appreciation of road safety. A number of initiatives are in place and are being taken to improve driving standards and safety awareness among all drivers, including young drivers. The Irish Insurance Federation, in conjunction with the driving instructors' register, has introduced a scheme of insurance premium discounts for the young driver on completion of a required number of driving lessons. This was referred to by a number of Senators, including Senator McDonagh. This is the way to proceed in terms of training young people to be competent and proficient in the management of a mechanically propelled vehicle. When they get a certificate to show they have competence and proficiency I am confident the insurance industry will respond.
The National Safety Council, in co-operation with the Garda, continues to promote anti-speeding and anti-drink driving media campaigns, including road safety educational programmes for secondary school students. I have also exhorted my colleague, the Minister for the Environment and Local Government, to expedite his Department's examination of a graduated licensing system for learner drivers based on the Ontario model, which I believe could have a significant impact if introduced here.
My re-establishment of a revamped Motor Insurance Advisory Board was a major initiative aimed at providing me with information and advice on trends in motor insurance costs and with policy recommendations for addressing them. The expanded membership of the new board, which includes a member representing young drivers' interests, is broadly representative of all of the interests concerned, including road safety education and enforcement experts. I look forward to receiving its report shortly.
I am proud of the make-up of the board because we selected members who had interests in the motor, road haulage, insurance, bus and tourism industries, road safety, the Garda Síochána and the National Roads Authority. They are all represented to take account of the overall position pertaining to the serious and complex responsibility and liability that impacts on the insurance industry. We have referred a number of issues to the board and look forward to their deliberation on them.
Certain concessions to young drivers were introduced previously. In my first year in office I obtained a commitment from the insurance industry to provide a special concession to young drivers. However, it had to be reviewed because of the huge costs arising from serious accidents and it was not possible to continue with the initiative. Concessions had been given to young drivers by major insurers in the Irish market against the background of increasing underwriting losses in motor insurance.
The 1997 annual insurance report prepared by my Department showed that motor insurance underwriting losses increased from £90 million to £114 million in 1997. This is very worrying. The deteriorating underwriting situation resulted in some insurers implementing increases in certain insurance categories in 1998. In these circumstances there is no soft option for reducing motor insurance premiums for young inexperienced drivers. As a group, they represent a very high risk for insurers and many insurance companies are reluctant to quote for that risk. As in any other branch of insurance risk, reductions in premiums can only be achieved by improved safety standards. In the case of young Irish motorists, the inculcation of safer driving standards, education in driving skills and the early acquisition of a driving licence represent the key to reducing their high accident rate which, in turn, should lead to lower premium quotations.
The position of proprietors of recreational and tourist facilities, landowners and owners of premises was strengthened by the enactment by the Oireachtas of the Occupiers Liability Act, 1995 in July 1995. The Act obliges the occupier to take reasonable precautions for the safety of recreational users and visitors. The provisions of the Act address many of the concerns of those engaged in tourism and in the admittance of the public to their premises. It lessens their potential exposure to public liability claims by modifying the previous onerous common law duty of care owed to visitors, recreational users and trespassers. It is expected that this legislation will, in the course of time, have a downward impact on the cost of claims and on liability premiums. In drawing up the Bill, a very wide consultative process was engaged in by the then Minister for Justice, Equality and Law Reform. Members of the farming community had a particular input into its provisions and I understand that it was found possible to accommodate many of their concerns.
This House will know that much controversy and debate surrounds the question of advertising by solicitors in respect of personal injury compensation. There is a widespread belief that certain practices by members of the legal profession in that regard may encourage the high claims propensity among the public at large, to which I have already referred. My Government colleague, the Minister for Justice, Equality and Law Reform, is progressing the passage through the Dáil of the Solicitors (Amendment) Bill. This Bill, which I understand has the support of the Law Society, provides a clear statutory framework which will provide stricter controls on advertising by solicitors, particularly in the area of personal injuries, and will ensure that in the future such advertising will be balanced and informative.
We have given a lot of time and attention to the problems of the insurance industry over the past two years. I thank the dedicated officials in the insurance division of my Department for their dedication, commitment and outstanding professionalism in ensuring that we can have the most professional policy possible, the most adaptable methods of responding to insurance problems and the most up-to-date information so that the consumer gets the best deal from the insurance market. This is governed by the laws of supply and demand and the liabilities created as a result of huge compensation paid over many years.
I thank all the Senators for giving me the opportunity as Minister of State with responsibility for insurance to inform the House on the current state of progress in my efforts to effect a moderation in the burden of insurance costs on economic activity and, in particular, on small business and motorists. We will continue to do our best to reduce those costs in so far as that is attainable.
