Is cúis áthais dom labhairt sa Dáil faoin tuarascáil an-tábhachtach seo ón Bórd Náisiúnta Árachais Gluaisteáin.
As public representatives, we are all well aware of the increasing difficulties regarding the availability and price of liability insurance. A non-exhaustive list of the reasons for this would include the level of claims, the increasing level of awards, poor investment returns, the substantial increase in reinsurance costs, the implementation of recent court judgments, legal costs and the method for determining them, foreign insurers opting out of the Irish market, the increase in the capital base of insurance undertakings required to support increased premium income and the reluctance of parent companies to invest capital in insurance undertakings.
The nature and scope of these difficulties require a response which is multifaceted in its approach and which would include the following actions: Government support for the excellent report presented by the Motor Insurance Advisory Board, with the preparation of an action plan for the implementation of its many recommendations within three months; a speedy Government response in due course to what will emerge from the Personal Injuries Assessment Board report, which is nearing completion, including taking a strong stance on hostile reactions; further improvements in health and safety measures; encouragement of the Irish Insurance Federation to adopt a policy that "any firm that has a claims free record for a number of years with a particular insurance undertaking will not face significant increases in premium"; and pressing the EU for greater action on making the single market for insurance products a reality throughout Europe.
I was pleased to publish last week the large report from the Motor Insurance Advisory Board. This is the most comprehensive study and analysis of the Irish motor insurance industry ever undertaken in this country. I reiterate my deepest appreciation to all of the board members. Thanks to their dedication, this huge report has been completed with professionalism and tenacity. An enormous amount of work has been undertaken in the period since I first legally established the Motor Insurance Advisory Board in September 1998, under SI 299/84 and SI 359/94. The new board commenced its great challenge, under the chairmanship of Ms Dorothea Dowling, who previously worked for 16 years in the insurance industry in Dublin and London. This board represents a wide range of interests, including insurance users and providers, consumers, road safety and road traffic interests, accident victims and young drivers. The report has clearly benefited from the combined wisdom of all board members. The key findings of the report are detailed in the following paragraphs.
The Motor Insurance Advisory Board is firmly of the view that because motor insurance against third party injury and damage is compulsory, it must be open to public scrutiny, with which we all agree. The high cost of insurance in Ireland compared with the rest of Europe is underlined in the report. Motor insurance is one of the biggest bills a household faces in a year. The main sections of this report reflect the fact that the cost of insurance is determined by three main factors – accidents, in terms of both their frequency and severity; the cost of claims within the current compensation system; and the operation of the insurance market. The board makes it clear that tackling one of these factors, without giving the required attention to the others, is unlikely to achieve better value for money for law-abiding motorists, the majority of whom have never been involved in a culpable accident.
The report stresses that tackling the current cost of motor insurance is not a party political issue, since the state of affairs now obtaining was not achieved overnight. Successive Administrations have failed to tackle the vested interests and inefficiencies that collectively may account for as much as half of the premiums paid by law abiding motorists. The board pointed out that while its recommendations are not presented in any order of priority, many are inter-related to the extent that objectives are only likely to be achieved by co-ordinated action in a number of areas. It underlines the fact that long-term measures are required for success.
The board contends that the current situation suits too many interests: the State, which collect a 2% stamp duty on premiums and presumably appropriate levels of taxes from all of the various parties who profit; the legal profession – the report records the refusal by the Incorporated Law Society of Ireland to make a submission to the board; and insurers who regard returns at 4.2% as too low. The report points out that it is of interest that although insurers in Ireland and the UK assert that returns to shareholders are inadequate, motor insurers in Ireland – where claims costs are one of the highest in Europe – reported 11 times the total post-tax profit earned by their UK counterparts between 1983 and 1999.
This is the first time the Motor Insurance Advisory Board has secured access to insurers raw data on premium income and claims costs, on which detailed analyses are presented in this report. However, insurers have not yet been able to submit their raw data for the year 2000 to the board for analysis. When that work has been completed, a supplementary report will be provided by the board, which will also examine further the area of commercial motor insurance, as well as providing any available indications of the effect that the introduction of the euro has had on premium charges and related matters.
The report confirms the evidence that young male drivers, aged between 17 and 20 years on provisional licences, produce very substantial insurance losses. They are involved in accidents resulting in most serious claims at a frequency which is disproportionate to their representation as policyholders. There is evidence, too, that charges for young female policyholders are not justified by their claims costs, and these policyholders have been described by insurers as subsidisers. This situation has now been acknowledged by the insurance industry and I am informed that it has already converted into reduced quotations for some.
The board notes the complaints that it received in written submissions from senior citizens and consumers with disabilities and predicts that, on the basis of demographic projections, in the future the problems associated with insurers declining a risk on grounds of age currently faced by young drivers may be experienced by people who have retired. The report indicates that the consequences of uninsured driving are becoming more acute, and the MIAB now estimates that they add 8% to the cost of claims in the aggregate motor insurance market. However, unlike other businesses, a substantial proportion of expenditure declared by insurers relates to reserves established to meet claims which will not be paid until many years into the future. The board does not consider that the market for private motor insurance is competitive.
The fact that motor insurance is compulsory differentiates it from other products or services, since there is a limit to the usual market forces dictated by consumers who may decide not to purchase or may elect to substitute cheaper alternatives. The real choice available to the consumer is dominated by a handful of legal entities, with three companies accounting for 67% of the market. The board says it has become aware of a practice, which it believes should not be permitted, of motor quotes being refused unless the proposer has his or her household or other insurance placed with the insurer.
The board is of the view that the imperfect state of the market is such that consumers' concerns are unlikely to be allayed without an investigation by the Competition Authority, which has the benefit of procedures not available to the board. In the meantime, it counsels against consumer inertia, advising that it is absolutely essential to shop around, before renewing insurance, in order to obtain the most competitive quotation, as charges between companies can vary by 200% for the same risk.
As the report makes clear, the free movement principle in EU law means that no citizen can be compelled to purchase insurance from a particular provider or in particular circumstances. Equally, the pricing and underwriting of insurance is a matter for individual companies and EU law has always prevented the Irish Government from intervening to freeze, reduce or increase prices. As of now, a major disparity with the rest of Europe, according to this report is the fact that in the UK and Ireland, motor insurance is based on driver use, rather than on the vehicle itself, with usage being secondary to issues of cover. The report recommends aligning the situation in Ireland with that of mainland Europe, through appropriate amendment to the Road Traffic Acts.
The board has expressed continuing concern that an appropriate balance be struck between the rights of consumers and the objectives of solvency supervision which up to now have been assigned the overwhelming priority. In that context, the report refers to the daunting task to be faced by the Irish Financial Services Regulatory Authority, IFSRA, in regulating general insurance in the best interest of consumers. The report recommends that, when IFSRA assumes responsibility for motor insurance, a framework of general insurance standards should be established incorporating the principle of good faith dealing.
The board believes that consumer knowledge of comparative prices could be facilitated by a consumer information service provided electronically by IFSRA, which would set out illustrative tables for standard motor insurance over a range of common driver profiles. The Government's intention to establish a statutory office of ombudsman within IFSRA is welcomed by the board, provided that the statutory provision will not mirror the unsatisfactory state of affairs under the industry's ombudsman scheme, where the greatest proportion of non-life complaints relate to motor insurance and the vast majority of those fall outside the ombudsman's remit.
At the heart of all of the 67 recommendations in this report is the question of balance between the complementary interests of the citizen and the insurer. On the one hand, policyholders must be satisfied that the system is being managed efficiently and is fulfilling its primary function, that of cost-effective delivery of compensation to genuine victims of accidents. On the other hand, there needs to be a healthy, vibrant insurance industry which is capable of competing in Europe in a cost effective way. Ultimately, it is the policyholders who pay all claims. There needs to be a balance between those who attempt to allege injuries or exaggerate claims and those policyholders who are wrongly sued and who are entitled to have their constitutional rights upheld. Up to now, the focus has been virtually entirely on the regulatory end of the sector. There needs to be a balance between prudential supervision and consumer protection, including accountability and transparency, which will arm consumers with the relevant information.
I have had an annotated version of the recommendations prepared, a copy of which can be found at www.entemp.ie/cr/miab.pdf. For ease of reference, the annotated document, extracts the 67 recommendations from this report and in each case indicates the issues addressed and the body responsible for their implementation. The Government is fully supportive of the broad thrust of the recommendations and has every confidence that their implementation will result in a much fairer system. In broad terms, the potential for reduced insurance costs arising from the implementation of the many recommendations should impact favourably on the viability of enterprises and job opportunities for young people.
The availability of affordable motor insurance to run private vehicles would contribute significantly to the economic and social well-being of people living in rural communities. Potential savings in the overhead cost of delivering compensation which would have a favourable impact on the cost of all types of liability insurance have been identified in the report. Implementation of the recommendations overall would, therefore, have a beneficial impact in an area of particular concern to SMEs.
I assure the House that there will be no delay in preparing an action plan. The Government has mandated me to set up a high level implementation group to immediately progress the recommendations and to report not later than three months from its inaugural meeting. The group, which met for the first time today, is chaired by the assistant secretary in the insurance and company law division of my Department. It is representative of the Departments of Enterprise, Trade and Employment, Finance, the Environment and Local Government, Justice, Equality and Law Reform and Social, Community and Family Affairs, the Consumers Association of Ireland, IBEC and the MIAB chair. The membership of the implementation group includes representatives of the Departments that will be primarily responsible for giving effect to the recommendations.
Of the 67 recommendations, 17 relate directly to the Department of Enterprise, Trade and Employment and, without wishing to pre-empt the outcome of the work of the implementation group, I am prepared to accept them in principle. In three cases, Nos. 39, 59 and 60, primary legislation will be required while six, Nos. 9, 13 to 16, inclusive, and 19, call for secondary legislation. I must now examine how best to give effect to recommendations Nos. 29 to 33, inclusive. Of the remaining three, I expect the declined cases committee to meet regarding Nos. 20 and 21 to agree the necessary changes on an administrative basis, but action does not appear to be necessary on No. 64 on the basis that the issue has been addressed, albeit in a different way, in the Competition Act, 2002.
In response to recommendations Nos. 13 and 14, I am pleased to inform the House that I am introducing new regulations, with full Government approval, requiring insurers to give adequate and proper notice of the terms of the annual renewal of each individual's motor insurance policy in the future. This will mean that the consumer and motorist will receive at least 15 days written notice of renewal terms, with an official certificate of no claims bonus showing each individual's record of accident-free driving up to the date of issue of the certificate.
This week I forwarded the draft regulations to the Attorney General for his approval. Many consumers become totally frustrated as they do not get enough notice of the terms of the renewal of motor insurance and late notice is an obstacle to the consumer's ability to shop around, at least for those who have a choice of service provider. These regulations are part of a framework of supports that I have endeavoured to put in place to empower consumers, all of whom I urge to shop around when renewing their motor insurance. These regulations, when brought into force, will assist consumers to do just that and I will ensure that they legally get that choice.
As mandated by the Government, I have referred recommendations Nos. 41, 65, 66 and 67 of the report to the Competition Authority and recommendations Nos. 6, 9, 10, 11 and 45 to the Equality Authority asking them to take necessary action. The Government has also approved referral of this report by me to the Irish Insurance Federation for its immediate response to the ten recommendations where responsibility for implementation lies with it. These can be found on pages 11, 13, and 24 to 26 of the annotated version of the recommendations. I am happy to inform the House that the board has agreed to my proposal for a six month extension of its remit up to 31 December 2002. The extension, which has the approval of Government, is designed to enable the board not just to prepare the supplementary report mentioned earlier, but also to monitor and report progress on the many recommendations in the report.
In common with every other Member of this House, I have been concerned for some time about the high cost of motor insurance, particularly for young drivers. I do not pretend that this report provides a quick fix solution to immediately bring about significant reductions in insurance premiums, but it provides a road map to enable us to set out to address a long-standing and unsatisfactory state of affairs which has been the cause of considerable public disquiet. On my own behalf and that of my Government colleagues, I make a commitment to ensure that the necessary action is taken to give effect to the many recommendations in the report. These 67 wide-ranging recommendations chart the way to a system of insurance that is fairer for all and more equitable in terms of the relationship between the risk and the premium paid by the user. They signpost the way to make the system serve the 21st century consumer.
The issues involved will have to be tackled without delay which is the reason I wasted no time in establishing the implementation group to oversee our response. My intention is that the comprehensive action plan to be prepared by the implementation group will be presented to Government and published in the interests of transparency and public information. I am sure the House will join me in wishing the implementation group every success in its task of bringing this work to the next stage. The group and the Motor Insurance Advisory Board will continue to have my full assistance and support and this historic report will turn out to have been the catalyst in effecting positive change in motor insurance in the years ahead.
