On behalf of my colleagues, Mr. Taheny and Mr. Moran, I wish to say that FBD Insurance is pleased to have been invited to make this oral submission to the committee. I am aware that the committee has already received submissions from the IIF and a number of our fellow insurers. They, and the IIF in particular, will have given the committee a global view of the key issues the committee is addressing. Consequently, I will by and large confine my comments to an FBD perspective on the subject.
We have circulated slides and I propose to take you through them. Slide 1 shows that FBD Insurance plc is part of the FBD Holdings group. From slide 2 you will note the group also has interests in life assurance, insurance broking and in hotel and property developments. Slide 3 highlights that FBD Insurance is a direct sell company distributing insurance through a network of 50 branch offices. This brings us into close contact with, and makes us extremely accessible to our customer base. Our target markets are the farming, retail shops, pubs and SME sectors.
Slide 4 shows our market share as at December 2002. We have 8% of the overall market. As you will note we are the biggest Irish owned company in the market. Our penetration in markets outside Dublin is considerably higher as until recent years we had focused all our attention and development energies on rural Ireland. Slide 5 shows our motor-non-motor split of business is 59% motor and 41% non-motor. The next slide, looking at the non-motor sector gives a feel for our book of business. It is made up of property at 17%, liability - both public and employers' - at 23%, and miscellaneous business at 1%. Going a bit further into our book of business and the nature of business we underwrite, you will see from slide 7 that our farms - in terms of policy numbers - account for 52%, stand-alone home insurance 34%, sundry businesses 9%, shops 2% and pubs 2%. It is pretty reflective of the Irish economy and rural Ireland and SMEs.
The next slide focuses on how FBD has fared and how our results have turned out over the years in the various classes of businesses we underwrite. Slide 8 gives our underwriting results which, as we all know, are premiums, less claims and less overheads and shows that for the various classes of businesses covering the years 1998-2002, liability - the yellow line - and motor - the red line - have shown losses for all those years, they are below the zero median; property - the green line - has been in profit and the overall outcome - the blue line - shows ongoing underwriting losses during the period.
Slide 9 depicts the technical result for these classes of business, by that we mean the result after crediting investment income to the accounts. Our overall technical result - the blue line - shows a profit over the period. This profit is attributable almost entirely to our property account which has made up for the losses experienced on our liability and motor business - the yellow and red lines.
This brings us to the key issues facing FBD, issues which mirror those of the industry. In slide 10 we have noted that the key requirement for FBD and any insurer is the need to meet regulatory solvency margins and also to achieve an adequate return on capital. In an era when declining investment returns are being experienced, this puts the spotlight firmly on the cost of claims as the critical factor requiring attention.
Slide 11 summarises graphically how each €100 of premium paid to FBD is disbursed. After crediting investment income of €7 to the €100 - on the left - the total of €107 is disbursed as follows: €88 goes in claim costs, of which legal and other fees make up €18; operating expenses are €8; moneys paid to re-insurers are €4; Government levies and taxation account for €3; the amount retained for solvency is €2; and the dividend to shareholders is €2. It is clear from these figures that premium reductions will be possible only if the major cost element, that is, claims, is reduced.
How can these costs be reduced for the benefit of all parties, that is, personal and business customers, and insurers? We have highlighted in slide 12 the major role which we believe the stringent implementation of the penalty points system for speeding, and the provision of access to insurers to the national driver file, have to play. We also encourage an expansion of the range of offences that attract penalty points, and we favour increased sanctions for driving without insurance.
Slide 13 records that there has been significant progress to date, and we believe that matters are heading in the right direction. We have seen the Government's commitment to assist in changing Ireland's claims culture and claims handling procedures through a new focus and new legislation. The MIAB report and the Government's high powered committee to oversee the implementation of its 67 recommendations provide a vital road map for delivering the reforms necessary to reduce insurance premiums. The introduction of penalty points has begun to deliver to insurers and insured alike. This is evidenced, as we see from the next slide, by the reduction in car premiums which many insurance companies have already introduced. As slide 14 highlights, FBD has reduced third party car premiums by 5% compared to last year, in addition to introducing a range of options and discounts that can reduce premiums further. This 5% reduction must be considered against the background of inflation running at close to 5% this year. In real terms, we are talking about a 10% reduction vis-à-vis 2002.
The premium reductions which FBD has implemented to date have been put in place on foot of the reduced claims frequency and reduced claim costs that are emerging as a result of the improved road safety scenario. However, major progress will be seen only when other key action requirements are undertaken. They are listed on slide 15 and are as follows: the early operation of the PIAB - Personal Injuries Assessment Board; legislation to discourage and penalise exaggerated and fraudulent claims, the introduction of a book of quantum for greater certainty and consistency will be the order of the day with regard to injury claim compensation levels; a restructuring of the current inefficient and costly civil court procedures; and retaining circuit and district courts jurisdiction limits at the current levels.
There are initiatives which the insurance industry must also undertake. Slide 16 reminds us of what they are: they must implement guidelines recently agreed with business associations in relation to the investigation and handling of personal injury claims, insurers should pursue the rehabilitation of injured claimants as opposed to the current "pay up and move on" settlement approach. Indeed there is room for improved co-operation between insurers and insured on both accident prevention investigation and claims handling. FBD is playing its part in taking initiatives designed to reduce claim costs and ultimately premium costs as the next few slides show. For a number of years we have a full-time safety-risk assessment officer on board, to review risks and advise on safety measures for farmers and small businesses. FBD promotes and assists in the completion of safety statements by farmers and other business clients. FBD, in association with the National Parents Council, has promoted and funded the safety education programme for secondary schools. As of March 2003, approximately 12,000 students have been addressed.
FBD has undertaken safety education initiatives in primary schools in the Munster region in particular in association with theIrish Examiner group. Over the years, FBD has provided substantial sponsorship funding in the area of accident prevention to sundry organisations, and we have been to the forefront of such promotion in our target markets.
FBD recognises and wishes to support the invaluable role that this committee can play in advancing the agenda that can ultimately deliver economic insurance. Economic insurance means insurance at a price that delivers a return on capital sufficient to reward and maintain investment by shareholders in the industry while also delivering premiums to the general public and businesses at a level that is competitive relative to competitor countries. The template to achieve these ends has been clearly mapped, and if all interested parties work together these objectives can be achieved. I assure the committee that FBD is prepared to play its part in this mission.