Dáil Éireann Debate, Tuesday - 28 June 2016
99. Deputy Thomas Pringle asked the Minister for Finance the impact the decline in returns on investments through low interest rates has had on the insurance industry and the huge hikes in insurance premiums that have been suffered by consumers; his plans to deal with unreasonable hikes; and if he will make a statement on the matter. [18514/16]
View answerDiffering reasons have been put forward by various interested parties to explain Ireland's current increasing insurance costs. Motor insurance appears to be particularly affected with the cost of premiums increasing significantly in the past twelve months.
Reasons often presented include the increased level of insurance claims and the increasing value of compensation awards. Others highlight that the highly competitive nature of the domestic market for non-life insurance in recent years has begun to impact on firms' underwriting profitability with underwriting losses reported in 2014 for a number of high-impact firms.
The Central Bank of Ireland has a statutory responsibility to ensure firms assess risks appropriately and offer insurance at a price that adequately takes into account the conditions prevailing in the market such as increasing claims costs. This ensures firms have the ability to pay all policyholders' claims without recourse to public or consumer funds. It does not have a statutory role in relation to setting premium prices.
In the Macro Finance Review for H1 2016 that was published on 14 June, the Central Bank highlighted a number of issues facing the non-life insurance sector, which included the impact of the low interest rate environment that has resulted in a fall in investment income which historically was used to offset underwriting losses. The report stated that the Bank believes investment income will continue to decline as proceeds from maturing assets are reinvested in lower yielding assets. The Report concluded that the domestic non-life insurance sector continues to face a difficult operating environment with all of the high-impact firms reporting underwriting losses in 2015 primarily due to current challenges in the Irish motor market. As a risk-sensitive regulatory framework, Solvency II, which came into effect on 1 January 2016, should strengthen insurers' resilience.
I am informed by the Central Bank that the decline in returns on investments through low interest rates has been a key theme in its engagement with the insurance industry for a number of years and forms a key part of its supervisory engagement with individual firms. The Opinion on Supervisory Response to a Prolonged Low Interest Rate Environment published by the European Insurance and Occupational Pensions Authority (EIOPA) in February 2013 required all National Competent Authorities to intensify the monitoring and supervision of insurance and reinsurance undertakings with exposure to the risks posed by a low interest rate environment.
To examine the issues affecting the cost of insurance in more detail and to assess what the options are for the Government, I have established a task force in my Department to undertake a Review of Policy in the Insurance Sector. The first phase of the work of the task force, which began in January 2016, is a review of the Framework for Motor Insurance Compensation. This is being carried out jointly with the Department of Transport, Tourism and Sport. This review also deals with broader issues around the Insurance Compensation Fund and its report will be submitted shortly to me and my colleague, the Minister for Transport, Tourism and Sport.
The broader work of the task force includes an examination of the issues debated during the Dáil Private Member's Motion of 8th and 9th of June. The work is being undertaken in consultation with the Central Bank of Ireland, other Government Departments, Agencies and interested bodies. The aim of the review is to identify the factors contributing to the increasing costs of insurance, and to recommend measures to improve the functioning and regulation of the insurance sector in Ireland, identifying the issues that can be addressed on a more immediate basis and those that need more long-term policy implementation.
This work will be completed over the coming months.
