I move: "That the Bill be now read a Second Time."
I apologise for delaying the House.
Vol. 575 No. 5
I move: "That the Bill be now read a Second Time."
I apologise for delaying the House.
We thought the Minister of State was leading the charge of the 40 backbenchers.
This Bill provides for the establishment on a statutory basis of a body to be known as the Personal Injuries Assessment Board. The establishment of the PIAB is one of the central aspects of the Government's insurance reform programme. Its objectives are to tackle the delivery cost of speedier compensation to genuine claimants, while reducing the cost of insurance for consumers and businesses alike. To attract renewed competition into the Irish insurance market, we must ensure that we improve our claims-cost profile.
It is widely accepted that litigation costs add on average in excess of 40% to the cost of compensation, which has contributed to the high cost of insurance and the cost of claims against the growing self-insured sector, including the State. These costs are a threat to the health of the economy, job security and competitiveness in an enlarged European market. By eliminating the need for litigation costs, where legal issues are not in dispute, the PIAB will significantly reduce the cost of delivering compensation to the benefit of all consumers. The PIAB will offer a lower cost and speedier means of finalising genuine personal injury claims than the current litigation system.
The PIAB is not a creation of the insurance industry as some lobbyists have alleged. The concept of an alternative to the courts system has been mooted for a long period. It dates from the days when our former colleague, Des O'Malley, held the relevant ministerial office, through the Deloitte & Touche report in 1996, the term of office of former Minister of State, Deputy Rabbitte, and the 1999 IBEC-ICTU voluntary code on workplace safety. These reports called for an alternative to the courts system.
In March 2001 the Government approved the establishment, on a statutory basis, of the Personal Injuries Assessment Board, PIAB. An interdepartmental implementation group was established to progress the concept of the PIAB within an initial mandate to address personal injuries claims arising from employers' liability insurance. That group, comprising representatives of relevant Government Departments, was established in April 2001 and reported in 2002. In June 2002 a specific commitment given in An Agreed Programme for Government had the practical effect of reconfirming the Government's decision of 20 March 2001 to establish the PIAB. On 27 November 2002 members of the interim board of the PIAB, under the chairmanship of Dorothea Dowling, were appointed and tasked with setting up the board on a statutory basis. The interim board has contributed enormously towards shaping the proposed operating procedures reflected in this legislation and also in progressing the logistical operations required to set up the new body.
The primary purpose of the legislation is to establish the Personal Injuries Assessment Board as a statutory body. The board will be charged with making assessments, without the need for legal proceedings to be brought, of compensation for personal injuries. The role of the PIAB will be confined to claims where legal issues are not disputed by the respondent. It will commence operations early in 2004 with employers' liability claims before encompassing public liability and motor accidents in mid-2004.
The priority of the PIAB will be to implement fair procedures in accordance with the principles of natural justice as they apply in this "documents only" system of assessment. There will not be any oral hearings in the PIAB process. In the current legal system, fewer than 10% of claims reach a trial before a judge in court and the 90% that are settled without a trial are considered to carry an excessive litigation overhead. Despite such a low level of court trials, over 70% of cases involve barristers compared to only 4% in England. The objective of the PIAB is to assess compensation at current levels, but to do so more expediently while eliminating the excessive litigation overhead. The PIAB is not being set up to reduce the level of awards to genuine claimants. While parties are entitled to seek independent legal advice at any stage, the PIAB will not award litigation costs for or against any party but special provision will be made by the PIAB to protect the interests of vulnerable claimants.
There have been various calls stating that the PIAB should allow for representation for claimants and comments to the effect that it is unfair to claimants who are not represented. Insurers, on the other hand, have such expertise. There are a number of untruths being accredited to the PIAB process which need to be clarified for once and for all.
This is not an adversarial system and representation will not be required. There is no role for advocacy on either side. As already stated, the PIAB will not conduct oral hearings. Once a respondent consents to an assessment proceeding, he or she will have very limited input. If a claimant's medical report is questioned in some specific aspect by the respondent, the PIAB will then refer the claimant to an independent medical examiner and that report will form the basis of the assessment. If a respondent queries the claimant's alleged loss of earnings, the PIAB will set about verifying the alleged loss. The PIAB will avail of its own expertise, either from its staff or from appointed independent consultants, to assess the validity of a claim. It will not indulge in an adversarial process between competing parties' experts. Insurers do not employ lawyers until after legal proceedings are served. Why would they waste their money when their claims handlers make these decisions in assessment only cases at pre-litigation stage?
It has also been alleged that respondents will consent to a case going to assessment with the full intention from the outset of rejecting the award and fighting liability in court. This makes no financial or tactical sense. Why would a respondent waste fees on the PIAB and then incur litigation costs? Delaying a case never operates to the advantage of the respondent but always enhances the value of the claim with the passage of time, which hampers rehabilitation. If potential defendants consider that they have good prospects of defending a case in full, they are anxious to do so at the earliest opportunity so that the reserve against potential liability can be taken off their books. The rules of court in defended cases already require plaintiffs to reveal their medical records in the course of litigation as held by the Supreme Court in October 2003 in the case of McGrory v.ESB. This is not a game of poker. Those days are over.
Even earlier disclosure of the details of a plaintiff's claim is envisaged by the Minister for Justice, Equality and Law Reform's proposed legislation. The civil liability and courts Bill will also enhance the prospects of successful defence of exaggerated claims. The latest data from the Courts Service indicates that only 3% of High Court hearings resulted in the dismissal of a claim. In some cases, the judge may have made a deduction for contributory negligence, but what is the point of an employer seeking to obtain 15% off an employee's compensation if it costs an extra 50% in costs to pursue that uncertain result? Many employers will be satisfied to ignore that contributory negligence for the purposes of the PIAB assessment when there are substantial savings available in both time and money overall. There is absolutely no tactical advantage in raising the potential plaintiffs expectations by allowing a PIAB assessment to proceed in circumstances where the respondent intends, from the outset, to fully defend liability.
Furthermore, claimants and respondents who unreasonably reject PIAB assessments may end up incurring additional costs in subsequent court proceedings. The argument that respondents will consent to a PIAB assessment with the intention from the outset of rejecting the award, does not stand up to any logical scrutiny. The option for an employer to have an employee's claim independently assessed without admission of liability also enables genuine injured parties to secure their compensation without waiting for the outcome of adversarial litigation between a number of defendants among whom liability may ultimately be apportioned by the court.
Regardless of whether a claimant has employed a lawyer, the PIAB will always communicate directly with claimants so that they know exactly how their cases are progressing through each stage of the assessment process. Legal representation would prevent the claimant knowing exactly what is being alleged on his behalf. It would effectively cut the claimant out of the communications loop, whereas the PIAB wants the claimant to know exactly what is happening at each stage of the process and why a certain step is being taken. The concept of legal representation also exposes the claimant to additional and unnecessary costs for adversarial tasks, undertaken by solicitors, which are completely at variance with the inquisitorial ethos of the PIAB. Such representation would also mean that the cheque in payment of the award would go to the solicitor in the first instance and not to the victim of the accident who has been awarded the compensation.
Legal representation is only relevant to legal issues. The PIAB will not deal with any disputed legal issues. It will not inquire into the circumstances of the accident, only the extent of the injury and resultant losses caused. As clearly stated in the legislation, nothing in the PIAB process can be used to prejudice those parties in any subsequent litigation. Equally, nothing prevents a claimant from seeking independent legal advice if he or she so wishes.
The PIAB assessment process of general damages for pain and suffering will be based primarily on medical reports from a claimant's treating doctor, as sought by the Law Society in a submission on the PIAB. In some cases, a claimant will be examined by a member of the independent medical panel established by the PIAB. A book of quantum will be compiled and published as a guideline to general damages for various categories of injuries and from which parties can satisfy themselves as to the reasonableness of PIAB awards. This guide should also assist parties in reaching negotiated settlements without recourse to litigation. A similar book of quantum in England reflects that only 4% of cases there involve barristers compared to their involvement in 70% of personal injury cases in Ireland.
Assessors in the PIAB will calculate allowable special damages for items such as wage losses and medical expenses on the same basis as the courts, taking into account the pending amendments to legislation on credit for collateral benefits received and compliance with tax legislation. In contrast to the current adversarial system of personal injury litigation, the approach adopted by assessors in the PIAB will be inquisitorial. This means getting to the facts of the claim and ensuring the claimant gets that to which he or she is entitled – no more and no less. This approach will be of assistance to claimants on many issues where they might currently seek legal advice, even in "assessment only" cases which do not involve legal disputes.
From the planned effective date, all relevant non-litigation cases, which currently require legal proceedings to be issued, will be subject to mandatory referral to the PIAB before they can proceed to adversarial litigation. If the respondent wishes to dispute legal issues or has reservations about the genuineness of the claim, the board will immediately issue an authorisation for the claimant to proceed to litigation, if the matter is to be pursued further.
At the end of the PIAB process, parties have an unfettered right to reject the award, as sought for on behalf of claimants by the Law Society in its submission on the board. Parties are entitled to reject the award if they consider that they would secure a more favourable outcome through the court system. The board will issue an authorisation for the claimant to proceed to litigation within a specified timeframe if the matter is to be pursued further. During the PIAB process, time will not run against the claimant for the purposes of the Statute of Limitations on the period within which legal proceedings must be issued. Among the other tasks delegated to the PIAB is a cost benefit analysis of the current litigation system. While the interim board had hoped to progress that project, it was denied access to the relevant data, without the statutory powers which are provided for in the legislation.
I will summarise the main provisions of the PIAB Bill. Section 3 outlines the type of civil actions to which the legislation will apply. It is intended that the legislation will initially apply to employer liability claims only but will be extended in due course to cover motor accident, public liability and other types of claims. The PIAB will not deal with cases involving medical negligence nor claims for which a specific statutory scheme has been established, such as the Garda compensation scheme. Section 6 refers to the fact that nothing in the legislation affects legal proceedings brought before the commencement of this section. This section also allows for parties to agree a mutually acceptable settlement at any stage during the PIAB process.
Section 7 provides that nothing in the legislation affects a person's right to seek independent legal advice in respect of a relevant claim. While there may be a need in some instances for advice on filling out the application form and on deciding if a PIAB award is reasonable, the board will operate a helpline to assist claimants with their application and fully explain how assessments etc. are made. Furthermore the cost of such legal advice should be minimal. Section 29, to which I will refer later, has special provisions relating to vulnerable claimants.
Sections 9 to 18 deal with the PIAB application process from claimants covered by this legislation. Applications for assessment will be made in a prescribed form and accompanied by prescribed documents such as a medical report from the claimant's treating doctor, copies of the original letter of claim and receipts in respect of outlays for which special damages are sought. Liability issues will not be raised by the PIAB. A claimant cannot bring court proceedings in respect of a personal injury claim without first applying to the PIAB. The PIAB will notify the respondent of a claimant's application and ask the respondent if he or she consents to an assessment being made. If the respondent intends to dispute legal issues, the PIAB will issue to the claimant an authorisation, which will permit him or her to institute legal proceedings. Otherwise, the case will proceed to assessment.
In cases where there are two or more potential respondents the PIAB process permits one of the respondents to allow the case proceed to assessment without prejudicing the respondents in subsequent proceedings to seek an indemnity or contribution from other parties. A respondent's agreement to a claimant's submission for PIAB assessment will not constitute an admission of liability nor will it be used in any other manner to prejudice legal arguments in subsequent court proceedings. The PIAB will have discretion not to proceed with a case which is more appropriate to the courts, for example, new medical conditions upon which there is not sufficient legal precedent or it is of a complex nature etc.
Sections 19 to 38 deal with the assessment procedure. An assessment will be made by assessors employed by the PIAB on the same basis as an award of the courts calculated by reference to the principles, which govern the measure of damages in the law of tort and relevant statutory provisions. Assessments will be made by reference to information and documents provided by the claimant. There will be no oral hearings. Assessors will refer to the book of quantum in assessing general damages. Payments will be made in the form of a once-off lump sum, as is the current position in the courts. In cases arising from fatal accidents, the assessments will state the amount to be set aside for each of the dependants of the deceased but such cases will be subject to the ruling of the court.
The PIAB will have the power to levy charges. Funding of the PIAB will be primarily on a "case by case fee" payable by the respondent as the most transparent and equitable distribution of costs. Respondents will pay a standard administration fee as well as the costs of experts' fees necessarily incurred by the claimant, for example, the cost of independent medical examination in certain cases. Claimants will pay a small refundable administrative fee, which must accompany their application to the PIAB, if they have not secured a satisfactory settlement directly, that is, claims will initially be made directly in the usual way against the respondent.
The PIAB will be able to request such information from the claimant or respondents or third parties, as necessary, to make an assessment. The board may initiate an examination of the claimant by a practitioner from the independent medical panel where the claimant's medical report is not comprehensive or conclusive or where the claimant's medical condition is disputed by the respondent. The board will have the power to request from other bodies, excluding the Revenue Commissioners, information that is necessary to properly validate losses claimed as well as benefits received, which will be deducted from the assessment. This includes access to the national vehicle file recording the identity of the vehicle insurer for cases arising from motor accidents. The board will also have limited powers to request from the Revenue Commissioners information relating to the income of the claimant for the purpose of verifying any item of financial loss alleged by the claimant.
The board will make special provision for vulnerable parties and will take steps to ensure the application process is straightforward and its staff will provide assistance to either party where required and explain the consequences of a party taking or not taking a step during the process. Where necessary, the PIAB will advise of the desirability of the claimant seeking outside advice. The board will issue details of the assessment to the claimant and respondent outlining separately the amounts for special damages and general damages. Parties will be requested to reply within a specified timeframe as to whether they wish to accept the assessment. The claimant will have 28 days to decide whether to accept the assessment while the respondent will have 21 days.
If a claimant neither accepts nor rejects an assessment within a specified period, he or she will be deemed to have rejected the assessment. If the respondent fails to respond to the assessment within the specified period, he or she will be deemed to have accepted the assessment. This proposal is in line with the service of legal proceedings where failure to respond within a specified period results in a judgment in default. If an assessment is not accepted by either party, the claimant will be authorised to take proceedings within a specified timeframe if he or she so wishes.
The acceptance of the assessment by both parties is binding on them as full finalisation of the claim. These provisions also provide for cases where there are multiple respondents and they do not all accept the assessment. Regardless of acceptance by the parties of the PIAB award, in cases where the claimant does not have full legal capacity, then a ruling is required by the court. Where the court does not approve the assessment, the claimant will be authorised to take proceedings within a specified timeframe. Nothing in the PIAB process is to prejudice any of the parties in subsequent litigation. Where assessments are accepted, the PIAB will issue an order to pay to the respondent.
Sections 39 to 43 deal with the legal status of an order to pay which will have the same status as a court decree. Payments to a claimant on foot of an order to pay constitute a satisfaction of the claimant's relevant claim. Part payments constitute partial satisfaction. Provision is also made to enable the injured party to receive the compensation to which he or she is entitled, leaving the apportionment of liability between potential co-defendants to be decided by subsequent litigation or negotiation without prejudice to the right of the respondent. The discharge of a claimant's claim by the participating and accepting respondent will not prejudice that respondent's right in subsequent litigation. The respondent may seek recovery of his or her outlay in whole or in part from another party who had a liability in respect of the accident which caused the claimant's injuries.
Section 44 allows that in certain situations the board may direct that, where a claimant incurs an expense, this will be borne by the respondent. An example might be where a complicated medical condition follows an accident and updated medical or other experts' reports are required to reflect the full extent of the claimant's claim in terms of medical prognosis or the extent of financial loss. In such a case, the PIAB will direct that such expenses are necessarily incurred and are to be paid by the respondent.
Section 45 recognises that, where a claimant lacks full capacity because he or she is a minor or of unsound mind, a ruling of the court is required and the claimant's legal representation will be directed to be paid by the respondent. Section 46 permits the board to make rules which will be in separate regulations. These rules will outline the detail of the procedural operations of the PIAB, including the amount of fees to be paid by the claimant and the respondent.
Section 47 provides for a claimant to withdraw his or her claim if he or she so wishes. If he or she does so, he or she may not make a fresh application or bring proceedings. This will be fully explained to claimants by PIAB staff. Section 48 gives the PIAB the facility to make assessments on an ad hoc basis for cases where litigation proceedings have commenced but where both the claimant and other parties make a joint application for assessment. Section 49 provides for the making of assessments by the PIAB within specific time limits, unlike the current litigation system where no such target dates are set for completion of cases.
Section 50 provides that the period from the date of application to the PIAB and ending six months from the date of issue of authorisation to commence proceedings will be disregarded for the purposes of the Statute of Limitations period. Section 51 provides that PIAB assessments shall not be admissible in subsequent proceedings unless the proceedings concerned are in connection with the enforcement of an assessment that is being accepted.
Section 53 provides for the establishment of the PIAB which, subject to the provisions of the Act, will be independent in the performance of its functions. Section 54 provides for the functions of the PIAB, including making assessments of relevant claims, preparing a book of quantum and carrying out a cost-benefit analysis of the current system. Sections 56 to 62 provide for matters relating to the membership of the board and conduct of business by the board. The board will include members with relevant expertise, such as that in the legal and medical field.
Sections 63 to 66 provide for the appointment, functions and terms and conditions of a chief executive officer. These sections also provide for the answerability of the chief executive officer to the board, the power of the chief executive officer to delegate functions to staff, and the accountability of the chief executive officer to the Committee of Public Accounts and other Oireachtas committees. The recruitment process is being progressed by the interim board.
Section 67 provides for the appointment of staff to the PIAB. Staffing numbers, grades and remuneration will be determined in consultation with the Minister for Finance. Section 68 provides for setting up of a superannuation scheme in consultation with the Minister for Finance.
Section 69 provides for indemnification from actions and claims arising out of members of the board or staff of the PIAB carrying out their functions. Sections 71 and 72 provide for the disclosure of interests by members of the board and staff of PIAB and also matters in relation to such disclosure or non-disclosure. Section 73 provides that members of the board, or staff or consultants engaged by the board shall not disclose confidential information without consent of the board.
Section 76 provides that the chief executive of the board will keep accounts of the board's income and expenditure and submit estimates of same as requested by the Minister. Section 77 provides for examination of the accounts and records of the board by any person appointed by the Minister in respect of the financial year.
Section 78 provides that the board, as soon as practicable after the establishment day and within six months of each fifth anniversary, will produce a strategic plan. Such plans will comprise the key objectives, output and related strategies, including use of resources of the board.
Section 80 permits the board to engage consultants or advisers as it considers necessary for the performance of its functions. Section 82 provides that a member of staff of the board who is a lawyer may appear on behalf of the board in an application under section 27.
The cost of the PIAB will be covered by fees levied on respondents on a case by case basis at a standard minimum rate plus outlay incurred on experts' opinions in more complex cases. Fees will be set with a view to the PIAB breaking even financially. PIAB fees payable by insured defendants will be covered by their insurance policy. An original proposal that the PIAB should be funded by a levy on the insurance industry was rejected by the interim board as this would merely be passed on to policyholders, whereas the State and the self-insured sector will also benefit from the assessment service available from the PIAB.
The annual running costs for the PIAB, when fully operational, were estimated at between €7 million and €8 million in the report of the implementation group set up to progress the establishment of the board. Exchequer funding will be required to cover the establishment costs of the PIAB, estimated at €2 million in the implementation group report. Cash shortfalls in the initial period of operation will be covered by Exchequer funding until the PIAB starts to break even financially. Exchequer funding requirements have been agreed in consultation with the Minister for Finance in the context of the annual Estimates process. A sum of €5 million has been put aside in the context of the 2004 Estimates, but Exchequer funding beyond 2004 is not envisaged.
The establishment of the PIAB is a key element of the Government's insurance reform package. Ireland's reform initiatives are being watched closely by the UK, where the court reform programme introduced in 1999 has failed to reduce litigation costs and businesses are now facing a growing insurance cost crisis. I am convinced that the introduction of the PIAB as well as the other reform initiatives being undertaken will lead to a properly functioning market that will attract new entrants into the market and provide the much needed competition to drive premia down further.
I commend the Bill to the House.
In principle, the Fine Gael Party will support the Bill. However, there are a number of issues we wish to tease out on Committee and Report Stages with the Minister of State and, more especially, the Tánaiste and Minister for Enterprise Trade and Employment. I note that the Tánaiste did not accept any amendment in the Seanad. I hope she will be in a more flexible frame of mind when she appears before the Select Committee on Enterprise and Small Business. We have a diligent committee and a strong Chairman in the person of Deputy Cassidy, who will insist, on an all-party basis, on a high standard of legislation emerging from that committee in the interests of the consumer.
The Personal Injuries Assessment Board is one of a number of initiatives the Tánaiste has trumpeted as a means of reducing insurance costs in Ireland. She has consistently stated that her first priority in Government, for as long as she remains at the Department of Enterprise, Trade and Employment – we note that she does not wish to stay much longer – is to bring about a reduction in insurance costs.
The Bill before the House, together with another Bill on civil liability put forward by the Minister for Justice, Equality and Law Reform, Deputy McDowell, are presented as the cornerstones of a reform programme on insurance costs. The Tánaiste has suggested that insurance costs can be reduced by more than one third once the reforms are put in place. While I do not doubt the sincerity of the Tánaiste's objective to tackle high insurance costs, the measures she is taking will not be as effective as she thinks, primarily because she is placing far too much reliance on insurance companies behaving reasonably and responding positively to her initiatives. In all the measures she adopted to address the insurance crisis, she has not sought any bankable guarantees or meaningful commitments from insurance companies that they will pass on to the customer the necessary reduced premia she desires. She seems to be prepared to take insurers at their word and expects them to respond reasonably and fulsomely to the reforms she is initiating.
The Minister seems to forget that insurance companies do not operate to any public service agenda but rather, like most commercial organisations, are focused on issues of profit and shareholders' returns. That is their overriding objective in the marketplace and will remain their first priority. Given the scale of the problem of insurance costs, I find it incomprehensible that the Minister has failed to secure clear and unequivocal commitments from insurance companies that the establishment and operation of the Personal Injuries Assessment Board, PIAB, will result in lower premia for consumers and businesses. I can envisage the scene being set already for insurers to argue that the establishment of the PIAB will not result in lower insurance costs. For example, recently the chief executive of one of the major insurers in Ireland told the Oireachtas Joint Committee on Enterprise and Small Business that he would not commission the company to making reductions in premia as a consequence of the establishment of this board. I find it difficult to accept that statement. Surely insurance companies that are aware of the patterns of claims and settlements must be in a position to estimate the extent of these savings as a consequence of the implementation of the PIAB. It is bizarre that leading insurers, with supposedly excellent sources of management information, cannot predict the savings that will result if the PIAB operates effectively. This raises a concern about insurers' attitudes and actions in regard to the PIAB, a matter to which I will return later, but it also calls into question the types of commitments the Minister has received in the past from insurance companies and their bona fides about reducing premia for small businesses and consumers generally.
There is no doubt that a cheaper and more effective means of delivering compensation to genuine claimants is required. The legal system has not served Irish claimants well, given that it has resulted in the slow delivery of compensation over the years, a high level of costs and increased insurance premia for consumers and business people. Establishing an alternative system for the delivery of compensation such as the PIAB has merit provided that it is effective, realistic in its targets and objectives, fair and balanced in the performance of its functions and that it contains some element of compulsion for claimants and respondents to avail of its recommendations. The PIAB has a role to play provided it is an assessment board and not another layer of bureaucracy.
The Minister suggested in the debate in the Seanad that the PIAB would have 100 staff, a budget of €5 million and would deal with 27,000 claims per annum. This is a massive and extremely ambitious target, particularly given that the board is starting from scratch. To deal with such a volume of work over such a tight period of time, the PIAB will need to deal with cases expeditiously, if it is to avoid being another layer of bureaucracy. It is important that the PIAB is allowed to get established and operate on the initial category of claims that have been assigned to it, particularly liability claims, before overloading it with additional categories too soon. Like every new body, the PIAB will have its teething difficulties, but zealousness and over-ambitiousness must not be allowed to frustrate the board in the performance of its functions. While we all admire the sense of purpose and efficiency of the chairperson of the interim board, it is important that over-ambitious targets are not set at too early a stage in terms of the categories of claims that the PIAB must address. The PIAB must be allowed to find its feet with employer liability claims before moving on to motor or public liability claims. That would represent a good, prudent and sensible approach. If it takes longer than the six months envisaged for it to move to deal with other areas of claimants, we should allow such time as is necessary to get this right.
My concern is that the establishment of the board and other reforms the Government is initiating will not result in lower premiums for consumers and businesses. The problem of insurance costs arose from a myriad of factors. The Bill merely addresses one aspect of the factors contributing to increasing costs. There is the cost of delivering compensation to claimants, high legal costs, false or exaggerated claims, the "compo" culture and the level of awards delivered, particularly by lower courts – we all have played a role in increasing insurance costs. However, there are also more complex reasons which the Minister has not addressed. Some insurers blame the aftermath of the events of 11 September as a reason while others allege that problems have arisen because of the lower returns on investments.
Getting to the bottom of the problem of insurance costs is made all the more difficult because of the lack of publicly accessible, timely and transparent data. Much of this data are generated directly by the insurance industry. I hope that the consumer director of the Irish Financial Services Regulatory Authority will act quickly to ensure that there is transparency in the figures being circulated by insurance companies. I raise this concern because I have a problem with some of the figures presented by the insurance industry.
In its report, the Motor Insurance Advisory Board drew attention to the fact that losses on motor insurance in 2000 were largely driven by the creation of extra reserves for the cost of accidents in 1998 and previous years rather than events in 1999. This trend continued in 2001 and 2001. The insurance industry reported underwriting losses on motor insurance in 2000 and 2001, but in 2000 more than half of the losses was caused not by events in 2000 but by the creation of approximately €150 million in extra reserves for accidents that happened in 1999 and previous years. Similarly, in 2001, the industry reported underwriting losses of €174 million, and that was after charging at least €100 million to create extra reserves for accidents in 2000 and for previous years.
More recently, the industry has argued that current reforms are working, pointing out that in 2002 an underwriting profit of €18 million was made in motor insurance. Underwriting profits for all insurance companies in 2002 was €183 million. The difficulty is that until the insurers make full statutory returns at the end of each year, policy holders have no way of knowing how much of a turnaround there has been in the fortunes of insurance companies and whether improvements are due to improved road safety, lower claims or how much of them are due to taking back the reserves they created in previous years. It is arguable that on closer examination of the losses made by insurers between 1999 and 2001 many appear to be driven as much by accounting decisions taken by some insurers as by events in the marketplace.
Similarly, we should be concerned about the returns on investments that insurance companies are securing. When assessing the investment returns that insurance companies here secured, they seem remarkably low even compared to the returns on low risk investments in Government stocks. In a non-competitive market such as we have in the provision of many insurance services, firms have no incentive to do anything other than increase their premiums to maintain their profits. The key point here is that much of the data about profitability and losses both in general and in regard to particular lines of underwriting activity are entirely dependent on information or material provided by the insurance industry. This information needs to be independently assessed and verified to ensure that the high premia businesses and consumers have suffered and continue to suffer will not continue to occur.
We want to ensure that these particular losses are the product of genuine factors that have given rise to increases in cost and are not attributable to cute or manipulative accounting procedures. For example, I am puzzled as to why motor premia will be able to fall by the extent recently predicted by companies before the Oireachtas Joint Committee on Enterprise and Small business, and yet insurance companies seem unable to pass on reductions for employer liability policies. It does not make sense that reductions in premia arising as a result of fewer cases being taken, fewer fraudulent cases and more moderate awards, do not transfer to business liability cover as well as motor cover.