I move: "That the Bill be now read a Second Time."
Lé tréimhse ró-fhada anois, tá na comhlachtaí árachais ag cur costas ró-mhór agus míchóir ar thiománaithe agus ar úinéirí tithe. Tá sé seo ag tarlú bliain i ndiaidh bliana. Tá an Bille seo chun é sin a athrú. Tabharfaidh sé tús áite do thiománaithe agus d'úinéirí tithe, a bhfuil árachas acu, ag laghdú costas. Tabharfaidh sé ar comhlachtaí árachais a gcuid cleachtais a mhíniú. Cuirfidh mó Bhille deireadh le déphraghsáil, cleachtas ina bhfuil a fhios ag comhlachtaí na custaiméirí atá níos toilteanaí athnuachan a dhéanamh ar pholasaithe agus dá bharr sin, gearrtar praghsanna níos airde orthu.
Today is the day for this Dáil to end the insurance rip-off. Today is the day for this Dáil to put consumers first and send a clear message to the insurance industry that the game is up in respect of exploitative practices in home and motor insurance. For too long, the insurance industry has been able to price-gouge its customers. Most people believe their insurance premium is based on how likely they are to make a claim and how much that claim would cost their insurer, but that is not the whole story.
Last November, the Central Bank found that insurance prices had risen by 35% in the past decade despite the cost of claims falling by 9%. All present know that insurance companies are engaging in a price-gouging practice known as dual pricing which they use to charge customers much higher prices than the actual cost of their policies. It involves the use of complex models to identify customers who are likely to renew and then charge them the highest prices possible before they are tempted to switch to a competitor. Instead of rewarding customers for their loyalty, the companies increase the customer's premium in the knowledge that he or she is more likely to renew than to switch. That is the loyalty penalty.
I refer to the case of Ray, for example. He received a renewal quote of €1,420 from Liberty Insurance for his car insurance, only to be offered a premium of €680 for exactly the same policy with exactly the same provider when he went online.
He was overcharged by 109% or €740. That is the loyalty premium that we, in this House, are going to ban.
In September 2019, I wrote to the Governor of the Central Bank requesting an investigation into the practice of dual pricing, and after meeting with the Governor, the Central Bank agreed to carry out an investigation into the complaint I submitted. In January 2020, the Central Bank began its investigation, and its interim report in December confirmed what we had said in our major complaint, that is, dual pricing is endemic right across the insurance market, affecting more than seven in ten Irish policyholders, many of whom are overcharged by hundreds of euro every year.
While the insurance industry has been allowed to rip off Irish customers, action has been taken elsewhere. Between 2014 and 2017, 20 US states prohibited the practice of dual pricing, including California, New York and Florida. These bans were recommended by the American Association of Insurance Commissioners, which found that the use of dual pricing unfairly discriminated and called for the practice to be banned. The association stated that "two insurance customers having the same risk profile should be charged the same premium for the same coverage". That is the principle of fairness on which this legislation is based and built.
The Financial Conduct Authority, FCA, in Britain began its own investigation into this practice in 2018. It published its final report in September. Its findings were stark and its solution was clear, that is, to ban dual pricing. The British regulator found that in 2018 alone, dual pricing resulted in 6 million policyholders being overcharged a combined €1.4 million. It also concluded that dual pricing distorted competition. While others, including the industry and, unfortunately, the Minister of State with responsibility for insurance, have argued that a ban on dual pricing would undermine competition and deter new entrants, the British regulator, the FCA, found the opposite to be the case, that this type of price discrimination has a negative effect on competition while removing dual pricing would improve the nature and intensity of competition. For the benefit of the Minister of State, I will quote the FCA, "This would mean firms competing in a more effective and innovative way, which should lead to lower overall costs for supplying insurance, more intense competition and ultimately lower average prices paid by consumers." The British regulator has responded by announcing it will ban dual pricing this year. Irish consumers deserve no less.
This Bill will ban price gouging activity. It will ban dual pricing by requiring insurance providers to use only rating factors directly linked to the risk to be insured so that renewing customers can no longer be charged artificially high prices based on their likeliness to renew, their economic background, their spending patterns or any other trait not linked to risk. It will increase transparency in how a customer's premium is priced. Whenever a customer receives a quote or premium from an insurance company, the insurer will be required to tell the customer the rating factor used to calculate the price and how much of that price is to cover the expected cost of claims, how much is to cover the cost of servicing and how much is to feed the profits of insurance companies. This Bill will ensure that transparency.
Crucially, the Bill will empower the Central Bank to draw up the regulations that will govern this ban, using the expertise of the Central Bank to remove this practice from the insurance market. Some in this House may have concerns that the Central Bank, not the Dáil, is best positioned to determine how dual pricing is removed from the insurance market and this legislation answers those concerns. It will require the Central Bank to produce a code of practice which will assist the courts and the Financial Services and Pensions Ombudsman where an insurance company has broken these new laws. The Central Bank will be required to publish an annual report, assessing the industry's compliance with the legislation. Where an insurance company continues to use price gouging practices against customers, the Central Bank will have the power to sanction them.
The legislation will reduce prices for consumers who for too long have been ripped off by the insurance industry. The FCA found that a ban on dual pricing in the British market would bring real benefits to consumers, saving them between €4.8 billion and €12.9 billion in the next decade through lower prices.
Using a data set of 17 million observations across 6 million unique insurance policies, the FCA has modelled what a ban on dual pricing would look like. It has found that a ban on dual pricing would reduce insurance premiums by up to 27% for homeowners who renewed up to ten times and up to 34% for motorists who have renewed for a similar tenure. This legislation provides for the same remedy to ban this price gouging practice. Its effects would be the same, that is, a reduction in prices for Irish consumers. The Minister of State has again claimed that the legislation would prohibit discounts on insurance. Let me be clear: he obviously does not understand the legislation or the price remedy to be introduced here or what is happening across the water, on which this legislation has been built. It will do no such thing. This legislation addresses the discriminatory practices of the insurance industry in the digital age.
As the International Association of Insurance Supervisors has warned, the growing use of complex algorithms and the rapidly expanding ability of insurers to access more data creates risks for consumers. It demands a response from legislators and regulators. As the association noted in an issues paper in March 2020, pricing algorithms are being applied to new sources, including online media data such as web searches, online buying behaviour and social media activity accessed from third party sources, which includes search engine providers such as Google and social media platforms such as Facebook. This reality was also underlined by the European Insurance and Occupational Pensions Authority, EIOPA, the European regulator, in 2019 when it noted in a thematic review that firms are using new data sources for pricing and underwriting, including web searches, online purchases, social media activities, job career information, and bank account and credit card data accessed from third party sources.
That is the vista before us. The question is whether this is ethical or transparent. It is definitely not. This legislation responds to the risks posed by pricing models that discriminate and use personal data without the knowledge of consumers. This legislation will ban dual pricing, end discrimination and bring transparency to the setting of prices. It will radically shake up the insurance market and do so for the better. It will increase competition and reduce the time and money customers spend switching. Crucially, it will reduce prices. This legislation will require the insurance industry to do what should be a given, that is, to price fairly and transparently.
I welcome the fact that the Consumers' Association of Ireland and Brokers Ireland have supported the legislation. I also welcome the fact that the Government is not opposing the legislation, but I am disappointed that it is putting a stay on it for nine months. While the Government may delay this action, it will not hold it back.