JOINT COMMITTEE ON ENTERPRISE AND SMALL BUSINESS díospóireacht -
Thursday, 19 Jun 2003

Vol. 1 No. 15

Insurance Market Reform: Presentations.

Chairman

I welcome Mr. Myles O'Reilly of O'Reilly Consultants and his colleagues, Mr. Joseph McGrath and Ms Aoife Teehan, who have been appointed to assist the joint committee in its deliberations and in the drafting of a report. We are embarking on the first of our public hearings in regard to the reform of certain aspects of the Irish insurance market. I welcome all of you, our consultants in particular. By agreement, I propose that we take the presentation of the Irish Hotels Federation, followed by the presentation of the Alliance for Insurance Reform.

We have received 50 written submisions following our invitation to certain bodies to give us their views and our notice in Irish Sunday newspapers of the first Sunday of March, inviting organisations and members of the public to make written submissions. Copies of this documentation have been circulated to members and we are now embarking on the next phase of our work, namely, the hearing of oral submissions from a number of those who have already made written submissions.

This topic is at the forefront of our minds, as it was with the previous committee which took this issue seriously up to its lapse on the dissolution of the last Dáil. In the interim, the situation has become more urgent, especially in the areas on which we are focusing, namely, the cost of motor insurance to drivers with particular reference to the recommendations contained in the motor insurance advisory report - the MIAB report of April 2002 - and of the cost to employers of public liability insurance, especially for small businesses.

All society is affected by these issues. For that reason the committee decided to embark early on this investigation. With the members of the committee I would like to express our appreciation to all those who have made submissions and who have assisted the committee in any way, including the Minister for Enterprise, Trade and Employment, Deputy Harney; the Minister for Justice, Equality and Law Reform, the Minister for Transport, and their respective officials. The Ministers concerned have promised to give us every assistance and to make themselves available to the committee at the appropriate times.

Members of the Irish Hotels Federation and the Alliance for Insurance Reform are reminded of parliamentary practice that members of the committee should not comment on, or criticise, or make charges against any person outside of the House, or any official, either by name or in such a way as to make him or her identifiable. Members who wish to make a declaration in relation to any matter being discussed may do so now at the beginning of their contribution. Here, I must confess that I have an interest in the hotel industry. Members are also reminded that if there is a possibility of a conflict of interest, they should make a declaration of interest either now or at the start of their contribution.

I welcome Mr. Jim Murphy, president of the Irish Hotels Federation; Mr. John Power, the chief executive of the Irish Hotels Federation; Mr. Liam Griffin, the proprietor of the Griffin hotel group in Wexford and Kilkenny - he has certainly got both counties together in the business world - and Mr. John Gately, proprietor of the Vienna Woods hotel in Cork, who also represents the Irish Hotels Federation.

I invite the federation to make the first presentation and will invite the Alliance for Insurance Reform to make its presentation later. After each presentation has been made I will invite members to make contributions and to ask questions. I draw witnesses attention to the fact that members of the committee have absolute privilege but this same privilege does not apply to witnesses appearing before the committee. While it is generally accepted that witnesses will have qualified privilege the committee is not in a position to guarantee any level of privilege to witnesses appearing before it.

The spokesperson for the Irish Hotels Federation will make the presentation on behalf of that group and then members will ask questions. Every member of the delegation will be allowed to respond or make the points he or she wishes.

Mr. Jim Murphy

I thank the committee for inviting us back. We acknowledge the concerns expressed by the chairman about the impact of rising insurance costs on many businesses in Ireland and particularly the hotel and guesthouse sector. To give the committee a little background, the Irish Hotels Federation has almost 1,000 members, ranging from five bedroom guesthouses to 500 bed hotels but, significantly, almost 80% of our members have less than 50 bedrooms. I will ask Mr. John Power to take the committee through our submission and then Mr. John Gately and Mr. Liam Griffin will discuss how exorbitant insurance costs have impacted on their businesses.

Chairman

I have no difficulty with that but the usual procedure is that we allow a person to make a submission and then we take questions. The delegation can then make their points as they take those questions. We will finish here about 3.30 p.m. and we hope to finish this segmentby 2.20 p.m. to allow time to hear anotherdeputation. The witnesses may remain for that presentation as both groups are working hand in hand.

Mr. John Power

I thank the committee for the invitation. Our written submission was forwarded to the committee in March and I will highlight some of the key issues in it.

An overarching concern is that premiums are written far in excess of other costs and out of all proportion to the risk. A survey carried out by consultants to prepare for this submission showed that from 2000 to 2003 there was a 351% increase in insurance premiums paid by the hotel and guesthouse sector. Insurance premiums, as one small hotelier put it, are now like a second mortgage and our ability to pay our other creditors and tax liabilities as they fall due is severely affected by the monthly draw to pay insurance premiums. As our president said, almost 80% of our businesses are small, family-owned businesses with tiny profit margins. Those that have been showing a modest profit in recent years are now seeing that profit eroded, if not wiped out, by these insurance cost increases.

Our submission outlines the comments of members surveyed, such as that stating a jump from €29,000 to €59,000 without a single claim or adding a single building shows that obviously an extra €30,000 has to be earned to pay the insurance premium alone. In many cases this could mean an extra €250,000 in hotel room turnover or another €1 million in food and beverages. Put simply, this major barrier to carrying on our business is a threat to small and medium-sized businesses. That barrier must be removed as quickly as possible. The Tánaiste has indicated that far-reaching reforms are on the way and the draft heads of a Bill published recently giving statutory status to the Personal Injury Assessment Board is a move in the right direction. We welcome this but the pace of change is slow.

The cost of insurance in Ireland is driven by the cost of the settlement of claims. There are also exorbitant legal and expert witness fees, which are part and parcel of the settlement circus. If the cost of settling claims is brought into line with other countries, including our nearest neighbour, Great Britain, with which we compete, then insurance premiums will fall. It is not acceptable that public liability claims in Ireland can be ten to 20 times greater than similar claims in Britain and elsewhere in Europe. What has been developed as good practice in these countries should be introduced here, particularly the book of quantum, which should be introduced immediately. There is not a lot of work involved in introducing a book of quantum; one is in existence in the UK which could be copied for Ireland without a great deal of legal preparation. There is a provision in the Tánaiste's proposal that the PIAB draw up a book of quantum or settlements based on the recent history of Irish settlements but this is unacceptable because recent Irish settlements have been far too high. International benchmarks should be put in place and should become binding on the Judiciary or the PIAB, whichever decides on these matters. We are not trying to avoid paying equitable compensation for genuine accidents where injuries are suffered, but these payments must have a relevance to the injury and to the value put on the injuries in other jurisdictions. Otherwise, how can we compete with hotels in those jurisdictions?

There is evidence of a recent shift in public attitudes towards what constitutes publicly unacceptable behaviour and this should continue. The procedure for the notification of accidents must change radically. Immediate reporting of incidents which are likely to lead to claims should be mandatory. Claims should be disallowed if that does not occur. It is not acceptable that in many cases the first indication of a claim should be a solicitor's letter just before the end of the three-year statute bar period. Our submission suggests this should be a two-week period or shorter if that was practical. One must take account of the human aspect of trauma and so on. I reiterate that there is no intention on the part of the federation to advocate a regime that would mitigate against genuine claims. Our members are fully cognisant of their duty of care in operating their establishments. Regarding the rights of individuals, there has to be an equitable balance between the rights of the insured parties as well as the claimants.

The PIAB is a move in the right direction but it will not result in any savings unless there is a quick and equitable settlement of claims. Introducing the book of quantum I mentioned in line with international benchmarking would be another move in the right direction. To highlight the issue, awards in Ireland for certain compensation categories are up to 12 times those in the UK. A person who examined the UK book of quantum on our behalf reported that a soft tissue claim - a strained muscle injury - with discomfort lasting up to a year could be settled under the British system for between £500 and £1,000, rising to, perhaps, £4,000 if the discomfort lasted for two years. In Ireland awards of €10,000 to €20,000 are commonplace for similar claims and awards of €100,000 may be obtained for whiplash injuries, notwithstanding the fact that clinically the plaintiff may appear to be in good health. These levels of awards, and the associated legal and medical costs, are driving insurance premiums to the level we have today.

Those are further exacerbated by fraudulent and exaggerated claims. In addition to those levels of awards, there should be an incentive encouraging a genuine attack on fraudulent and exaggerated claims. The PIAB will be an unnecessary layer of bureaucracy unless it has the power to make awards in keeping with European levels and those in our competing countries. Addressing these issues would reduce claims overnight.

We also have incidents in the insurance company which we are concerned about, such as claims being settled by insurance companies without even consulting the insured party. Such cases are settled to avoid legal expense costs. To quote one member regarding a case involving a lady slipping in a bath, the insurance engineer agreed the member had all the necessary safety features but pointed out that the lady in question grabbed the shower curtain instead of the rail. The insurance company said she would get nuisance money of approximately €15,000 and advocated settlement to avoid further costs. Unless this attitude is changed the cancer of insurance costs will kill small businesses in ours and many otherservice industries.

We highlight other actions which need to be taken within the insurance industry, including the need for a transparent method relating to quotations for premiums at renewal time. Yes, the claims history is a factor but there should be a correlation between that and the premium. There should be a 60 day notification period prior to renewals to give insurers an opportunity to test the market. A protocol currently exists between insurance companies and insurance brokers whereby insurance companies will give the same quotation to a different broker for the same risk, irrespective of how well that risk is presented. If a lazy insurance broker who just wants to get a renewal and an energetic broker who believes in risk management and other programmes go into the same insurance company, that insurance company is bound by a protocol with the brokers to give the same quotation to the lazy broker as it gave to the energetic person. This sort of practice needs to be rooted out.

In conclusion, our core recommendations are to reform the Personal Injuries Assessment Board model, institute immediate proceedings against people making fraudulent and exaggerated claims and change the legal system to reduce core costs and witness charges. We believe that this would reduce premiums in a short period. The success of the Personal Injuries Assessment Board will be determined by a reduction in the cost of premiums. We have been talking about this for the past two or three years and premiums have continued to increase. To quote a simple case of a 30 bedroom hotel, the cost of the premium in 2000 was €8,000, €11,000 in 2001 and €33,000 this year. The premium for a 50 bedroom hotel increased from €13,000 to €20,000 to €50,000 during the same period. None of the hotels had lodged claims and there had been no exemptions for them. Liam Griffin and John Gately will relate their personal experiences during the question and answer session.

Chairman

Thank you, Mr. Power. We certainly want to hear about those personal experiences. Did I hear you correctly that between 2000 and 2003 there was an increase in hotel insurance premiums of 351%?

Mr. Power

That was the average increase. We carried out a survey and the average increase was 351%.

Chairman

Was there a reason given for this?

Mr. Power

All sorts of reasons were given, including the events of 11 September 2001; tightening of the market; a different view of the market and timber floors in buildings. These issues existed previously and created no problems, but they were then cited as problems.

Chairman

Has there been an increase in premiums in the UK or is it just in Ireland?

Mr. Power

There has been some increase in the UK because there has been a reduction in capacity since 11 September. To put it in perspective, if I am paying €100,000 in premiums in Ireland for my risk, a comparative risk in the UK would be approximately €35,000 and in the Netherlands it would be €13,000. That is the type of scenario we are up against. We are criticised daily for being non-competitive. The reason the cost of drink and food is so high is that we are driven by this bottom line cost.

Chairman

Is Mr. Power advocating to the committee that if two weeks' notice is not adhered to the claim should fall?

Mr. Power

Unless there is medical evidence that the person was unconscious, in which case people would be aware of it. There was a case a few years ago of a person who went into a hotel in Killarney after a Munster final and the first the hotelier and the federation heard of a claim was just less than two years later when a letter was received from a solicitor. It ended up costing €35,000 for a sprained ankle and there was no record that the person was in the hotel at the time. It could have happened around Cork or anywhere else. The person claimed that he was with a few friends and he fell in a particular property. That is an example of what is taking place. There is no opportunity to defend or properly investigate a case if one cannot access witnesses immediately an accident takes place. For a claim to be lodged two years later is not acceptable.

Deputy Lynch

Did that person go to court?

Mr. Power

No, it was settled by the insurance company which stated that if the person went to court they would carry the whole risk.

Chairman

Are your members having to pay excess in their premiums?

Mr. Power

Enormous excess. Excesses are not commonplace. Mr. Griffin and Mr. Gately will give an example of the excesses on their properties.

Deputy Howlin

I thank the delegation for the useful submission. The case has been well made that insurance is a huge burden on industry, particularly the hotel industry, and there is a need for reform. What we are trying to construct is the mechanism to reform. I will not deal with reform of the anti-competitive parts of the insurance industry itself - I will leave that to other colleagues. In terms of the submission, the Personal Injuries Assessment Board is the main plank of the reforms we are now considering. The heads of the Bill have been circulated. The Tánaiste informed the committee this morning that the book of quantum is in the process of being finalised. There is some pre-emption in dismissing that as being fixed too high before actually seeing it. Would it not be better to hope and expect that the book of quantum will be fair compensation and not excessive, as has been applied?

My second question relates to reform of the legal and medical profession. The report is quite critical of this aspect. My experience of the medical profession is that there are not that many complaints about medical competence in relation to the submissions made. The system which is currently in place, that is, the Medical Council, appears to work well. Has the delegation a difficulty with that because they have been critical of the notion of self-regulation? What mechanisms are envisaged to replace the Medical Council and the self-regulatory systems within the legal profession, the Bar Council, that august and wonderful body, and the Law Society?

Included in the submission was a requirement to notify accidents; in other words, if an accident was not notified within two weeks it would not be actionable. In terms of serious accidents, that surely is not tenable because relatives might be traumatised, there might not be relatives at hand and there might be criminal prosecution involved. Surely there must be some exemption on notification within a two week period.

Deputy T. Dempsey

I welcome the federation and its submission. When the Tánaiste was here this morning I pointed out that I had said recently that when the survival of the State was threatened by subversive organisations we introduced special courts. I recommended to the Tánaiste that we should introduce special courts now because the survival of industry in general is threatened. If we as politicians are to solve the insurance crisis, we will need the help of organisations such as the AIR and the Irish Hotels Federation because we cannot solve the problem on our own. Most of us are victims of these excessive increases without any justifiable reason whatever being advanced.

I am pleased the delegation is in attendance and thank them for their submission. They will have willing partners in this committee who want to solve the problem.

Mr. Power

In response to Deputy Howlin's question in regard to the book of quantum for the PIAB, there is an indication that it will be based on recent claims within the Irish jurisdiction where the level of settlements, even by the courts, is excessive. Since we have to compete in international markets, international benchmarking should be used on an equal basis to that in Ireland. Our criticism was based on the indication from the website that recent Irish awards were the basis used. We would not be happy with that because we do not believe it will have the required impact on premiums. Regarding the Medical Council and criticism of the legal profession, the aim should be to get away from a situation in which highly paid medics spend hours and days at the Four Courts, waiting to be called. There is no reason their evidence could not be submitted in writing, in advance, so that they could be called to appear in court if further elaboration is required, for which they would be paid a fee.

While I do not suggest that medical people exaggerate claims, there are injury claims which one cannot prove, in black or white terms, even with the technical assistance of the best MRIs in the world.

Deputy Howlin

The witness stated that self-regulation for the professions concerned is not working. What, specifically, is meant by that statement?

Mr. Power

Our assertion regarding self-regulation is that there should be a system whereby written reports are submitted by the medical profession and validated in a transparent manner, as opposed to oral presentation to a court. The third point was in relation to——

Deputy Howlin

Notification of accidents.

Mr. Power

Yes, I dealt with this point in my presentation. We have to be practical in this regard. Serious accident cases as a result of which a person is traumatised or left unconscious, or a family is traumatised are the exception rather than the rule in the context we are discussing. There should always be provision in such cases for an extension of the period for the purpose of application to the regulatory authority. Those are not the ones about which we are concerned. Our worries relate to claims for which there was never any foundation in the first place, or people who are fully compos mentis on leaving the premises, having seen an opportunity to make a claim.

Chairman

As one who has tried to address this problem from within the industry, I believe the new technology now available will provide effective proof as to whether claims are genuine. The new digital technology can store up to 16 weeks of data and video records. With legislation about to be amended, and in the context of the conclusive proof which can be provided within the time-frame of present technology, the fraudulence alleged to have taken place in the past certainly cannot be carried on in future.

Deputy McHugh

I join in welcoming the representatives of the Alliance for Insurance Reform and the Irish Hotels Federation. I look forward to the exercise in which we are engaging and I hope it will lead to a successful conclusion. In reading previous submissions, I detected some impatience in relation to insurance reform and the problems associated with it. That degree of impatience did not come across to me in the presentation today.

Chairman

Mr. Griffin has not spoken yet.

Deputy McHugh

In the earlier presentation, it was stated that the time for consideration and analysis had passed and it was now time for action. I have just one question. The insurance issue arose at two recent meetings of this committee at which the Tánaiste and Minister for Enterprise, Trade and Employment was present. Her Department and the Competition Authority are carrying out a joint study and she indicated recently that it would take a year to complete. I regard that as an excessive length of time. If that is to be the case, some interim measures should be put in place. Can the delegation identify their priorities, if we are not going to wait until the whole report has been compiled and the matter has been fully considered? In my view, there are issues which could be addressed now, thereby helping the situation greatly.

In relation to the PIAB, the organisations' previous submissions did not give it much credence - it might be going to far to say they rubbished it. That surprised me as I had understood that the main opposition to the PIAB was from the legal profession, for fairly obvious reasons. Now that the PIAB is progressing, I ask the delegation to clarify the position of the organisations represented here - do they still object to it, will it now be supported or are there still elements of dissatisfaction?

In relation to the book of quantum, which is essential, the delegation stated that it should be based on international standards and experience. However, the presentation seems to focus largely on the UK situation, without referring to other countries. Have the organisations fully examined the situation internationally, as a basis for their statement that claims are smaller elsewhere than in Ireland, or are they relying on the UK experience only? If the Chairman wishes, I will stop at that point.

Chairman

The Deputy will have an opportunity to intervene again later in the meeting.

Deputy Callanan

I join in welcoming the delegation. I will try to avoid repeating points which have been discussed already. Bearing in mind Ireland's membership of the European Union, why are there only five insurance companies quoting on the Irish market and how can that situation be improved? What further changes are required to introduce competition here?

In relation to the comment that claims are settled by insurers without reference to the insured party, that is a very serious statement and I know it to be true. Why is that allowed to happen? We are told that 42% of the value of all claims goes to the legal profession. Apart from legislation, can any action be taken immediately in that regard?

Chairman

Who wishes to respond to the questions?

Mr. Power

I will deal with some of the questions and I will ask Mr. Griffin to respond to Deputy McHugh's questions. With regard to priorities, I believe a book of quantum, which should be based on international experience, is the main priority. We did our preliminary research in the UK because we had a very short period within which to put our case together. One might consider it a lazy approach on our part, but it had the advantage that the material was available in the English language and we did not have to get involved in translations. However, there are similar examples in other countries and there is general evidence that the UK situation is higher than the continental experience. Without wishing to be flippant, it has been well said that if one cuts one's finger in Ireland, one consults a solicitor whereas if one suffers a similar injury in the Netherlands, one buys a piece of sticking plaster at a local shop. There is a cultural issue involved.

On the question of our "rubbishing" the PIAB, we are not doing so - we said it was a move in the right direction. However, we are very worried about the framework within which it is proposed to operate. If the PIAB operates on the basis of recent awards in Ireland, it simply will not produce the goods. It is as simple as that. That is our only concern about the PIAB, which we believe should be put in place quickly.

There is a simple answer to the questions about the lack of competition. Insurance companies will do business in an economy if it is profitable for them to do so. It is not profitable for international insurance companies to enter the Irish market in light of the level of claims here. International business has been driven out of Ireland by the costs of the insurance companies doing business here.

Chairman

There is a lack of underwriters.

Mr. Power

There is a lack of underwriters, who are attracted by profitability. Insurance companies normally look for a 5% return on the capital invested, but they have not been getting it in Ireland in recent years as a consequence of the cost of settling claims. There may have been an improvement recently, but one will not get the international companies to come here. They operate on a global basis and do not want to be involved in the hassle and the systems here. It is much easier to do business on the Continent, in Britain or elsewhere than in the small Irish market.

Chairman

Yes.

Mr. Power

The international companies will come here if there is a proper environment. I was also asked why we allow claims to be settled. By and large, the members of the Irish Hotels Federation represent small, family-owned businesses with less than 50 bedrooms. They are not experts in this area and are intimidated by claims and the system that operates. As I mentioned earlier, they are told by insurance companies to settle claims for €15,000 or to pay up to €150,000 if the case goes to court before a certain judge. Insurance companies often walk away from the risk when small businesses say they will not settle claims. They tell the businesses that they have to carry the costs. Insurance companies are settling claims that they would not settle if the levels of bureaucracy and difficulty did not exist. In response to Deputy McHugh, perhaps my colleague, Mr. Griffin, will comment on the cost of increases and the fact that the PIAB has not helped in the past two years.

Mr. Liam Griffin

I do not want to be long-winded or to go off at a tangent, but I wish to state that I have been in this business since 1974, when I started as a bushy-tailed and bright young man. I did not worry about insurance companies, solicitors or anybody else at that time, as I preferred to put my head down and to work. Those around this table who know me are aware that this is what I did - I do not mention it to be boastful - and that I understood it was what I was supposed to do. Over the years, I encountered massive problems in business, with the banks, for example, but I have never experienced anything like what has happened recently.

The Griffin Hotel Group runs an honest and decent business and has always tried to do so. When one is faced with something like this, one finds it quite extraordinary. I will outline my experience of the insurance business since 2000. The group's joint premium for its two hotels was €119,000 in 2000 and there was an excess of €1,000 on employer's liability and public liability. For those who do not understand fully, this means that the group would pay the first €1,000 in relation to everybody who made a claim. Our excess on property was also €1,000, which we felt was a fair sum. We were happy to pay for the cost of repairing a broken window, for example. The joint premium increased by 49% to €178,000 for 2001 and the excess was unchanged. This figure increased to €423,000 in 2002. We were expected to pay this amount of money for the exact same level of cover. Our excess on property also increased by €5,000. The group's insurance costs increased from €119,000 to €423,000 between 2000 and 2003.

Having been in business all our lives, we were faced with an Armageddon-type situation because we had to pay such an unbelievable amount of money. An in-house meeting was held to decide what to do about this incredible problem. One must bear in mind that the Griffin Hotel Group had to pay the difference from its cash flow - nothing else had changed. I do not want to go away at a tangent, but I should stress that the group was also hit by property costs, rates, refuse collection charges and many regulations. The total cash flow that the group had to find over three years was €1.039 million. There was nothing extra in it for us - the funds were needed to pay those who were servicing us. Such a sum of money represents many large bottles of stout and ham sandwiches.

I can tell the committee that I work an 80-hour week and I have done so all my life. I have missed four days through illness since I started in business. It does not matter who is to blame - it is immaterial - but such back-up efforts are provided by my staff and me. I started off with four people working for me and I now have 300. The life of every one of these people is affected by the cash flow problems. We are assailed by the Celtic tiger press, which feels that one should be able to purchase a fillet mignon with various attributes or a cappuccino for very good money. The cappuccino is obviously the item of the day - God be with the bacon and cabbage, which does not matter any more. I am faced by people who want good food and do not want to be charged for it, but I am outlining the reality of the industry for those of us on the ground. Deputy McHugh spoke of impatience, but I could do two or three cartwheels around this room if I got going. I do not mean to be flippant, as that is what I am faced with.

I sign the cheques and hand the money across the table, but the Griffin Hotel Group is an inclusive organisation. Its accounts are on the table. My staff know how much I am paid and exactly where we are coming from. The general manager of the hotel and I went on a three-day week this year - it was unpaid leave - to keep the group in operation. Nobody on the public authority side or the insurance side took such measures but we had to do so.

What did we do about these problems? It was not financially viable to pay the amount we were being charged for insurance, but a compromise was reached after much discussion. We agreed to pay a premium of €212,000 and to carry an excess of €250,000 on our employer's liability and public liability and of €10,000 on our property. That is no way to run a business - it is what is known as bungee-jumping without the rope. I have presided over this arrangement, which is an absolutely scandalous way to run a business. I ask the committee to tell me what choice I had, however. I had to find that money from our net profit in order to keep going.

There would be war if my wife were overcharged for a loaf of bread in a supermarket in this country of populism. People would tut-tut and say that it was a terrible thing. Someone would be brought to court in such circumstances, but where can I go? I have come to Dublin today to make my case before the governors of the State. I will not survive in business if somebody does not do something for me. We are facing Armageddon because an accident is waiting to happen. I cannot handle such difficulties. I paid €212,000 last year, but a man with a balaclava might as well have asked me to hand over the money, because I did not receive a single cent in return. The Griffin Hotel Group carried an excess of €5,000 on its property and €250,000 on any claim from an individual employee or a person who might fall. That is the truth, the whole truth and nothing but the truth.

I received a telephone call from a solicitor in Dublin about two years ago. It seemed unusual to me that he had a broad Dublin accent. He said to me that a woman had fallen in the toilet of my hotel about two and a half years previously and that her claims liability period was about to expire. He asked me if I could sort the matter out as the woman was about to change house. That is exactly what happened and God may strike me down if it happened differently. I told him that he could do the other thing, which I will not mention here, and I said, "How dare you ring me up and ask me to be part of a fraudulent claim?" Although I am absolutely certain that the woman never stepped inside our door, she got the money, despite my best protestations to the insurance company. I threatened to come to Dublin to blow the office up if the company paid her a penny. A woman in Wexford received €10,000 because a sausage exploded in her frying pan some weeks ago. It was fired out by Peter Kelly, who seems, from my dealings with him, to be an eminently sensible man. This is not usual, to be quite honest.

I am living in such a world and I am assailed by all these costs, but I have been told that I can wait for another year. I have waited for two years. My insurance cover will expire on Monday and the cost for next year will be €328,000, with an excess of €5,000 on employer's liability and public liability. I will have to continue to pay the €250,000 if I want to go the whole way. They have brought it back to some extent. I am now the J. P. McManus of the hotel industry, as I am backing horses every week. I never realised that I would have to get up in the morning and decide how to hedge my bets.

I cannot begin to express my impatience in relation to this issue. I am really sorry that I was not here when the Minister, Deputy Harney, was present this morning. I had hoped that she would be here so that I could tell her straight that my business does not have time to wait for people to sit on committees. I am sick and tired of committees, quite frankly, as I think they are used to defuse problems. I do not wish to be disrespectful to the members of the committee, as I deeply appreciate the fact that they have given time to the Irish Hotels Federation. I am fed up with committees and I no longer sit on them as they are used to defuse problems. Nothing seems to get done quickly. The sense of urgency in our business is so great, we have moved beyond breaking point.

The Government is making money by imposing a 2% levy on my insurance payments. The State, which is supposed to support me, demands 2% and my broker doubles his money through the increase in his fees, while I am caught in the middle having to pay the Government, the broker and the insurance company. With everybody's hand in my till, I want to slam it shut. I am still working when others are off duty. I am still worried about my business in the middle of the night, at weekends and every day.

This issue is urgent. My only role in the submission is to address the committee as an individual, which is probably the reason I am so vociferous. My comments are heartfelt and sincere and my figures are open to be checked.

The issue of video evidence was raised. This country is like Palermo without the advantage of good weather. People will dive into toilet bowls next because placing a video in toilets is regarded as an intrusion on privacy. Cameras will not work unless our culture changes. People have to be honourable, decent and dignified. We have legislated ourselves into a position in which the undignified are living on insurance claims. I could point out people in my community who have decided to live in this way.

Three weeks before my premises in Kilkenny were due to open, two people broke in and burned them to the ground. I still parade around the forecourt here trying to get heard while members seek adjournments on ridiculous issues. I am being led on a merry dance. Given that my insurance policies have nothing to do with the previous case in which the hotel was burned down, the increase in my premium must be normal for the sector.

I cannot get a hearing in the Four Courts despite having a premises burned to the ground because the officials there have decided to keep on pushing the matter out of the courts. We have been waiting for five years to have our case heard and in the meantime are paying premiums of the order I mentioned.

I am conscious of the time and do not wish to delay the committee any longer. The pace of change is much too slow. If my business followed the pace of change in the insurance sector, it would vanish. What would happen if people like us decided to withdraw from the market? We need support from the State. Where do I go for help?

I am glad I had a rant. I have told the committee the truth, the whole truth and nothing but the truth. Members are welcome to inspect any of my books at any time at one hour's notice. I am the owner of a small business and have nothing to hide.

Chairman

I thank Mr. Griffin for his contribution. I share a great deal of his frustration and fully appreciate and understand much of what he said. We are all appalled that he had to pay an excess of €250,000 to survive and that this required him to put his home and family on the line and implement a three day week for management to keep the door open.

Mr. Griffin

That was earlier in the year.

Chairman

We are all aware of Mr. Griffin's reputation. I am not being patronising, but we all admire what he has achieved. A person who creates 300 jobs is making an enormous contribution. The Government has prioritised the insurance issue and appointed a Cabinet sub-committee which met yesterday. The Minister for Enterprise, Trade and Employment, DeputyHarney, appeared before the committee this morning when she availed of the opportunity to make a statement.

This is the first day of the committee's inquiry. I assure the Irish Hotels Federation, the Alliance for Insurance Reform and everyone who will appear before the committee to give evidence of their experiences before the end of July that, in making our interim report to Government, we will address the issues raised here.

I am delighted Mr. Griffin attended to relate with such conviction his experience, which has been a sorrowful one. We all know the current position has to end. If it does not hundreds of people will lose their jobs in the coming 12 months.

Deputy McHugh

I fully understand the frustrations articulated by Mr. Griffin. I appreciate we cannot wait for a year or a day longer than we should. We cannot, however, finish everything in a day, which is the reason I ask that we try to identify priorities to ensure we make progress in at least some areas. As the Chairman stated, the end of July is our target date.

The reason for my questions is not that I disagree with the case put to the committee but that I want to understand the issues involved because this will be essential in preparing a report. We do not want to present a report which looks good but does not contain a full consideration of the issue. I formed my judgment on the basis of a statement made in the submission by the Personal Injuries Assessment Board, which noted that, in effect, what is currently planned is too little and too late and if allowed to proceed on planned lines would represent a major missed opportunity to do something of real significance.

I hope I am correctly interpreting the view of the organisation, that the availability of a book of quantum would substantially address the problem. I based my comments on compensation on an earlier report which stated the cost of compensation for personal injuries is borne predominately by the social security and public health care system in continental European systems. Has the PIAB taken this report into account in formulating its views?

Chairman

In fairness to other members of the committee, we will allow Mr. Power to reply to the Deputy's question.

Deputy Lynch

I welcome both groups. This submission, and an earlier one, make the same basic point. My main concern is that people such as Mr. Griffin, with whom I largely agree, will lose their passion on this issue because they will have to wait for so long. His impassioned speech is what is needed to force quicker movement on the insurance issue. I understand a template for a personal injuries compensation board has been on the Minister's desk for the past six years. The large number of reports, including Government reports, published on this issue would seem to indicate that it would not be difficult to take action to address the problem. It is anyone's guess how the matter will be dealt with. I am not sure we will all get what we want but we will, at least, see action being taken.

How many members has the Irish Hotels Federation? I ask this question as a matter of interest, not to pin down the group. I am sure Mr. Gately, whom I know, is anxious to make a contribution. Has the organisation considered pooling its resources in an investment fund to protect its members? The combined premiums paid by the hotel industry, on which a large sector of the economy depends, would, I assume, be sufficient. Although it would clearly be in hoteliers best interests not to have claims, it is not possible to avoid them. A combined fund would at least protect hotels from the practice by which insurance companies make settlements on their behalf, even where owners believe they could have mounted a strong case in court. This is the difficulty facing the sector and addressing it should be part and parcel of future reform. For example, it should become mandatory for all claims above a certain amount to receive a hearing instead of being decided by underwriters, a practice which is causing creeping frustration.

The federation's argument makes sense. I cannot explain the delay but, perhaps, there are too many vested interests on the other side. Perhaps they are more powerful than all of us together.

Senator Leyden

I am greatly impressed and, indeed, upset by Mr. Liam Griffin's comments. He has really outlined a frightening scenario for the industry. In certain areas, the industry might be accused of a lack of competitiveness. Mr.Griffin has been explaining the reason it is not as competitive as the British model. On the legal side, the issue of "no foal, no fee" has serious implications for claims. I commend Mr. Pat McDonagh's approach to dealing with a case, as demonstrated on the video presentation. He has highlighted the fact that such cases must be fought, rather than give in to intimidation or blackmail. I commend that approach. Backing the Personal Injuries Advisory Board is a step in the right direction. I suggest that, with 1000 members, his organisation should seek quotations on a worldwide basis.

On the point made by Mr. Power, there is no competition between brokers. If a broker comes up with a better deal or suggestion, because of arrangements with insurance companies he or she cannot actually get that business because the same fee is paid.

Chairman

I draw the attention of members to the fact that there is a vote in the Seanad.

Mr. Power

With regard to the European social insurance contribution, Deputy McHugh's comment is correct. It covers payments for other work and has an influence on the level of service. However, it is still a payment which has to be made in compensation for a claim. In reply to Deputy Lynch, we have approximately 970 members. We did consider self-insurance, but the foundation, i.e. the claims settlements, has to be right. It would be an alternative if we had a reasonable level of claims costs. The model which we have looked at has worked in the past in some industries. Unfortunately, in a situation where many people come through our doors, we are very open to public liability type claims, which represent about 75% of our claims. We have taken steps on employers liability insurance. It is not really a question of taking on the insurance companies. We represent small businesses - perhaps a large group could afford to take them on. It will probably cost €20,000 to get a barrister to take a brief. That represents a fixed overhead cost to start with. If the level and quantum of claims are right, there are many possibilities.

Deputy Lynch

We need certainty in that regard.

Mr. Power

Yes.

Deputy Murphy

Unfortunately, public representatives are constantly hearing of cases such as Mr. Liam Griffin has described, not only in the hotel industry but in the small business sector in general and community groups. It has been emphasised that hotels and businesses cannot wait any longer - we need immediate action on the matter. It has to be a priority for this committee to get the message across to the Tánaiste that we need to move quickly on this issue. Perhaps some minor issues can be dealt with in the meantime.

On the issue of a three year delay in bringing claims, during which time the other party is unaware of a potential claim coming down the line, I believe that could be changed quite quickly. I am not sure that two weeks is sufficiently long but three years is greatly excessive. There are two other issues which we could take up with the insurance companies immediately. One is the question of proper notice of premium renewal. There should also be transparency and consistency with regard to premiums being charged to various businesses. These issues should be looked at immediately with a view to emphasising to the Tánaiste that this matter needs urgent attention. This crisis has been developing for some time. It is difficult to understand the failure of the Minister and the Department of Enterprise, Trade and Employment to realise that it must be tackled. It has now reached a crisis that must be dealt with immediately. Our task is to complete this inquiry as quickly as possible and get that message across.

Deputy Wilkinson

I join in welcoming the two delegations. I compliment Liam Griffin on his presentation today and his achievements in business and other fields. Apart from the wrongdoing involved in fraudulent claims, and the issue of excessive awards, the amount of money which legal and medical people are gaining from that is simply appalling. I welcome the establishment of this inquiry and the opportunity to participate in its work. We are constantly hearing stories from all sectors of business similar to what we have heard today. I am currently in correspondence with the Tánaiste about one such case involving a shocking report from a hotel business.

People in the legal sphere are currently questioning the massive costs of tribunals. While I do not wish to digress in that regard, it demonstrates that charges by the legal profession are excessive in many respects. I hope this committee, when it concludes its work on this issue at the end of July, will come up with concrete questions, answers and solutions. Otherwise this will be a wasted exercise. I have confidence that our deliberations will be productive and may, perhaps, lead to other areas also being scrutinised.

Chairman

The legal profession will be invited to come before this committee, in which event members will have an opportunity to air their views in that regard. I do not rule out the possibility of recalling certain organisations which, in the estimation of the committee, might wish to bring new information to light before the conclusion of this inquiry.

Deputy T. Dempsey

If the attendance of both delegations, the Irish Hotels Federation and the Alliance for Insurance Reform, is to be meaningful, this committee should formulate proposals for interim arrangements as we cannot address all the issues at once. In my view, the PIAB should be given court status. As Liam Griffin said, there is a need to change public perception. I noted Deputy Lynch's submission with regard to hoteliers becoming insurers. Speaking from experience on the management committee of the GAA, I can confirm the reluctance of insurers to take on certain business. Insurers are not making money - they are not the ones who are ripping us off. Hotels would lose money if they went into the insurance business. That also explains the reluctance of competitors to come into the Irish market. Those who are engaging in the rip-off are the legal and medical professions. We are also paying too much money to victims - I use that term advisedly. If somebody is injured, he or she is over-compensated by comparison with the prevailing levels in the Netherlands or in England. That is the basic issue we have to address.

Deputy Howlin

We have heard strong personal testimonies on situations of which many of us are already well aware - the problem is replicated right across the country. We should not allow a negative impression of this inquiry to go out. This committee is not just a form of confessional exercise in which people get things off their chests and then pick up their burden once again. This is a priority issue and things are happening. In relation to the PIAB, the heads of the Bill have been circulated and it will be enacted. The book of quantum is currently being formulated. I counsel suspension of judgment.

At the expense of sounding like a member on the Government side, while I have no intention of defending Government, I wish to refer, realistically, to what is taking place on a cross-party basis. In relation to the legal aspects, a new perjury Act is being prepared. All claims under the new Act will require a sworn affidavit. Any exaggeration in the affidavit will not only result in possible prosecution for perjury but also automatically nullify the claim. The Minister herself mentioned this morning a case in which a judge admonished somebody for lying and still awarded damages. That is unconscionable. These measures will all be in place in the autumn. It could be a case of "live horse, get grass"; it sounds a long way away but these things are happening.

There is one area we have not discussed, an important area. I am the only person sitting around this table who will be in the High Court next week.

Deputy Hogan

Best of luck to the Deputy; we will go and see him.

Deputy Howlin

I thank the Deputy. Because of this, I am aware of legal costs, since I am not indemnified by this House - although I acted for myself, as did my colleague Deputy Higgins. I know what lawyers charge and the potential costs involved and I know how difficult it is for anybody to vindicate what is right. It is a big issue for us as a people to ensure that people can stand their ground when they feel they are right without being required, simply due to legal costs, to yield. That is a moral issue which we have to face. I introduced a judicial accountability and training Bill last year and it may well have required a constitutional amendment. Because of the separation of powers between the Judiciary and this House, there is no mechanism for dealing with odd, maverick or inconsistent judgments - every judge is lord of his or her own domain. Even within the judicial system there is no peer pressure available. In order that we may be comprehensive in our set of proposals, I invite members of the Irish Hotels Federation to comment upon this.

Deputy Hogan

I apologise for being a bit late for the initial submission from the hotels federation, but I read the document that was submitted some time ago to the committee. It is consistent with many of the submissions we have received from various organisations. It is quite clear what is required in order to do something about this problem; we must get down to business and do it as quickly as possible.

It is stated in Mr. Power's submission that it is clearly evident from the member survey that there is no transparency or consistency in the way in which premiums are calculated. As a former insurance broker, I could not agree more. Has the group come across any useful suggestions about making companies more transparent? Are there any possible changes in legislation or powers that could be transferred to some statutory body in order to make this happen? We are in a free market economy - the insurance companies are not State-owned. I would be interested to hear any comments on this.

Mr. Power

A number of questions were asked. The first was about urgency and I will ask Mr. Gately to reply to this.

Mr. John Gately

I thank the Chairman. I regard myself as an indigenous businessman - I create jobs for my own benefit and that of my company and the people with whom I work. We read from time to time that jobs have been lost because of insurance costs and people wonder what that means, but it is happening everywhere, to people with crane hire companies, scaffolding companies and hotels. An example is that the cost of insurance for my own medium sized hotel with 50 bedrooms on the outskirts of Cork city went from €22,000 in 2001-02 to €70,000 in 2003-04. Ironically, I received my premium quote a week after the policy had expired so there was absolutely nothing I could do. The company had held it over for me.

The net profit in my business has been completely wiped out in the past two years. This time last year I set about reducing the one cost I could deal with immediately, which unfortunately was staff. Even though I had a 12% increase in turnover, there was a 10% reduction in staff for that year. Consequently, I got a rebate from my PAYE direct debit. This means that technically the Government is funding the increase in my insurance through the reduction in staff. When one thinks about it, it is despicable. We have all heard about how Ireland is starting to be regarded as a high-cost destination. We are now no longer able to pass these costs on to our customers so we are reducing labour costs, which in our business is not what we want to do. To return to what Mr. Griffin said, it does necessitate my being there 80 hours a week trying to keep my hand on the tiller.

Hotels, for the most part, are Irish-owned, generate jobs and contribute to the local economy. We are not fly-by-nights like the computer companies which, with respect, open up, create a fantastic amount of wealth in small towns and suddenly disappear five years later to open up a factory in Korea for a tenth of the cost. We are here for the long haul. This is one of the things that will really make a difference to us. I can tell the members personally, as a business owner, that these costs are killing me at the moment. By the way, I have had no claims in the past year and had none the year before.

Mr. Power

Deputy Hogan asked about transparency in calculating premiums. As a former broker, he knows that if one asks an insurance company about this one gets a figure which one can check with other companies. When we had competition, people might have offered a lower price in order to get a person's business, but now that there is no competition that is not happening. The calculation of the premium should show how it is made up: how much goes into claim settlements and into administration. It should also show how much has gone into bad investment policies, such as occurred in recent years and which I think is immoral. Insurance companies have lost premium cash flow in the collapse of international stock markets and this is being passed on to our members.

A clear statement in the premium about how much has gone into all of this would at least show us where the problem is. Is it in claim settlement? In genuine insurance the purpose is to spread the risk over a large number of people so that the person spreading the risk makes a profit. None of us begrudges a profit to the insurance companies, but we are concerned about finding out where our premiums are going and that the items reduced in cost are reduced fairly. The most effective way to do that in this case is through claims. That is the only model that I can suggest in terms of transparency.

Mr. Griffin

Before we finish with the Irish Hotels Federation, I have another point to make. Perhaps I am naive, but I understood under European law that one would be covered by people who operate within our State. For example, if a company in France comes to operate here we should be covered by law. This is another part of my sorry saga. I was insured by Independent Insurers before all of this happened but when that company went belly-up, my counterparts in England had their claims paid. I am still trying to get my claims paid. When Independent Insurance folded in this country we operators had no cover, yet the brokers sold me products offered by the company. When it collapsed, everybody in Britain was paid, but I was not. Nobody was held responsible. I am one of thousands of people still trying to pay for Independent Insurance.

Given my case history over five years, I like to think I represent many of those in business, many of whom are afraid to speak out. They do not want to appear in public at fora such as this. I promised my staff I would say and do whatever it took. I know I speak on behalf of many who have been stung by Independent Insurance. We have no protection in this State and we continue to pick up the tab.

Chairman

Many family businesses were in a similar position. Probably some of them operated for two or three weeks without insurance. Mr. Murphy, do you wish to conclude?

Mr. Murphy

I thank the committee for hearing us today. I attend branch and council meetings on a regular basis and I could also speak on behalf of another one thousand people. I have had personal experience in this area. While some are fearful of publicity, the two witnesses are not afraid to speak out.

This is probably the single most pressing issue for our industry at present. We are part of the fabric of this country. Every town, village and community has people working in hotels. We employ 65,000 people in the tourism industry and, in general, we employ 150,000. The industry is under threat from this issue. We need some movement, and quickly.

Senator Hanafin

I empathise with what some of the speakers have said. I know what it is like to worry about costs. How much of this can be dealt with by the committee in terms of what is wrong with the Irish insurance market? A number of references were made to the 2000 base year. While we started from a relatively high base, it appears that from that date there has been an exponential increase in costs. We are told it is because of increases in reinsurance costs following the events of 11 September 2001. Sadly, that is outside the control of the Irish market.

Deputy Dempsey said that, if necessary, legislation would be enacted to deal with the courts aspect. I have no doubt the committee will make recommendations on that aspect. We will not be shy in pulling hard to do what is necessary. However, if it emerges that costs have escalated because insurance companies are part of a reinsurance cartel, Deputy Lynch's suggestion that the hotel groups might pool their resources and insure themselves could be the only answer.

Chairman

I thank the delegation from the Irish Hotels Federation for attending the committee to explain and discuss their position on this matter. If we consider that we require further clarification we will be in contact. We would like the delegation to stay for the presentation by representatives of the Alliance for Insurance Reform.

I welcome Mr. Pat McDonagh of Supermacs,Mr. Gerry McCaughey of Century Homes andMr. Mark Whittaker of Avis Rent-a-Car. Members may ask questions following their contribution.

I draw the attention of witnesses to the fact that members of the committee have absolute privilege, but this same privilege does not apply to witnesses appearing before the committee. While it is generally accepted that witnesses have qualified privilege, the committee is not in a position to guarantee any level of privilege to witnesses appearing before it. I call Mr. McDonagh.

Mr. Pat McDonagh

Thank you, Chairman. I thank the committee members for reading our submission. I have been in business for 25 years and insurance has been the biggest issue I have had to address over the past 15 years. As our business expanded, I found we were being targeted by claimants and legal people in relation to false and exaggerated claims. I am joined by Gerry McCaughey, chief executive of Century Homes, which has operations here and in England, and Mark Whittaker, chief executive of Avis Rent-a-Car. He knows much about the English and Irish markets.

We do not have a problem with genuine claims; people have the right to claim. However, over the years I have become completely frustrated and disillusioned with the system in that fraudulent claims were being taken against our company. Despite highlighting this to the legal people representing us, politicians and others, including the Judiciary, I got no response. I found that the system worked in such a way as to ensure that cases were decided when they went to court. Some 90% were settled outside court, which does not give too much credence to the Judiciary. Most of the cases were decided on the ability to pay principle. Who was to pay the legal, medical, engineering fees and so on and, following that, the award to the victim? Again, nine times out of ten, the person or company with insurance ended up paying them.

This situation led to total frustration on our part. We highlighted a number of cases, including one involving a neighbour who lived eight or nine miles from me. She had genuinely fallen, but it was a minor fall. However, it was so exaggerated that the lady said she suffered epilepsy and, accordingly, it was settled by the insurance company without our knowledge for €148,000. It was alleged that because of her epilepsy she could never again drive a car, yet within one month she was driving a new car. It was a remarkable recovery. She did not live near Knock, so she could not have benefited from a miraculous cure.

This woman's case was the final straw. The case in Eyre Square got much publicity, but we have paid approximately £100,000 in claims in this area, covering about four different cases. We knew they were above and beyond all reasonable doubt, so we eventually decided to monitor incidents by camera. During the six months the camera was in operation, three different claims were made. In the first, one man was taken to hospital by ambulance, but he returned the following day to collect his coat when the manager told him he should enter for an Oscar award. That was the end of that. In the second claim much the same thing happened but the claimant's solicitor wrote to us with a statement of claim. We wrote back telling him we had evidence to say that the claim was incorrect.

We let the third case run to call a halt to what was happening and to highlight the injustice and corruption in the system. The person did not claim for a year and a half. Fortunately we hold on to all of the videos.

We had installed video cameras in most of the units as a result of claims because at that stage last year we had 98 live claims, some employer liability but most public liability. We had given the information to our insurance company and the day before the case was to come before the court we got a fax from the other side asking if there was video evidence. This showed the corruption surrounding the claim because it was our side who told the other side that it did not have a chance in the case as there was video evidence available. On the morning of the hearing our counsel said it looked as if the other side would withdraw the case. I requested him to bring the fraudulent aspect of the case to the attention of the court which he refused to do. When the case was called and the counsel on the other side asked for it to be withdrawn our barrister looked for costs, and it was all over.

I was left with no option but to stand up and tell the judge that I wanted to bring to the attention of the court the aspects of the case that were fraudulent, and that I had them on video. In fairness to the judge, he said he had no authority to look at the video and that there were other avenues I could take and to follow those. Our barrister would not highlight the video in court because while on that Thursday he was acting for us, on the previous Tuesday he had acted in another case, against us. The reverse was true of the barrister on the other side because on the Tuesday he had acted for us. So there is a system developing whereby today I look after you, tomorrow you look after me, and we will not embarrass one another.

The media too have a role to play in this in so far as they do not, or maybe up to then had not, reported or highlighted many of those cases. If I had not introduced that video in court I could not have highlighted it afterwards because a case could have been taken against me for it. Having highlighted it in court we could show it afterwards and this was the biggest turning point in my experience with regard to insurance because in 1999-2000 our particular units had 18 claims. In 2000-01 this fell to 16 claims and from last year up to date, since we highlighted this, our claims have dropped to four. The only reason for this is that we are no longer looked upon as an easy target, whereas previously insurance companies were settling claims, in many cases without our knowledge, and we were paying the piper at the end of the day.

Chairman

Have your premiums dropped accordingly?

Mr. McDonagh

We have become self-insured and I will refer to that later. As a result of this case we were inundated with calls from people telling us of their own problems and because of that I set up the Alliance for Insurance Reform. There are 1,700 companies, large and small, in the alliance and all have suffered similar experiences. As we operate countrywide we have this experience more regularly than smaller companies but it is affecting everybody, in motor insurance, home insurance, business, county councils and city councils and schools. In many cases I hear councils are not building more children's playgrounds because of the cost of insuring them. It cuts across the whole of society and it will end in stalemate. One of the outcomes is that three years ago settling claims was costing us in the region of £1 million per year, apart from our insurance premium, because we had excesses in many cases and I decided to invest abroad. That was probably the best decision I made in the past five years because I now have experience of the US and Northern Irish markets and our insurance in a similar business in the US is costing us 25% of the premium we were paying four years ago.

To return to the Alliance for Insurance Reform, we represent 1,700 companies and we have held meetings in various places and to hear people's stories of their experiences tugs at the heartstrings. One construction company that had been in business for three generations has had to close down in the past six months. Crana, a furniture company, had to close down in the past couple of weeks because of insurance costs. A person from Mountbellew who owns a B&B and small restaurant whose insurance premium has jumped from £3,500 two years ago to €16,000 said she was going out of business. She was at retirement age and had brought her son, who was a chef, back from Dublin to run the business but was now going to have to tell him that he was better off going back to work in a well-known Dublin hotel. It was not worth his while running the B&B as there was no margin in it. This is affecting jobs, and competitiveness, about which there is a great deal of talk at present. Insurance is one of the main reasons for high costs in Ireland.

One has to find out why the situation is as it is and the key players are the claimants, the legal profession, the Judiciary, the medical profession and the engineers, and the insurance companies. The compensation culture has grown more than anything over recent years. This has not happened overnight but over several years. Speaking from my experience, it was so well protected by the legal profession it was a closed shop, and the lawyers did not want anyone else to get into it or to highlight it. One positive trend is that in the past six months the number of claims reported to insurance companies has fallen by 20% and the awards have come down or have reached a euro per pound quota. The professional costs, legal, medical and engineering, in our cases amount to 46% of the total awards. That is ridiculous but it is in the interests of the legal profession to prolong the case so that it can increase and justify its costs.

The insurance industry is also to blame because it has sat idly by over the years and increased premiums. It has not tackled the fraudulent or exaggerated claims. Quite recently we had a food poisoning case for which the claim came in three years ago. We wrote to the solicitor for further information but got no reply. Two and a half years later we received a civil bill which we handed over to the insurance company, which told us on a Thursday that the case was coming up on the following Tuesday and that it was ready to settle. We had an excess on the policy and we said if they wanted to settle that was their problem but we were not paying the excess. We wanted to fight the case, which we did, and won but insurance companies will settle. To a degree, this is due to their experience of cases that have been taken and costs that escalate over time, so I do not blame them for being prepared to settle quite readily. The Judiciary also has a certain role to play because as far as I am concerned it is a cartel - I do not mind saying this publicly - it comes from the ranks of the legal profession, it looks after its own friends first when it comes to dealing with insurance claims.

To resolve the problem, we suggest the immediate and swift drafting of legislation to make the act of making fraudulent or exaggerated claims a crime. Nothing happened regarding the fraudulent claimant in our situation. We have reported it to the Garda Síochána on three occasions and nothing has happened yet. That was more than a year ago. We reported it to the insurance company two and a half years ago and heard nothing. We reported it to the Garda and still nothing happened. There is no penalty for making a fraudulent claim, nor is there a loss to the person who does so. Even when we win a case, it is not possible to collect costs because in most cases those who take the claim do not have any money.

We would like to see the perjury Bill enacted as soon as possible. Gardaí say to us that, without it, there is little they can do. We welcome the Personal Injuries Assessment Board and would like to see it brought into being quickly because it will aid matters. Regarding the book of quantum or realistic guidelines relating to awards, I have seen cases where the legal team has waited for a certain judge to preside before allowing the case to go forward. "Santa Claus" judges are known throughout the legal profession and it is known to whom one should go. I know a certain judge is regarded as lenient and claimant friendly and cases are not contested when he presides. The inconsistency is incredible and that is the reason only 10% of cases go to a hearing.

I am aware other companies are anxious to enter the market but, because of the situation that pertains, they are waiting on the sidelines to see what happens. The requirement for registration before they can operate in Ireland also takes time.

We will be glad to answer any questions. Many of my colleagues have had similar experiences and would be delighted to impart their knowledge and suggestions on how the situation can be dealt with.

Deputy Callanan

I welcome Mr. McDonagh and his group. I know Mr. McDonagh because he does not live far from me, and I know the type of business in which he is involved. I know how he has tackled this situation and compliment him for doing so. The barrister link appears to be serious if what Mr. McDonagh says is true. Perhaps he would elaborate on it. The compensation culture is a major issue and the only way to tackle it is to make submitting fraudulent claims a crime. It is important that this is done quickly. If it is not, it will continue.

Mr. McDonagh has shown by his video link that he is not an easy target and is not to be pursued. All companies can learn something from that, namely, that they will have to adopt a similar stategy. If they do not, they will not survive in the current climate.

Deputy Howlin

Most of us have had the opportunity as spokespersons to meet Mr. McDonagh and his group previously. Their submission makes for harrowing reading because it is a litany of actual cases. It deserves publication which I hope will happen.

In terms of the list of specific proposals, which are welcome and many of which have been or are in the course of being acted upon, I wish to tease out one or two that might pose difficulties. The first, which I tried to tease out with Mr. Power earlier, is the book of quantum. The notion that the levels would be set at some form of European Union average does not take account of the support systems that exist in many European Union countries, where the state takes up the slack by giving income support through the work insurance scheme to people who are out of work for a period. That could be taken into account here, but the levels are different in countries such as Germany or Holland. It is not a straight comparator in levels of compensation, and that is why I ask people to look on the book of quantum in the round, when it emerges.

The delegation suggests that costs should be awarded to successful defendants. This goes back to a point I made earlier. I am concerned that justice is becoming a rare commodity in this land because it is a very expensive process. We must be careful not to throw the baby out with the bath water and frighten people who have legitimate matters to bring to the courts. We should not make it impossible for them whereby, if they spin the wheel and it does not turn right for them, they are ruined because no one could face the costs. If there is any doubt about being able to prove the cause of a person's injury, he or she should not have such a wall to climb. I would be interested before making a decision in teasing out the reasoning behind this suggestion.

In terms of the medical code of practice for doctors involved in the assessment of personal injuries, I am not sure what the witnesses want. Who should draw up this code of practice? It is said that doctors differ and patients die, but I cannot see a situation where a code of practice could be drawn up on the basis of which a medical assessment could be restricted, unless an outrageous or unsustainable claim was made for injury, something I cannot see too many doctors making. I am interested in the logic and the witnesses motivation in this regard.

It is not an each-way bet for the legal profession but a no-lose situation. They are paid whether they win or lose a case. There is always an imperative to take a case. The witnesses have not put forward a specific proposal that would act as a disincentive to a person to go to court. I can give a litany of personal experiences I have encountered where people have taken a case that, on any fair evaluation, should not have gone before a court. There is a huge cost to Ireland Incorporated by such cases taking up space in court. There is no comeback. Even when a case is thrown out, the lawyers are paid and there is no admonition or penalty system to deal with that. Is that something the witnesses have examined?

Mr. McDonagh

I will deal with DeputyCallanan's question first. A system pertains within the Bar Council, it is an unwritten law, that barristers stick to their particular area. If I were to employ a barrister on a full-time basis in the company, he could not practise in court, which is very restrictive. He cannot represent me in court because it is seen to be biased or whatever. Accordingly, there is only a select number of barristers in different court areas. This is again a club. People have written to me stating they cannot enter the profession. I can produce the letters. One person was very frustrated that they could not enter the Bar Council because it is restricted.

What I have found is that, as a result, only a limited number of barristers operate within a specific court area. Therefore, they get to know each other because they are on opposite sides every day. The bottom line is, who will pay our fees? That is the deciding factor. The same is true of solicitors, because I have our own solicitors in many cases advising me to settle claims which I know to be fraudulent. One in particular comes to mind. I wrote to the opposing solicitor and told him I felt the case was fraudulent. It was raised in court and I was seriously reprimanded by the judge who asked who I was to write such a letter to a solicitor. He actually held for us at the end of the day. After about 15 or 20 minutes into the case he knew the case was fraudulent. He adjourned for five minutes to give the plaintiff's solicitors a chance to withdraw. The system is based on who will pay our fees. I will hand over to Mr. McCaughey to reply to Deputy Howlin's questions, with which he is more familiar.

Mr. Gerry McCaughey

I am in a unique position of being able to comment on the costs involved because we bought a competitor company last October in the UK. It is exactly the same size in terms of the building but has slightly more employees than two of the plants in Ireland, one in Waterford, one in Longford, and another plant in Monaghan. The total insurance cost for insuring that company in Wales, of 22,000 square feet, and with 60 employees, is £35,000 sterling. The insurance costs for the same building in Ireland with 20 fewer employees is €150,000. Try to imagine what it would be like if I was trying to compete against that company in the UK. One may speak about a threat to Irish competitiveness but I could not give a clearer or more simple example of the problem than that. The building was exactly the same, and I have no doubt that if the number of employees was the same the cost would be closer to €200,000.

To respond to what Deputy Howlin said about the barristers, I suggest that in this day and age this system is completely ridiculous. We have a system known as the Taxing Master. Suppose somebody comes to me and asks me to sell them a timber frame house and I say I cannot give a quote until I have it built because I do not know how much work has to be done. If at the end I say it will cost €250,000, he may say that is complete madness as it is worth only about €50,000. I would then suggest asking an independent person what he thinks it should cost. He happens to be one of my builder buddies and suggests it is worth €250,000 or €240,000. That is the ridiculous situation here with regard to legal costs. The first thing that should happen is that the Taxing Master should go and an independent group of people be appointed to define reasonable costs, not the legal profession policing themselves. That is where we need to start because the present system is so archaic. If you told somebody you were going to set up that system they would put you in a mental home. It is crazy. It is absolute and utter madness.

Nobody can deny the prevalence of a compo culture. I was interested to hear what Deputy Howlin had to say with regard to perjury. Our information, as of two weeks ago, is that the view of the Department of Justice, Equality and Law Reform is that there is no requirement to bring in a perjury Bill because it believes the offence is covered under the current system if there is proof of lying. However, the Bar Council has stated that is wrong, that it is impossible. To say that sworn affidavits would be a panacea to solve the problem if a person makes a fraudulent and exaggerated claim is complete and utter rubbish. The Bar Council has said one would need two pieces of corroborating evidence, even if the judge believed there was perjury, in order to get a conviction, so it would not happen.

This leads to what Deputy Howlin said about how one can put a disincentive in the way of people taking these actions. We would all agree that one of the biggest culprits in encouraging claims is the legal profession. The single biggest disincentive to a person making a claim is when a solicitor's client ends up getting a conviction for making a fraudulent or exaggerated claim. It will stop there because his name will be public knowledge and it will be clear what happened to him. The Deputy is correct in saying there must be a disincentive. This is not to get at the person who has a legitimate claim but if somebody is willing to go into court and make a false or exaggerated claim he has perjured himself and he has to face the consequences.

To give the joint committee some background, I am also a board member of PLATO which represents approximately 5,000 small businesses in Ireland. We are a self-help, mentoring organisation. We give our time free each month to help small Irish businesses. I call these small Irish businesses the modern day Irish patriots because these are the guys who have mortgaged their homes to set up their businesses. Has one member of the legal profession ever mortgaged their home to set up their legal profession? When they are out there encouraging these guys to make false claims somebody's home is on the line. The system is so unbalanced it is incredible. I am a director of AIR and I am on the board of the Courts Service and I have expressed my views on this matter. I have to go to a meeting after this and I do not know what view they will have of me following what I said on the radio about it.

There is a claim against us in a particular part of the country and we have said to the insurance company that this has to be fought. The insurance company's medical people could not find any evidence of the alleged injury supposed to have occurred six months after the alleged incident but decided the company was going to settle it. I asked the insurance company in writing why it had settled the case. The response I got was: "Because the judge involved is notoriously plaintiff orientated". I brought this to the attention of a senior politician, one of your colleagues, and that politician named that judge. The joint committee talk about doing something about the situation. Members of the House actually know who these people are and are sitting back doing absolutely nothing.

The matter of costs was raised. That is correct; there has to be a cost, but this goes back to the Taxing Master. There have to be reasonable costs. What we have here is a closed shop among the legal profession and not only is it a closed shop but it sets what it believes are reasonable fees.

Deputy Howlin

After the event.

Mr. McCaughey

It is complete and utter madness. On the medical code of practice, here is where the issue arises. Some people are going around to get multiple medical opinions until they get the one that suits their cause. If somebody does that all the medical reports should be put in public view in the court so that a fair decision can be reached. There may be a solution to this. My understanding is that it is the PIAB's intention to appoint its own medical doctors for an independent investigation of claimants. There may be within that a possible resolution of how to deal with the medical side of it. In terms of the legal profession, it comes to us, because it is ona no foal, no fee basis, so it does not have toworry about anything. If they lose the successful defendant cannot recoup the costs. Actually it is quite fair. There is a very simple situation here. If the legal profession wants to undertake a no foal, no fee basis, on behalf of its client - there are people who do not have means and have to be protected - it should have to put up a bond which states that in the event that its client withdraws the fees will be paid out of the bond. When this idea was mentioned to the legal profession, it went bananas because it wants to walk away and not be held responsible for anything. If one goes out and says, "no foal, no fee", it is only fair that it should have to prove to the court that a bond is in place.

Deputy Lynch

Is Mr. McCaughey suggesting that the no foal, no fee principle should only apply to the legal firm involved and not to those who are opposing it? Technically, that is what it means if the fees cannot be recovered.

Mr. McCaughey

I am saying it should be fair to both sides. If it is done on a no foal, no fee basis, the person defending should show his or her means and that he or she cannot pay. I am saying there should be fairness on both sides.

Senator Leyden

I want to make a point about the submission made by the group. Some statements were made in the submission which I do not question, but they should be published through this committee, and full parliamentary privilege should be given to the document. I say that advisedly with regard to some comments in the document and for the security of the group because I want to protect their interests. If I read out the contents of this document, which would take about an hour, everything in the document would be fully covered. I will take responsibility for this document. I propose that it be published through this committee and that it should have full parliamentary privilege.

I have never met Pat McDonagh but I want to commend him because he has done more for the industry from our point of view than anyone else. The submission on the CCTV was a brilliant piece of work, and he has helped many small industries fight these claims. I recommend to the Chairman that those four items be included in our report. There is nothing in them with which I disagree. They are excellent.

While Mr. McCaughey was speaking I wrote down the words, "no foal, no fee - legal professional liable for costs". If someone takes on that principle, they have to have the responsibility of encouraging other people. I agree it is helpful for those who are genuinely affected by negligence on the part of another. Nobody objects to that, neither the Irish Hotels Federation nor the organisation but we should make that clear to everybody. There is no point in winning a case against "John M" if he has no means - people of no straw, as they are called. I was involved at one time with a hotel in Roscommon against which a case was taken by a person who had nothing, and everybody knew that. The costs of the case were awarded against him and nobody got anything. That is a ridiculous situation. One is paying one's own fees.

I do not have a specific question but I want to commend RTE's "Prime Time" on its follow-up programme to Pat McDonagh's video. It exposed the fraudulent cases and the people in that video should be pursued by the Garda Síochána and brought to court. They were seen bungee jumping, wheeling a trolley around a supermarket and another, who was supposed to have a bad back, was shown dancing on a stage. The Garda Síochána and the Commissioner should view that "Prime Time" video and take the appropriate action. We must sort out this problem.

I have mentioned to my colleagues what Mr. Griffin said here. I hope his statement is carried by RTE tonight because people were shocked when they heard he had a liability of €250,000. That is unbelievable and people were horrified to hear what is happening.

Chairman

We all agree with that.

Deputy McHugh

I will not direct a question to the representatives of the Irish Hotels Federation but point out that at the end of their submission they said that some of their members were fearful of the publicity, and that was the reason they did not want to come forward. The person opposite is nodding so he must understand what they are talking about but I have a difficulty in understanding what they are talking about. Whenever there is any type of coverage of these cases there is an opportunity to make statements like that. The bottom line is that businesses need to get the message across that they are willing to pursue fraudulent claimants to finality. If that message was sent out, many of the chancers who are currently making claims would not make them in the future. That is why I was interested in the comment.

On the question of priorities, Mr. McDonagh highlighted one priority in terms of fraudulent claims, namely, that those people need to be pursued. There is confusion about whether there is adequate legislation or an adequate system in place to pursue fraudulent claimants, and Mr. McDonagh has personal experience of that. I understood that if somebody took an action which was found to be fraudulent, the judge had the authority to refer that to the DPP to pursue the case. Am I right or wrong in that regard? If I am right, the system in place is not being used and if I am wrong, in what way am I wrong? Perhaps the representatives might address that point because the particular case they highlighted occurred in 1999 but in January of this year, the Garda made a statement to the effect that it intended to investigate it. I thought there was movement on that but from what the representatives said earlier, there does not appear to be any kind of real movement on it.

Deputy Hogan

The fact that there are 1,700 members in the Alliance for Insurance Reform is testimony to the real problem and the fact that people feel obliged to take action themselves, which should not be the case. An organisation should not have to be established to deal with something that has been a live issue for a long time and which is frustrating in terms of the slow pace involved in trying to resolve it.

I could not agree more with Mr. McCaughey in respect of access to the professions, particularly when we talk about the Competition Authority needing to do some study and take some action. It is obvious from the inflation figures that the non-traded services - we hear about the corner shop being the cause of the problem - in the professions stick out like sore thumbs.

Deputy Howlin

I hope the Deputy is not going to inflict more lawyers on us.

Deputy Hogan

No. The Deputy is okay. He is well represented.

Chairman

Deputy Hogan, without interruption.

Deputy Hogan

The suggestion about setting up an independent committee of people through the PIAB is a reasonable one and should be examined. We have dealt with the judicial guidelines aspect. The Judiciary needs many guidelines and it is something that should be included in any report.

The definition of "independence" in relation to the Taxing Master is an excellent suggestion and one we will not even talk about under privilege in respect of the current Taxing Master.

Mention was made of the Government options in relation to other issues. I was in Brussels recently and I spoke to the head of the insurance directorate in the consumer policy division, a man from the United Kingdom. I asked him why it was not possible for me, as a citizen of Europe, to shop around for my insurance premia in any country in Europe. He said I could shop around and that I could bring the horse to water, but I could not make the horse drink. They are trying to reduce the barriers for insurance companies to compete here but they regard this country as a high cost location for claims and a high cost jurisdiction for claimants and, therefore, they will not do business here. We should be able to get around that if we are members of the European Union. Whether I am living in France, Germany or Ireland, I should be able to call, through a broker or myself as an individual, any insurance company across Europe and get a quote. Much work has to be done in that area.

On the question of easy access to relevant information and transparency, there is one issue of transparency that bothers me. Insurance companies never have to justify the reason they want to increase their premia. Should they have to justify that, and to whom?

Mr. McDonagh is now taking the load on himself in that he has gone down the road of self-insurance. Will he give us the benefit of his experience of that in terms of his costs? Is it costing money to self-insure or are you saving money?

Mr. McDonagh

In regard to companies not wishing to publicise their individual cases, a number of major companies - a large supermarket comes to mind - do not want the publicity because they fear they would be seen as a target for either fraudulent claimants or whatever if they publicise their own situation. Last year slips on grapes alone cost this supermarket €50,000. Therefore, one can imagine all the other claims there were. As I am aware, one becomes a target of the legal profession in other aspects if one highlights the situation. Speaking from personal experience, one is targeted in other ways. However, the problem is so serious that one will be either in or out of business if one does nothing about it. I am happy that I highlighted the issue.

On referring cases to the DPP, my experience is that it happens very little. In a case in Dublin not too long ago, which we won, the judge apologised that he could not give the lady compensation. To be fair, there is a change in attitude on the part of the Judiciary, particularly in the Dublin area. As was said earlier, the Judiciary is answerable to no one, including the Oireachtas and anything that happens can get contaminated, to say the least.

The five existing insurance companies do not want competition in the Irish market. The figures for two insurance companies were published in recent months, and both of them had an increase in profits. One company increased its profits by 24%. I do not have the figures for the other company but it was a substantial increase. These companies do not want others to come on stream because they have the market to themselves.

Mr. Mark Whittaker

Deputy Hogan inquired about experience in self-insurance. Our company, Johnston & Perott, is a family-owned business based in Cork. We have been in business almost 200 years and we were fortunate enough to get the Avis Rent-a-Car franchise in 1991. This problem has been with us for a long time. We originally started taking some level of responsibility for our own claims in 1994, because we recognised what was going on and how the matter was getting out of control. We are now almost entirely self-insured for motor accidents on the roads with our 4,000 plus rental cars each summer, which is an enormous risk. It is the only thing that keeps me awake at night.

Our concerns are a little different from some of the other concerns mentioned. Following a motor accident, it soon becomes quite obvious that an accident has taken place. Given that in many instances tourists drive the cars, liability may not always be an issue. It is usually about the quantum of damages and whether damage actually occurred rather than whether the accident took place. Usually there are Garda records etc. on which to rely.

However, I have some concerns which are as follows. Three people work full-time managing motor accident claims in our business. These people are as expert in their role as any person working in an insurance company. We are also audited by our broker and our underwriters to ensure estimates of our claims are correctly calculated. At the end of the insurance year, I look at all the reported incidents and accidents and give our professional opinion as to what these accidents will cost. I do so in the knowledge that it is quite likely the final outcome of that insurance year will be somewhere between two and a half and three times the estimate. Our best estimate on the last day of cover is that claims will multiply by a factor of approximately two and a half to three times. This is one of the reasons there are no entrants into the marketplace. One cannot run a business that way. We regard being self-insured in car hire as part of the way to do business.

When I was coming here today my colleagues gave me two bits of advice - whatever you do, do not criticise judges and do not tell anyone what we pay for insurance. I would like to get my hands on the insurance files of my competitors to see their terms because it is crucial to car hire. We take out a "catastrophe" policy. I nicknamed it "catastrophe" because it means that the insurers will cover us in the event of a very serious claim or our overall quantum of claim going way over the expected level. The cost of that safety cover has increased almost threefold this year. In addition, the level of claims we are asked to cover has increased by 30%. Just one group of people can pay for that - the tourists who are coming in through our three international airports and hiring cars from us.

This problem manifests itself all over the place. What has surprised me is that the public authorities and public bodies who are suffering most in this regard are remaining very quiet. This was highlighted in the recent "Prime Time" programme. I would like to pose a couple of questions. We need to be very sensitive to the duty of care people are being asked to undertake, and whether it is a reasonable duty of care. We also need to look at how far one should take the causal link. What starts as an accident and perhaps a broken leg suddenly becomes a lost job a year later, followed by depression. This is why the estimate of claim at the end of the year increases threefold. Bear in mind that within six months of the end of the insurance year we may have 60% to 70% of the claims settled. Therefore, it is the last 30% that multiplies the claims for that year.

Very serious questions must be asked in this regard and there are also practical steps which can be taken. Liability is usually not an issue from our point of view and, thankfully, fraudulent claims have not been as great an issue as the multiplier effect and the consequences of an accident for which we must compensate, including at what point the causal links stop.

I thank members of the committee for taking the time to consider this issue. I wish them well in their deliberations and I hope that by working together we can highlight some of the short-term steps that can be taken, including some movement on affidavits, the perjury Bill, the book of quantum and so on. It is also about public attitude. There is no doubt that taking an insurance company for €50,000 is not quite as popular as it was a year or two ago. We are hoping in the alliance that we can provide the public support for the Oireachtas to make the changes. We will try to bring the public view around to seeing that this must be tackled. The public is taking this on board. They have seen it in car and house insurance and so forth.

I thank the committee for the opportunity to make a contribution.

Chairman

Mr. McDonagh, you have 1,700 account holders in the insurance sector. What number of employees does that reflect?

Mr. McDonagh

They come from across the board. There are some major companies throughout the country.

Chairman

I am aware of one which has 700 employees.

Mr. McDonagh

The bigger ones are Superquinn, McDonalds, Campbell Bewley, Glen Dimplex, Bord Gáis and An Post but there are small companies with just two or three people which are probably equally important. I cannot quantify the number offhand but I can get the information for the committee.

Chairman

Have you found from experience that video evidence is accepted in court?

Mr. McDonagh

Video evidence has saved us a fortune. It is accepted in court because it is the factual record of what happened.

Chairman

I have had the same experience.

Deputy Lynch

This meeting is being reported, so everything said at it will, I hope, form part of the committee's conclusion. In my experience, when one is looking for redemption of a small claim which does not involve going through a long process, it is virtually impossible to deal with the insurance companies. There is not only a public mindset in relation to compensation culture, the mindset within insurance companies is such that they now do not want to deal with an individual member of the public. They expect the person to get a solicitor to deal with them. If a person tries to deal with them about small legitimate claims, it is virtually impossible to do so on a one-to-one basis. It does become like Mr. Griffin describes, with threats of personal damage if they do not deal with it within a reasonable length of time and a reasonable fashion. That needs to be addressed.

Mr. Whittaker

I can respond to that in two ways. One of the beauties of self-insurance, within a regulated structured system, is that we have settled claims and delivered the cheque within 24 hours. People have been grateful for that. We have paid out on estimates before repairs even take place. We have loaned cars. We do anything to smooth the path to the final settlement.

Second, I had the misfortune to suffer a reasonably serious accident and was hospitalised. I got a letter from the VHI, which had obviously received a bill from the hospital, inquiring if I was pursuing a claim following the accident. I was not. However, somebody else might think that a good idea and consider doing so. What does one do?

Mr. McDonagh

The Deputy asked me about my experience of becoming self insured. I would advocate it to many companies. We became self-insured about one and a half years ago. We have what is known as catastrophe insurance which costs, for our restaurant, about €120,000. However, we have an aggregate of €750,000 which will be our cost if an accident or number of accidents reaches that amount. Since we have become self-insured, as with the experience of my colleague, Mark, we have settled some claims for which we felt we were liable. We settled them at an early stage without a huge cost in legal fees, although legal personnel were involved. We settled them at about 50% of the cost but giving the victim the same award as if they had gone through the process. We saved a huge amount in legal costs.

With regard to insurance companies dealing with claims, the claims assessor has probably 300 to 400 claims on hand. He has to get a certain number off his desk per week. It is impersonal to him; it is the company's money. His progress in the company is decided on his ability to settle those claims as soon as possible so he is only concerned with getting a certain number of cases off his desk. Many claims assessors have said this to me. There is no personal interest on the part of the insurance companies in their way of settling claims.

I thank the committee for the opportunity to speak today. We will be delighted to help the committee should it need anything further.

Mr. McCaughey

A Deputy asked about transparency in insurance companies with regard to renewals. A simple suggestion could be implemented. Insurance companies should have to provide one with more than the two weeks notice - we say it should be at least 60 days - of the renewal premium for the following year. There should be penalties if they do not do so. The way the proposal of the premium for the next year is put forward to the client should include details of how it is calculated. This is not rocket science. The insurance company, when dealing with my business, would ask how many employees or operatives are on the factory floor and what the wage roll is, how may saws there are on the premises and how many people are allowed to use them and how many people are in managerial positions and the number of sales representatives on the road.

The company specifically asks about the wage roll for these people. What they are doing is applying a factor to the wage roll in a particular occupation. The insurance company will tell one this, but it never documents it line by line to show how the premium is actually calculated because there is one other important thing to be included, the year on year technical reserve. That is probably the single most important one in terms of how they shaft the client, if the committee will pardon the language, year-on-year. I will explain. The company says there was a claim the year before so it applies what it calls a technical reserve, which is the amount the company believes will be awarded against the client. In Ireland it can take up to three years for a case to be heard so the client can be carrying a technical reserve for three years on the insurance policy.

Deputy Lynch

It will be paid by the time the case arises?

Mr. McCaughey

Absolutely.

Deputy Lynch

However, the client will pay it again later.

Mr. McCaughey

Yes, but the client does not see a decrease. Year on year the company should be forced to show the client what technical reserves the client is carrying forward. At present, it does not have to do so. It disappears but the client's premium has reached that height and the company does not give the corresponding reduction as it comes off the system. Basically, it should operate like penalty points and disappear after three years. The insurance companies do not do that.

There should be line-by-line transparency. Most important, the companies should show the technical reserves they have against previous claims and they should be forced to take them off and show them being taken off. If they remove them, the client should see a decline in the premium.

Chairman

I thank both groups for appearing before the committee. This is the start of our inquiry and the group has given us food for thought and much important data.

The next meeting of the joint committee will be at 12 p.m. on Tuesday, 1 July, to continue today's work. A meeting of the select committee has been arranged for 9.30 a.m. next Wednesday to take Committee Stage of the Industrial Development (Science Foundation Ireland) Bill 2002.

The joint committee adjourned at 3.30 p.m. until 12 p.m. on Tuesday, 1 July 2003.