JOINT COMMITTEE ON ENTERPRISE AND SMALL BUSINESS díospóireacht -
Tuesday, 8 Jul 2003

Vol. 1 No. 19

CIF and SFA: Presentations.

Chairman

We are now in public session for the fourth of our public hearings into reform of certain aspects of the Irish insurance market. I propose to take submissions from the Irish Construction Industry Federation and the Small Firms Association. Members are reminded of the parliamentary practice that they should not comment on, criticise or make charges against any person outside of the Houses, or an official by name or in such a way as to make him or her identifiable. Members who wish to make a declaration on any matter being discussed may do so now or at the beginning of their contributions. Members are also reminded that if there is a possibility of there being a conflict of interest, they should make a declaration of interest either now or at the start of their contributions.

I will set the good example by declaring my interest in the hotel industry. We had the Hotel Industry Association in some days ago. I welcome Mr. George Hennessy, Mr. Kevin Gilna, Ms Patsy Supple and Mr. Billy Clancy of the Construction Industry Federation. I also welcome the Small Firms Association - Mr. Kieran Crowley, Chairman, Mr. Pat Delaney, a director, and Ms Patricia Callaghan, an assistant director. We will hear both submissions and then have a question and answer session.

I draw witnesses' attention to the fact that members of the committee have absolute privilege but that privilege does not apply to witnesses appearing before the committee. While it is generally accepted that witnesses would have qualified privilege, the committee would not be in a position to grant any level of privilege to any witnesses appearing before it.

Deputy T. Dempsey

I am a member of the CIF.

Deputy C. Lenihan

I am not a member.

Chairman

I welcome the delegation.

Mr. George Hennessy

Thank you. I am accompanied by Mr. Kevin Gilna who is in charge of public affairs for the CIF, Ms Patsy Supple, director of John F. Supple Construction from the Cork branch and Mr. Billy Clancy, MD of Clancy Construction of the south-east branch.

This is our first opportunity to address the committee. The CIF is the representative body for the construction industry in Ireland and our membership covers all regions and all sectors of the industry. Approximately 95% of the firms in the industry are small to medium-sized enterprises and membership of the federation follows that pattern. Most of our members are small to medium-sized enterprises. The turnover of the industry last year was €20 billion, which is 19% of the total economic activity in the country. There are about 190,000 people employed in the site based sector of the industry and that accounts for over one in ten people working in the country. It is a very large sector of the economy and insurance is a major issue for the construction industry.

In terms of the overall insurance market it can be described as a hard market, with rapidly increasing insurance rates and a low capacity within the market. The situation in construction has an added dimension in that the number of firms interested in doing business in that sector is down to about three and one of those is responsible for over 50% of the construction insurance market. In addition, there are a number of industry schemes. The federation is involved in one such scheme through AON brokers.

We welcome the co-ordinated action on insurance by Government, the insurance industry and employers. Together we can change the whole culture in the insurance market. We welcome the fact that in the new national programme, Sustaining Progress, the social partners have made insurance one of their top ten issues to be dealt with by the Government.

In terms of the key issues, the availability of insurance to construction firms is important. Many firms are finding it difficult to get quotations from more than one insurer and in many cases they are lucky to get one quotation. They can get a quotation within a few days of the renewal date on a take it or leave it basis. Some firms have found it impossible to get insurance and there are issues in that they are possibly trading without insurance at present although I should point out it is not a legislative requirement to have insurance. I will deal with the cost of insurance policies later.

Regarding regulation of the insurance market, it is a European market for non-life insurance but the demise of independent insurance companies has highlighted some key issues for us. The fact is that construction companies in the UK which were insured by independents were compensated by the compensating authorities in the UK in respect of their employment liability claims while Irish firms insured by independent insurance companies got nothing and were excluded on the basis that while employers' liability insurance is mandatory in the UK, employers' liability policies are not mandatory here. That is an important issue for the committee to consider.

Much has been said about the claims culture and I will go into that later, including the Government initiatives in that regard. We surveyed our members at the end of last year and I have selected some of the views expressed to give a flavour of what is happening. The first states:

It is nearly impossible to get a quote from an insurance company, therefore you have no option but to obtain your policy with your current broker or insurance company. Due to the fact that you have to stay with one company you are forced to pay a very large premium. As they have very little competition against them therefore you are caught in a web of large fees. Even if you never claim from them, you never receive a reduced rate, only more hikes in premiums.

The clear message is that even if one has an exemplary health and safety record, that is no protection against the huge increases in insurance premia that have taken place. The second states:

Choice in the market is severely limited. At our last renewal date we put a proposal to the only potential competitor of our current insurer, who replied to the broker with a one-line response refusing the quote. This means we had absolutely no choice in placing our insurance elsewhere. Currently there are only three insurance companies in the market which may be willing to take on our business. Secondly, despite an excellent health and safety and claims record our insurance over the last two years has risen by 45% and 85% respectively, with no choice - we have to accept increases in both premia and the levels of excesses applying to our policy.

On the types of increases suffered by the industry, quoting from example No. 6, in 2000 employers' and public liability was €6,600, in 2001 it was €8,900, in 2002 it was €13,000 and in 2003 it was quoted at €27,000. That is an increase from the year 2000 to 2003 of from €6,600 to €27,000. In example 9, prior to this year the insurance cost was €800 per housing unit for employers' and public liability.

Chairman

Were there any claims for that one?

Mr. Hennessy

The quote I have——

Chairman

There were no claims in that instance and the cost increased from €6,600 to €27,000. The cost quadrupled under the no claims bonus policy.

Mr. Hennessy

That is correct. It was a small company which was forced to let go two employees to try to generate funds to pay the insurance premium. He did not say whether he accepted the quote of €27,000 in 2003. The cost of insurance worked out at approximately €800 per housing unit for employers and public liability. In 2002, the figure per unit, after much negotiation, was agreed at €1,550 per unit, an increase of 100%. As we are closing approximately 400 sales per year, this amounts to approximately €300,000 more than the cost of our premium for the previous year.

Returning to the issue of Government policy, there has been a fair amount of activity in recent months. It is fair to say that we welcome the establishment of the Personal Injuries Assessment Board. It is vitally important that the Bill carries through on the intent of the heads of Bill as published in May and, when presented to the Houses of the Oireachtas in the autumn, that it is implemented without delay. The Tánaiste's expectation of having it enacted by the beginning of next year is our wish. Under its remit, the PIAB will initially have responsibility for employers liability claims only. Public liability claims is a vital issue for the construction industry. We would like the remit of the PIAB to be extended to public liability and motor from an early date.

We welcome the decision by the Law Society to ban solicitors from advertising taking cases on a 'no foal no fee' basis with effect from February 2003. It is important to ensure that the legal profession maintains this ban and that it is fully respected by members.

In relation to exaggerated and fraudulent claims - I prepared my notes last Wednesday and Thursday but I had to revise them on Friday afternoon after the Minister, Deputy McDowell, announced the heads of the civil liability and courts Bill - the Bill proposes to address a number of key issues in this area, which is welcome. However, heads of Bills must be translated into legislation which must be put through the Houses of the Oireachtas. While it is a welcome first step, it is vital that these measures are carried through. One issue which was not referred to on Friday was defendants' costs and how these will be addressed where it is proven there has been exaggerated or fraudulent claims and the case has been thrown out. The experience of our members is that it is impossible to get costs in the case of many claims and I would welcome any ideas in this regard.

There are positive measures in respect of mediation in advance of hearings, particularly the proposed reduction in the period for making claims from three years to one year, which is welcome.

Finally, I would like to refer to insurance quotations and the renewal of premiums on an annual basis. There are two points we would like to raise, that is, the timely provision of renewal quotations for companies in the construction sector and the provision of claims experience by existing insurers. We recommend a period of grace of perhaps four to six weeks from the date of receipt of an insurance quotation from the existing insurer to allow one to consider one's options if one feels there has been a huge hike in the insurance premium. At the moment one can get renewal details within a matter of days of one's insurance being out of date. This puts enormous pressure on construction firms without the possibility of checking out the market. In order to facilitate companies trying to get more competitive quotes, it would be extremely valuable if insurance companies would be prepared to provide details of the accident experience of the company and the amount of reserves they are holding in respect of that company. This would facilitate companies in looking for alternative insurance quotations.

Chairman

I thank Mr. Hennessy and look forward to meeting him anytime during the term of this Dáil. I welcome Mr. Pat Delaney, Mr. Kieran Crowley and Ms Patricia Callan from the Small Firms Association. Representatives of the association came before the committee a few months ago. They are welcome back and I ask them to make their submission.

Mr. Kieran Crowley

On behalf of the SFA, I welcome the opportunity to make our views known to members of this committee. I am pleased at the attendance this afternoon which demonstrates the realisation of Members of both Houses that insurance is a major concern for people in Irish business.

Each year the SFA conducts a survey of members to find out what issues worry them most. This year, for the second year in succession, insurance is the number one concern of people in small and medium enterprises in the Irish economy. Some 19% of people surveyed told the SFA that insurance was their biggest problem, including the rising cost of premiums, administration of insurance claims, the incidence of insurance claims, the way they were treated by insurance companies, the way they were treated by the courts, the length of time it took to settle and the costs involved. Not only was it the major problem for 19% of businesses this year, but 82% of businesses said it was a major problem. It ranked in the top ten problems. They may have had other concerns about rising costs of wages and so on but insurance was still something that became them and a good night's sleep.

Members of the committee must consider what is happening in the Irish economy and in the climate of small and medium sized businesses. We have seen a dramatic change in recent months and in the current year. We have seen a rapid disimprovement from the net job creation record of some years ago where 65,000 new net jobs were created in the economy. The majority of these jobs were acknowledged by members of the Cabinet and the Taoiseach as being created by small and medium sized enterprises. We must ask why that rate of job creation has stopped and this year we are looking at negligible net additional job creation. We must realise there is a connection between the fact that new job creation is shrinking at such a dramatic rate while at the same time the people who are engaged in business are saying that insurance costs is one of the major business problems. In the 18 months from 1 January last year to the end of June, there have been 35,000 notified redundancies. Members will appreciate that notified redundancies are just the tip of the iceberg of the behaviour of employment opportunity in this country for people. What is notified arises from formal employment. Anyone who has been walking the streets and pavements this year looking for summer employment, part-time, casual or supplementary work will be able to tell members of the committee that it has been very difficult to get such work. There has been a contraction of these forms of employment generally in the economy.

In many of the cases where companies have closed and redundancies have been announced one of the key issues identified as causing the closure has been the cost of insurance, the inability to get cover and the enormous increases being sought by underwriters to continue cover. We can put this against a background of why they are looking for increased cover. In the SFA survey 76% of the respondents said their claims experience had not changed over the previous year, 15% said their claims experience had improved and 9% said they had experienced an increase in claims. We are looking at other drivers here for the powering ahead of rate of premium increase.

Our members are saying that, on average, they are looking at an increase in premium of the order of 52%. Many individual members report increases of more than 70%, and I am not referring to exceptional, hard cases. This is at a time when our exporters face US dollar and the sterling exchange rates moving against the euro in dramatic adjustment which make our exports seriously disadvantaged in competing countries where those currencies matter. They matter because the sterling and dollar areas are two of our most significant export markets. There is no opportunity in those markets to recover cost increases. If our members are experiencing this level of cost increase for a significant overhead there is no place for them to turn and it can only eat into their profitability and their reserves and resources. One can only dip into those resources once. One cannot do so year in and year out or one will no longer have a business.

Another characteristic of this level of insurance premium is the increasing number of firms that are borrowing to finance their insurance premium. Approximately one in two companies are borrowing from banks to pay annual premiums in ten instalments because they can no longer do what they used to do five or ten years ago and write a single cheque to their insurance broker to pay what was another routine bill.

Chairman

Have you evidence of this from research?

Mr. Crowley

Yes. There is a survey which——

Chairman

Have you hard evidence from research that your members are borrowing from banks to pay their premiums?

Mr. Crowley

I have seen that survey. Not only have I seen it but I can confirm it from personal experience. I have been in business for nearly 20 years and for 17 of those years I was able to write a cheque to pay my motor premium or my employer's liability or public liability premiums. For the last three years I have had to take a temporary loan and pay the premiums in ten equal instalments, at an additional cost of the interest charged on the loan. If I could get a loan at 6.5% I would be doing well. It is more likely to be 8.5% for that kind of loan.

A company has only limited capacity to borrow. It would be much more beneficial if borrowings were used for working capital to finance inventory or for job creation. To use the limited borrowing resources of a company to finance an insurance bill is a very inert application of that facility.

The SFA thinks the pace of reform is not fast enough or deep enough. We are hugely disappointed at the assumption that when the responsible people announce intended legislation the job is done and they are then in a position to receive plaudits. Insurance is a long run-off business. It takes several years for an insurance claim to be heard or for the benefit of a change in the incidence of claims, court awards or the cost of processing a claim to be experienced by the people who are writing the cheques and to be reflected in the premiums charged to ordinary businesses.

The PIAB is one of the major initiatives Government has brought forward. We are hugely disappointed at the slow progress this board is making in being put into position to act. This is a very limited solution to a small area of the problem. It will deal with employer's liability only. It will not deal with public liability or motor insurance claims. It will be restricted to cases where there is an admission of liability. We must wait and see what percentage of employer's liability cases fall into that category. We are disappointed at the slow progress of the Bill to enable the board to start working.

A piece of information was introduced at a previous hearing of this committee which suggested that Ireland has a high rate of accidents. The European Commission's statistics say that Ireland has the second lowest rate of workplace accidents of EU member states.

Chairman

Is it your opinion that Ireland is not an unsafe place to work?

Mr. Crowley

It is not a matter of my opinion. The EU Commission's published statistics state that.

Chairman

It was stated before our committee last week. I know you are aware of that.

Mr. Crowley

It needs to be corrected.

Last week the Minister for Justice, Equality and Law Reform announced various reforms in the procedure of making claims and their hearing in the courts. One of the inequities affecting the system is the propensity of different judges to give widely different awards. This behaviour encourages plaintiffs to go to the steps of the court on the morning of a hearing to see whether their case is coming before a judge who is generous with awards or before a judge who is modest in his or her awards. Where is the justice for the plaintiff if the outcome in going before a court can be so different, depending on which judge hears the cases? The SFA has always said that in underpinning the work of the PIAB there should be a book of quantum setting the awards for different types of injury. It is absurd that one can get a result in one part of the country which differs by 50% or more from an award in a similar court in a different part of the country. Anyone who is engaged in this business knows which courts are generous and which are not.

This is part of what the Minister was trying to address in his Bill last night but he did not address it specifically when he announced the heads of the Bill. He announced measures to ensure early mediation and early declaration and accurate quantification of the claim so that exaggeration, delay and procrastination would not take place and we would be spared the unnecessary allocation of court time to these kinds of hearings. The Minister referred to the committee on court procedure, chaired by Mrs. Justice Denham, and suggested there were matters she might consider. We are too conscious of a long history of trotting out the excuse that the separation of the Executive and the Judiciary meant that the Department could not give any direction to judges to reform their practices in these matters and introduce consistency. Mrs. Justice Denham's committee could usefully look at the equity of making sure there is consistency in the awards of the different levels of court.

The Department of Enterprise, Trade and Employment appears to be resting on its laurels in its promotion of the PIAB Bill, however tardy its progress may be in approaching the House and getting it passed. We must examine one of the things which was pivotal in precipitating the recent explosion in costs of insurance cover in Ireland, that was the collapse of the Independent Insurance Company. The company insured something like 450 to 500 businesses in Ireland and specifically addressed businesses paying annual premia in excess of €10,000. Mainly medium sized employers were affected by its closure.

The consequence of the company going into liquidation was that people who had paid premiums for a full year lost cover and had to immediately turn around and find another underwriter. In that year they had to pay their premium to the Independent Insurance Company and then turn and pay a premium to a new company to cover them for the rest of the year. Nobody on this committee would be surprised to know that the premiums charged by the surviving companies were significantly up on the premiums charged by the Independent Insurance Company. Some people said it was a case of caveat emptor and that anybody who was insured with the Independent Insurance Company should have known that the rates it was charging were so significantly less, perhaps 10% to 12.5% less, than their competitors that there was a risk and that a company charging uncommercial premiums would collapse sooner or later.

This flies in the face of the fact that when these companies were taking out cover with the Independent Insurance Company, it was simultaneously receiving excellent ratings from credit rating agencies such as Moody's and Standard & Poor's and it was winning the plaudits of the industry and of the Stock Exchange for being an outstanding new company and excellently run. I have yet to see any suggestion that the brokers who recommended the Independent Insurance Company product to their clients were guilty of inappropriate advice or that they were in some way deficient in their professional competence by recommending a product they should have known better than to recommend.

In the case of the Independent Insurance Company most people in the UK were protected under legislation. Many people who were insured in Ireland were deemed to have been protected by the UK legislation because they were either private individuals or their policies were written through intermediaries who were considered to be based in the UK and therefore qualified for the protection of the UK arrangements. The distinction was that employers' liability is compulsory in the UK whereas it is not compulsory insurance among Irish employers. Irish employers were left high and dry and the Department did nothing for them.

The Department turned this around and said it was a consequence of the EU arrangements for a free market in insurance. It said that if an insurance company is regulated in another member state it can operate through all the other member states without undergoing any further scrutiny, licensing or regulation. The Department washed its hands of the matter which was a totally unsatisfactory response. It did nothing to make the case for the employers' liability losers in Ireland against the liquidator and no serious loud representations against the regulator in the UK. It raised no serious uproar in Brussels to cause the EU to turn around and point out this failure of the market.

Now we operate in an environment with 12 new member states with unknown regimes for the quality of their supervision and regulation of underwriters. It is possible that an underwriter could come in from any one of those states and engage in business without an Irish licence in an unregulated, unsupervised manner and put us at risk again. The Department needs to get its act together and address that issue.

Chairman

I forgot to say that each delegation would have ten minutes to make its submission. However, because of the nature and importance of the problem I will try to allow all members have a say. We are impressed by the submission but it would be a help if Mr. Crowley could conclude shortly.

Mr. Crowley

I will wrap up by making two further comments in connection with this insurance company failure. When insurance companies failed in Ireland before, the Government put in place a 2% levy. When the people who lost out under the Independent Insurance Company debacle sought protection from this loss they were told that the 2% levy was no longer a ring-fenced levy available for bailing out insurance disasters. At some mysterious time it had been absorbed into the general Exchequer and was no longer there. However, it is still described, on every document that is used in the insurance business, as a levy. It is a stealth tax. It is particularly inappropriate that at a time when insurance premiums are going through the roof this stealth tax is raising about €65 million from people who can ill afford to pay it. This committee should make a key recommendation that this 2% tax on insurance premiums for business should be ended immediately.

Chairman

Thank you.

Deputy C. Lenihan

I was going to ask Mr. Crowley if he would prefer if we ring-fenced it for road safety or something. In regard to companies exiting from the Irish market, as in the case of the Independent Insurance Company, is he in favour of a compulsory exit charge? I have personal experience of this at a constituency level. If we are to open up competition there must be some assurance for those buying insurance, or a guarantee that the contract they sign, be it public liability or car or motorbike insurance, has a start and end date and will be completed. Industry should be required to provide some level of guarantee in that regard.

Deputy McHugh

In regard to small firms Mr. Crowley dwelt a little on the legal profession and more on the courts. Is there a need for specially trained judges or to set up special courts to deal with insurance claims? Do insurance companies make adequate allowances for companies who take health and safety seriously or do they investigate the situation adequately? Does Mr. Crowley find that his members take the issue of health and safety seriously or do they only go through the motions of photocopying a safety statement and pinning it on the wall in order to fulfil their obligations? Is there room for improvement in how his members treat the health and safety issue and should he organise a campaign to bring home the importance of health and safety more clearly to them?

There is duplication of insurance in the construction industry. On any construction site the main contractor will have employers' liability and public liability insurance. The roofing sub-contractor will also have both sets of insurance in place, as will the scaffolding sub-contractor. If an employee of one of these groups has an accident he will sue his employer, probably the scaffolding guy if he can find a loophole to do so, and perhaps the main contractor. There is a plethora of actions from one accident. Each of those people in turn will have legal representation. The legal fees are not duplicated but multiplied by a certain figure, whatever that figure is. Is there a case to be made for contract specific or site specific insurance to be taken out by the client to cover all entrants to the site?

Ms Patsy Supple

I agree completely with the views expressed by the Deputy. The double whammy is there constantly. We are charged as main contractors and an additional premium with different rates is charged for the nominated sub-contractors and the domestic sub-contractors. We have spoken at length to our insurance companies about this on various occasions. We have asked about obtaining single contract insurance. It has not been forthcoming but it would certainly be welcomed.

Mr. Crowley

I will answer the question from Deputy Lenihan first. The question of exiting companies might be more usefully directed to consider what action the Department of Enterprise, Trade and Employment took during the period of consolidation when the number of companies active in the Irish market decreased rapidly as a result of internal consolidation. The Department saw no reason to intervene to ensure that there was reasonable competition in this market. The seeds of the present situation where there are only three or four major companies writing liability insurance were sown in the period of consolidation when it was permitted to happen in this small market in an untrammelled way.

Deputy McHugh suggested special courts and judges to deal with these matters. That is an excellent suggestion and it is a most appropriate way to ensure that there is expertise in these matters. If there is a sufficient volume of cases coming before the courts, it is infinitely preferable that they should be heard by a judge who has expertise in the matter and who is constantly dealing with the matter rather than that they come before a judge who does not know much about it and who is looking for direction from the barristers who are appearing before him. That is not a very edifying type of court hearing and it sometimes happens.

Deputy McHugh's second question was about health and safety. There are two parts to that question, whether there was adequate allowance by the insurance companies for improvements by small business in health and safety compliance and whether enough was being done by members. I can draw attention to what the Small Firms Association is doing in this matter. In the past 12 months, we conducted a road show where we travelled the country visiting our members. A component of the show was a presentation on health and safety. We had speakers representing brokers, insurance companies and our association. We are educating our members to help them improve the quality of their performance in that area. We run training courses. We also negotiated with one of the major insurance companies to give a 10% reduction in premium to companies demonstrating improvements in the quality of their compliance with health and safety measures.

We have close relations with the Health and Safety Authority. I was a guest speaker at its annual conference. Our type of member is of sufficient importance to the HSA that it chose small and medium business as the theme of its conference this year in the Newpark Hotel in Kilkenny. They were overwhelmed by the level of attendance at the conference. They said there was an extraordinary level of commitment and interest among small business to improving the manner in which they addressed the elimination of accidents from the workplace.

The SFA's scheme requires a full health and safety audit before we admit people into the insurance pool we operate. I hope that answers the Deputy's question.

Deputy McHugh

The submission did not address the double whammy phenomenon, as you described it. Would the association consider making a submission on that subject to this committee? Will the committee's report help to address that issue, in your view?

Deputy Howlin

I wish to ask four questions. I have some questions to address to the Construction Industry Federation. I welcome both submissions and they will be very helpful to the committee's deliberations on what is a very serious issue for the economy.

I wish to direct Mr. Crowley's final point to the CIF. In relation to health and safety, will the Construction Industry Federation acknowledge that, notwithstanding the interjection of the Small Firms Association, our record on building sites is not good? Several thousand trade Unionists lobbied outside the Oireachtas this year about poor standards on building sites. We can do better as can CIF members, in protecting against injury and death. Will your federation support the notion of the introduction of the crime of corporate manslaughter? Has the federation a system as outlined by the SFA of self-regulation and evaluation of its members in conjunction with the HSA, to ensure the highest possible safety standards? If injuries can be minimised, that will have a consequence for insurance claims and suffering for either bereaved or injured parties.

My second question is about the strength of the construction industry. As stated in your written submission, it is an industry worth €20 billion. Has the industry used that strength as a force to identify and attract other insurance companies not operating at present in this jurisdiction to compete in this economy? Has the industry considered the establishment of its own mutual insurance company? From my experience in local government, I am familiar with the self-insurance on a mutual basis which it operates. Has that model been examined by the Construction Industry Federation?

My third question deals with the federation's experience with insured companies. Is it satisfied with the defence of claims made by the insurers? Will you share your considered experience with the committee? Is the federation satisfied that its insurers deal expeditiously and informally as possible with obviously genuine claims?

The SFA made a valid submission about the operation of the courts and judges in particular. I will not dwell on the particular legislation which I introduced regarding the need for a more accountable regime. I am very conscious of the separation of powers and the limits on what we can do. Some of this may well require constitutional amendment. I have asked this question of others who have given evidence before this committee. On balance, is the SFA in favour or against the new limits of jurisdiction being proposed for the Circuit and High Courts? It seems to be a double-edged sword. It is a question of whether more would be settled at a lower court level or whether the lower courts would be simply dealing with more expensive claims. Which outcome would the SFA favour?

Mr. Hennessy

I will respond to those questions. Deputy Lenihan addressed a question to the Small Firms Association about the compulsory exit charge. We believe there should be bonding arrangements as exist in the travel industry. If a company lets a client down resources should exist somewhere that can be brought to bear to address the needs of the company that is at such substantial loss. That links back to the 2% levy issue. If the committee were making a recommendation it might look at combining those two issues. If a levy is being applied to every insurance policy why is it not funding a bonding scheme that would pick up this issue?

The issue of duplication of insurance is one that has been discussed within the federation. We call it project insurance so that there is one policy for the whole project. That essentially is funded by the client and the costs are recouped by lower tendering costs by all the players. It would require a fundamental change in how insurance is viewed in the industry and it would have to apply across the board. We could not have a situation where only 10% of projects had project insurance and the companies had to have their own insurance policies for all other work. If that were the case we would have a further whammy to pay on the double.

In progressing this issue we feel it is appropriate to the Forum for the Construction Industry, a body set up by Government involving all parties to the construction process including clients - public and private sector, architects, engineers, building materials suppliers and the construction sector itself. In terms of our own deliberations we feel it is something wider than just the site based sector of the industry and we are pushing it in that forum. In principle we see great merit in the concept of project insurance.

Deputy Howlin mentioned corporate manslaughter. The current laws of the land can deal with substantial fines for companies that have been found by the courts to be deficient in their health and safety practice resulting in serious injury or a fatality. There was a clear example in the past couple of weeks where a fine of €500,000 was imposed. In the past couple of years the courts have imposed suspended sentences on chief executives. I know of at least one such case involving a specialist contractor. The laws are there to ensure there are substantial fines and that there can be jail sentences where there are serious breaches of health and safety legislation.

Our focus is on preventative measures to make our contribution in the whole health and safety area. By way of example, 230,000 construction workers have been put through the safe pass scheme, which is now a mandatory requirement of every worker who walks onto a construction site. Every worker has to have had a safety induction programme and that has to be certified by FÁS. Every individual has to carry a card, which must be presented at the site.

There are 5,000 managers trained by the CIF in managing safely on construction sites. There are now more than 1,000 people who have responsibility for nothing other than safety on construction sites in the construction industry in Ireland. We work very closely with the Health and Safety Authority and are represented on its board. We are investing very heavily as a federation and our members are investing very heavily as members in health and safety.

The facts can be presented in various ways. The reality is that the construction sector has increased its activity levels hugely over the past five or seven years. The European comparators would show that the health and safety record in construction in Ireland compares very favourably with the European average. That said, one fatality is one too many. We must be working towards zero fatalities and reducing non-fatal injuries. That must be the policy and it is certainly the policy of the federation.

A question was asked about the strength of the industry in negotiating better deals and mutual insurance arrangements. Some 18 months ago the federation worked with AON - the largest brokering company in the world - to ensure that a new insurance underwriter was brought into the Irish market and the construction sector - a UK based company. It is providing a scheme to the industry called contractor's cover. That is a direct contribution by the federation in trying to address this problem. Deputy Howlin rightly identified the core issue, which is increasing the capacity within the Irish market and the level of competition. As I said in my initial statement, we have a scenario where there are only three companies competing in the industry.

Chairman

Are they supplying the industry now?

Mr. Hennessy

And have been. Yes. Even with that contribution, we would still want to see more competition in the Irish insurance market and in the construction insurance market in particular.

Chairman

Are you saying the industry is safer now than ever?

Mr. Hennessy

I would invite my members to attest to that. Certainly from the federation's point of view, immense work has been done over the past three to five years in terms of upskilling people at all levels in construction companies including those at head office, those on-site managing projects and those working on projects. Safety is the responsibility of everyone.

Chairman

I must put the question to you again. It was stated here last week that Ireland was an unsafe place in which to work. I am asking you as the chief executive of the Construction Industry Federation giving evidence to this committee whether Ireland is a safe place in which to work.

Mr. Hennessy

I am quite happy that the construction industry is a much safer environment for people to work in now than it was a number of years ago. I ask Mr. Clancy to respond to the question about the defence of claims.

Mr. Billy Clancy

I believe Deputy Howlin raised the defence of claims. It is my experience that insurance companies do not generally defend claims. There appears to be a level of claim in the €10,000 to €30,000 bracket which the insurance companies consider to be of almost nuisance value. They look at fighting the claim and the cost of bringing in expert witnesses, legal costs, etc.

Anybody sitting in the High Court waiting for a case will see insurance inspectors going from one barrister to the next. The decision to settle the case is often made by the insurance claims inspector on the basis of the judge sitting on the day. They treat these cases as being of almost nuisance value. They settle it. They are giving out the insured person's money. It does not seem to matter to them and they have created a monster by so doing. I know local authorities suffer from this also. The are a number of claims against local authorities for small trips. They are sending out a message that there is easy money to be had here and our experience is that the insurance companies do not fight them.

Mr. Crowley

With regard to Deputy Howlin's comments, when we look at the increased cost of insurance for compliant companies we must recognise that a significant number of people are working in unsafe conditions in the shadow economy. One can be certain that operators who choose to disregard their VAT and PAYE obligations will have scant regard for the safety of their workers. Members of the committee taking a walk around Dublin would be able to observe the significant improvement in the visible standards of compliance on all the city's construction sites in terms of the use of waistcoats, high visibility vests, helmets, footwear, hand gear and signage. A vast improvement has taken place on all sites in recent years.

Attracting new companies into the Irish market will be the inevitable consequence of our sorting out the functioning of the market. We have to make sure the excessive costs and blockages are knocked out of the market in order that we have a real pooling of risk, a real system of awarding people who incur real injury and are able to process the delivering of such awards at a low cost to the pool. We are singularly failing to do this.

The idea of having a mutual insurance company in a small economy such as Ireland has been examined in depth and we had practical examples of such companies in the 1980s. When we consider the size of the market occupied in the past by the PMPA, which had, to my recollection, in excess of 50% of the private motor insurance business at one stage, it becomes clear we should not go in that direction again. The idea of a mutual is to have a large pool. It is a bookie's business in that the risk must be spread over a large number of participants. The operation of such a pool requires great expertise on the part of the insurance company's managers. I have no interest in engaging in a Mickey Mouse attempt to introduce mutual insurance.

Deputy Howlin

As opposed to a Mickey Mouse——

Mr. Crowley

The evidence of history is against it.

Deputy Howlin

What about a high standard mutual?

Mr. Crowley

To return to our experience with insurers, communications with insurers have definitely improved. The Small Firms Association identified one of the problems in the relationship as the minimal amount of information communicated to clients by brokers at the time of the renewal, particularly in regard to presenting the true nature of the client's risk. Very little effort was made by underwriting executives in insurance companies to study the business of their clients. An increasing number of them, however, are setting out the risk and asking for quotations in a short fax or e-mail. The level of communication has improved enormously.

With regard to Mr. Clancy's comments, we now advise our members, when renewing their annual insurance policies, to make a point of emphasising to their broker their desire for communication at all stages of the processing of claims. My experience has been that insurance underwriters respect clients who express doubts to their broker about the bona fides of a particular claimant or an unwillingness to engage in nuisance settlements and who decide to fight such claims every step of the way to deter chancers and those making unfounded claims who make a mockery of the system for everybody else.

Chairman

Does the SFA support the CIF's call for the renewal quotation period to be four to six weeks?

Mr. Crowley

That practice is already in place between our members and brokers who have responded to us. It is welcome and appropriate.

Chairman

It gives everyone an opportunity to——

Mr. Crowley

With so few underwriters in the market, the opportunity to talk to other companies is almost a fiction.

Chairman

I hope we will change that.

Mr. Crowley

Although there are few alternative underwriters in the market, the four to six week period is good practice and is an appropriate time for the broker and client to discuss claims.

Chairman

If we can play a part in having legislation introduced to make the market more attractive, I am sure we will help everyone concerned.

Senator Leyden

I welcome the Construction Industry Federation, with which I have been involved for a long time. I admire its work and the jobs it has created in the economy. The figure of 190,000 jobs is significant and it also offers training opportunities. In the past ten years, 220 construction workers died on construction sites, a high number and a cause of grave concern. The figure taken from an article in the Irish Farmers Journal of 14 June 2003 has not been challenged by the CIF.

Is Mr. Crowley aware that 10,000 companies are uninsured? I ask him to comment on this high figure which appeared in the Sunday Independent of 6 July. On the issue of insurance generally, my perception, from my experience in the architectural business, is that builders tend not to complain and, instead, tend to include the relevant sum of money in the contract. This is part of competition across the board.

Chairman

Is that the old school or the new one?

Senator Leyden

The school has not changed much since I was part of it. I welcome the Small Firms Association. The SFA has carried out a monthly survey since Frank Mulcahy's time when I was in the then Department of Industry and Commerce. Of 3,000 people who received surveys, the SFA received 1,034 replies. I always say that those who can reply to surveys are not busy. One consistent feature of the SFA is its doom and gloom. One never hears bloom and boom from the organisation. Despite the Government's responsiveness on interest rates, I have not yet seen an SFA survey which recognised its efforts in the economy to assist small firms. I say that with respect and conscious that a founder member, Senator Peggy Farrell, was a friend.

The SFA made some good points in its submission of 3 March, which will be considered. I agree that judges should not be above reproach, should specialise and have knowledge of industry and claims. The SFA also referred to a book of quantum and stated we have the second lowest number of claims in Europe. I would like more information on that statement. While the number of claims may be low, settlements are high. Will the SFA comment on the fact that 10,000 companies are not insured?

The SFA also expressed opposition to compulsory employers insurance which, it stated, would cost jobs. I also note its comment that Ministers make statements two years before legislation becomes a reality. I agree that if one makes statements about legislation, a Bill should be ready and passed quickly by the Oireachtas. This is an emergency. If Ministers have proposals on insurance, I ask them to present them in the Oireachtas. There is no point in press releases without results.

Chairman

The Senator can tell that to three Ministers who will appear before the committee next week.

Chairman

I welcome Deputy Richard Bruton who has not joined the Fianna Fáil Party even though he is on the Fianna Fáil bench. Deputy Wilkinson who is still a member of the Fianna Fáil Party is sitting on the opposition bench.

Senator Leyden

After last Sunday night, I do not blame him.

Deputy R. Bruton

I am still working under the illusion that there is no partisan influence in committees and their members work together. Are the groups represented here surprised that the Department of Enterprise, Trade and Employment, the body responsible for driving reform, does not have a baseline of insurance costs in any of their sectors, against which it will benchmark the extent to which its reform measures will achieve progress? Can they offer the committee some benchmark costs? In other words, can Mr. Crowley tell us what is the cost per employee of insurance in different sectors of small firms or in the construction industry so that we can monitor the extent to which the 31% reduction in premiums promised in the reform programme is delivered?

Mr. Crowley reported that between 2000 and 2003 a particular company saw its insurance premium increase by 308%. We do not know whether the final premium was accepted but the implication is that premiums are increasing regardless of whether companies make claims or not. Clearly he is of the view that a massive rip-off is in operation and from his on-the-ground experience can he tell us who is perpetrating the rip-off?

While there is a massive increase in insurance premia there is no evidence from the blue book in the Department of Enterprise, Trade and Employment that big profits are being made. Can he shed some light on this issue? The blue book indicates that 34% of premiums go in legal costs and 19% go on management costs and commission. Does he have grounds for believing that those costs are excessive and that we can achieve significant reductions in those areas? Can he shed some light on how those reductions can be achieved? Has he looked at the way the Government has linked alleged benefits with various reforms? It said a reduction in premiums of 31% can be achieved across the board. A total of 7% will come directly from the PIAB in liability. It said that €304 million can be pruned off what I reckon in employment is about €700 million, by the establishment of the PIAB; that is halving the employer's liability costs. Does Mr. Crowley believe that can be achieved? That seems to be the implication of the documents that have been presented by Government. This would be a truly wonderful scheme if it can halve employers' and public liability. Does Mr. Crowley think that this degree of saving can be secured from this body? If that is possible then we should be breaking down the doors of the Department to know why it is not coming forward with the legislation.

Chairman

Mr. Crowley may wish to respond to the questions from Senator Leyden and Deputy Bruton. Deputy Bruton also addressed some questions to the Construction Industry Federation, to which it can respond when Mr. Crowley has concluded.

Mr. Crowley

My colleague, Mr. Pat Delaney, will answer those questions.

Mr. Pat Delaney

In relation to SenatorLeyden's question with regard to the 10,000 companies that was reported in last Sunday's, The Sunday Times, I believe that is a conservative figure. I would also like to draw his attention to the reality of companies trading without insurance. While we may not have compulsory insurance in Ireland, a company could not possibly get an audit if it has a claim outstanding because it would not be a true and fair reflection of the company’s trading. No financial institution will deal with a company which does not have insurance. The company would also be automatically debarred from tendering for any State contracts or even conducting work for any aspect of the State or for any company which is doing work on behalf of the State. It really is not a possibility for most trading companies to operate without insurance.

On the issue of compulsory insurance, we are absolutely opposed to the introduction of compulsory insurance for a number of reasons. First, it would create legitimate expectations to many uninsurable risks. We spoke earlier about the importance of health and safety and having proper standards. Compulsory insurance means compulsory supply; therefore, the companies which are fully compliant and operating at the highest level will suffer because companies which are not making any effort would have a legitimate expectation that they would be entitled to it. It would also be an impediment to companies starting out. We have seen the high cost of insurance and the impact that has had. Companies are now saying that in terms of turnover, insurance costs can be as high as 10% to 15% of turnover. It would be impossible for anyone wanting to start a business to get insurance as the insurance companies simply will not be interested because they do not have any track record. Such a regulation would, therefore, be an impediment to company formation.

Deputy Bruton raised a question about having a comparator; the best comparator I can give is that for every €100 that an Irish company pays for employers public liability, a UK company will pay €34 and a company in the Netherlands will pay €13 for the same level of insurance cover. We are three to six times more expensive than our competitor countries.

Deputy R. Bruton

That is no use as a benchmark for us. For the committee to monitor going forward it needs a cost per employee. We need to know the unit cost for insurance for an employee in the construction industry. We can then look at it three years down the road and see if the figure has come down.

Mr. Delaney

That is fine but that would require a great deal of sectoral analysis and it would depend on whether you are selling pizzas or gold chains or whether you are involved in the building trade. The SFA is one college representing companies in manufacturing, distribution, retail and services. It is worth stating the case again that we have to compare ourselves with other markets because we need to see competitiveness improved here. It is a huge factor if we are paying between three and six times more than our competitors.

A related issue which we need to consider is what happens in regard to a claim. If we take, for example, a soft tissue injury and look at what happens in this regard in the UK, we see that a one-year whiplash injury will result in an award of between £1,600 and £1,800 sterling. Legal fees of less than £500 sterling will also be associated with that case. Exactly the same claim in Ireland will result in an award of between €16,000 and €18,000. On top of that, legal costs will be in the region of €7,000, in or around 42% of the claim. The real challenge for the PIAB in reducing legal costs is that we have to ensure that any reductions in compensation are passed back to the customer. It will not be sufficient to reduce the costs of running the system if the customer does not benefit in terms of lower premiums and the insurance companies simply take it as extra profit. This area has not received the attention it deserves and I hope the committee will ensure that happens.

Senator Leyden made a point about Ireland being the second safest place. I intended to bring a detailed analysis to you in that regard but my colleague, Tony Briscoe, will be appearing before the committee tomorrow and it is his intention to do that.

Mr. Hennessy

In relation to Senator Leyden's questions, I will ask my colleague Kevin Gilna to address the issue of fatalities.

Mr. Kevin Gilna

As we already stated, health and safety are priorities for the industry and we are devoting substantial amounts of money to investing in health and safety. We have professional health and safety units in our offices in Dublin, Cork and Galway. Professional staff are continuously in contact in members and provide training awareness programmes and so on. Two weeks ago, the Minister of State at the Department of Enterprise, Trade and Employment, Deputy Fahey, launched three new safety initiatives for us, which are being promoted through our branch network throughout the country. A huge amount of time and effort is put into construction safety.

In 1995 100,000 people were working in construction here. There are now 190,000 people involved, yet during the past ten years the fatality rate has dropped by 26%. If anyone in this room went home tonight and got injured doing some general repair work, such as slipping on a tile or whatever, that would be put down as a construction related accident. We have been concerned for some time at the way the HSA has been compiling statistics which reflects badly on the construction industry. When one looks at the detail, the picture that emerges is not as bad as it has been presented. As Mr. Hennessy said earlier, we do not want to see any accidents in the industry and we work closely with the unions, the HSA and other agencies to improve safety standards nationwide. We would like to see trade union workers, and workers in general, playingtheir part to ensure that safety standardsand practices are fully adhered to in theindustry.

Senator Leyden

Would it not be in order to correct an article by Kay Kevlihan in the Irish Farmers Journal of 14 June which stated quite clearly that 220 people died in construction related accidents on the island of Ireland? When statements like this are made, the delegates’ organisation should be proactive and either correct or confirm them. The number of deaths is very high and seems accurate. The delegates are not denying the figures but denying that some of the deaths occurred through domestic accidents. That is not clear from the article.

Mr. Gilna

We spend a lot of time and effort trying to correct this sort of information and we will continue to do so.

Senator Leyden

Mr. Gilna has not corrected this article.

Mr. Gilna

We will correct it and I thank the Senator for bringing it to our attention.

Mr. Hennessy

Deputy Richard Bruton raised some points and Senator Leyden raised the issue of the 10,000 uninsured companies. We favour mandatory insurance in the construction industry. Under contract law, it is vitally important that all firms working on a site are insured. We discussed the issue of project insurance earlier but we are concerned that insurance could be very expensive in a very hard market like the current one. There should be reasonable quotes for reasonable risks.

With regard to the costs of insurance in the construction industry being loaded into tender prices and the lack of concern in the industry - I believe the term "old school" was used - the culture has changed totally. Firms in the construction industry now know that insurance costs are their second largest costs after their pay-roll costs. These costs have to be managed on a weekly or monthly basis and the firms have to manage their risks if they want to keep their insurance costs under control. There is a fundamental cultural change in the industry in relation to insurance and risk.

Deputy Richard Bruton raised the issue of benchmarking. Our attempts to get information on benchmarking from our members have proven the complexity of the issue. However, I acknowledge that in order to measure the progress of insurance reform, we must establish an acceptable benchmark measure in respect of the levels of premia that exist for employees and another in respect of turnover costs, which are the basis for public liability. I will certainly consider whether there is any basis for establishing simple benchmarks that would allow a committee such as this to monitor performance over a certain period.

On the specific example and the hike associated with the sixth example I quoted, one must consider the small scale of the operation. We are aware that insurance companies are not particularly interested in smaller firms and specialist contractors in the construction sector and their way of dealing with them is to load the premiums and present them to the companies on a take it or leave it basis. As has been discussed, when there are only a few companies there is no real competition. That could be a factor behind the huge increases. Having said that, an increase of 200% over three years is the average in the industry, and I know of many cases where there were increases of over 300% over three years. I believe this answers the Deputy's question.

Chairman

Can you expand on meetings you had with AON in respect of getting cover from outside the jurisdiction of the Republic of Ireland?

Mr. Hennessy

Our affinity arrangement through AON brokers was devised to focus specifically on the construction industry. It has both an insurance element and a risk management element resulting in an evaluation and inspection of construction companies in the scheme on an annual basis. The logic is that if one manages the risk, one manages the cost of one's insurances. At the same time as the demise of Independent Insurance and the events of 11 September 2001, there was a major problem with underwriters in the Irish market, particularly in respect of construction. We were faced with the issue of dealing with requests from our members to facilitate them, particularly those affected by the collapse of Independent Insurance who had no insurance cover. We worked with AON and launched a scheme which involved an insurance underwriter linked to the AON group that provided a certain amount of capital to the Irish market to underwrite insurance. It operates independently as a commercial activity by AON but provides an element of competition in the marketplace that did not exist for six months beforehand.

Deputy Callanan

I welcome both groups. Given the high costs awarded by the different judges mentioned and the establishment of the Personal Injuries Assessment Board, a book of quantum has to be agreed. Should this book of quantum be used by the different judges as well as by the board? We mentioned the safety issue to some insurers that would have been insuring abroad as well as here and they said that people trip more often in this country. Do the delegates believe that the Bill being introduced by the Minister for Justice, Equality and Law Reform concerning fraudulent claims and the reduction of the time during which one can claim from three years to one will help?

Senator Coghlan

Both organisations painted a pretty frightening picture of the ever increasing burden of insurance costs. As we know from experience, there is very little, if any, competition, meaning that one is forced to deal with whatever company one deals with at the moment. In light of this, what would the delegates think of a proposal that would allow firms to build, perhaps through the National Treasury Management Agency, a ring fenced fund during profitable years - I know this is difficult - which could be written off against tax? They could contribute a certain sum, depending of their profits, to ensure that they would carry the first tranche of risk and reduce the costs of their premia. If they had a bad year they could draw on the fund to pay their insurance premia. Do the delegates see any merit in such a scheme that might reduce the shocking, appalling cost of insurance all businesses now face? I share the widespread disappointment regarding the proposals concerning PIAB and that it will only cover employers' liability cases and not public liability cases or motoring cases. Are there any specific points on this matter the delegates feel they should bring to the committee's attention?

Deputy T. Dempsey

I have a brief comment on Deputy McHugh's submission. When the Irish Hotels Federation was before this committee, it commented on the fact that we established special courts when subversive organisations threatened Ireland. The escalating cost of insurance is threatening the livelihoods of many people and the PIAB should be a special insurance court with powers to hear local cases and training for judges just like the family courts. I believe Mr. Crowley mentioned different judges. I have been involved for a long time with inter-county hurling teams and in the bad old days we used to decide what kind of referee we wanted. If we were playing Deputy Wilkinson's team we would want a different referee to the one we would want if we were playing Dublin. I am thankful that the television cameras have made this unnecessary but it is unfortunate that the courts have not got rid of the system. Therefore, judges should not just be interviewed but trained.

Have the delegates any statistics on the number of companies in the construction industry that have gone out of business because of the savage increases in insurance costs? How many jobs were lost? A more sensitive area, referred to by Deputy Howlin, is the fact that we need to get statistics on accidents occurring in small firms as well as those in the CIF. As politicians, we need to convince the public that insurance is a major problem for our country. If there is an increase in accidents on building sites, either by way of their description or actual increases, we need to know. If there are decreases, that is better news and we should be giving that information to the public. It would be good if those statistics were made available to the committee.

The final point of the CIF's submission suggested that all commercial policy holders should be entitled to receive full details of claims. Are policy holders not being engaged when awards are being made on their behalf? The Irish Hotels Federation and the Alliance for Insurance Reform, headed by Mr. Pat McDonagh, were annoyed that they were not being fully engaged and that awards were being made despite their protestations. Are we not being consulted even though we are paying massive fees? This is a major question for us as politicians.

Deputy Murphy

I accept that we must look at the insurance problem in its entirety and use whatever mechanisms have been suggested, such as the introduction of special courts. We must also examine the issue of compulsory insurance. I find it hard to follow the logic that we are told we cannot function without insurance because of the demands of public bodies and that we cannot opt for compulsory insurance because it would be an undue disincentive to business. There seems to be a contradiction in this regard. The delegation also made the point that it would be impossible to get a proper audit done.

Recent practices by a great number of business people mean that they are only insured in excess of fairly large amounts. A hotelier told this committee that his claim would only be considered after the first €250,000 was paid and we have heard examples of builders and cabinet makers whose insurance kicks in only after €50,000 or €100,000 has been paid. How does an auditor quantify how many claims will hit a company over a three year period in those circumstances? In that context, I hope the three years provision can be reduced on the recommendation of this committee because it seems to create major problems for company directors and companies themselves and opens up personal exposure of directors. Equally, it creates a problem for employees because they are not sure that the company or the directors will be in a position to cover the amount up to the excess over such a prolonged period as three years. This area needs to be examined to see if protection can be introduced on a compulsory basis for the employee and employer and to address how much excess is allowed.

I do not necessarily blame insurance companies who are trying to save jobs and keep their businesses going but they have introduced excess limits to try and reduce insurance claims. Many companies have also been refused insurance for occupational injury to their employees in a further effort by insurance companies to reduce premiums. However, this leaves the workforce extremely vulnerable in the long-term. There are far broader issues which must be dealt with. We need to get rid of false claims and be realistic about genuine claims. However, we can only do that in the context of making sure everyone within the system is protected.

Senator Hanafin

Page four of the CIF submission refers to a figure of €800 per housing unit for employers and public liability insurance last year and this year's figure is €1,550 per unit. Can each of the delegations give the committee a figure so that the committee can show the public? We have a duty to show the public how much insurance is costing them at a practical level. Has the cost of insurance risen from €800 per unit house last year to €1,550 per unit this year? Will the Small Firms Association tell us of its experience?

We have a job to do as a committee. We have heard emotional statements about the number of jobs that are being lost and will be lost. Therefore, we have a duty of care to ensure that we get our message across to the people. The percentage increase in the past two years is a signal point. It appears that the Irish insurance market is controlled largely by a number of groups which were badly exposed to the events of 11 September. Not only was there a high cost base prior to 2001, but extra costs have now been added to an already high cost base. It would be useful to the committee if the delegations could break down the costs on a per unit basis.

Chairman

We have had contributions from Senators Hanafin and Coghlan and Deputies Tony Dempsey, Callanan and Murphy. Will Mr. Hennessy respond?

Mr. Hennessy

I wish to ask Mr. Clancy to address a couple of specific issues and then I will reply.

Mr. Clancy

In response to a member's question, we believe the PIAB will lead to a reduction in insurance premiums, but only if it is accompanied by the book of quantum. We further believe that the book of quantum must migrate into the civil courts so that if the claimant decides that he or she has not had a fair shake from the board and he or she goes before a civil judge, that judge will equally have guidance on what level of compensation that person is entitled to.

As a group, we are fully in favour of an injured party being compensated. Citizens are justly entitled to that and that is why we pay insurance. However, we have a major problem with the adversarial system where teams of expert witnesses are brought before the court for two days and the case may be settled without their making a contribution. Deputy Dempsey raised the issue of settlements being made without any consultation. This is quite true - insured parties can often hear in the local pub, before they are informed, that a claim against them has been settled. The insurance companies are totally irresponsible when it comes to dealing with this issue.

For my sins, I am involved with a local enterprise group which has a close relationship with the county enterprise boards. Millions of euro are being spent to try to start up new small businesses throughout rural Ireland - such as in south Tipperary, from where I come - through the enterprise boards and Leader programmes. I understand that such small businesses are going out of business at an alarming rate because they cannot get insurance cover. These are businesses which would be there in ten, 20 or 30 years' time and are exactly what we need. We cannot foster enterprise with one hand and choke it with the other. This is such a serious problem. We are glad there is legislation in the pipeline but it needs to move more quickly. Somebody - perhaps Deputy Callanan - suggested putting together a special fund managed by the National Treasury Management Agency. That fund will be plundered, no matter how big it is, unless there is reform. We need a non-adversarial system whereby legitimate claims are settled very quickly and 40% does not go to expert witnesses and the legal profession. That is it in a nutshell.

Mr. Crowley

In connection with the point made by Deputy Callanan, we should bear in mind that the use of the PIAB is optional. A claimant can opt to go to the PIAB, the usual reason for doing so being speed, when there is no dispute about liability. It should be absolutely automatic that the claimant who chooses to go to the board be assured that whatever award he receives is consistent with what he might get from a judge. If the claimant feels he has the chance of a higher dividend by going in front of a judge, the PIAB will be ignored. That is a necessary part of that system.

I support Deputy Dempsey's remarks about the value of having a special insurance court. In particular, I support his observation that judges require training to operate in this highly specialised area. It is absolutely fundamental, for the sake of equity, that where claimants have a particular injury they should receive a consistent award. There was a request for statistics. To give an example of what has been going on, from the Small Firms Association's own register in the last 18 months we were able to identify 83 companies that instanced the increased cost of insurance as the reason they went out of business. A total of 2,060 jobs were covered by these 83 companies. If a Minister stood up tomorrow and announced a new enterprise that would create 2,060 jobs it would make front page news, but 2,060 jobs have been lost because of insurance, and not in the typical style of the announcement of new jobs as a prospect over five years or more. These people are no longer working where they were working a year ago because of this problem.

Deputy Bruton was very concerned about identifying some sort of benchmark whereby this committee could measure the impact on the cost of insurance. The SFA represents a wide variety of companies and the rate charged for insurance is a percentage of the payroll. The rate also depends on the type of activity in which the business is engaged. Even in the same company it would not be unusual to have people engaged in manual activity being charged a premium of perhaps 6.5% to 10% of the payroll cost while the people who work in white collar jobs in the same enterprise are charged at 0.5%. Our membership covers companies in software generation whose staff work in an office type environment to companies whose staff work in manual and physical environments, with the higher risk profile associated with those kinds of activities. Because of this there is no single figure. However, I suggest to the committee and the Deputy that any broker will tell them the going rate for a particular type of employment. The going rate can be identified for the abattoir business, the construction business or the retail business. Those figures will be readily available to the committee if it asks the right people. It is not my business to deal with these people on a daily basis. I am an employer; I run my own business. I am not an insurance broker. An active insurance broker will tell one good guideline figures instantly and he or she will also be able to give the history of those figures over a number of years.

Deputy Howlin

I simply wanted to invite Mr. Crowley to give any information he felt was helpful; I did not intend to impose upon him in any way. Any submissions will be carefully considered by this committee. I hope I did not place any burden on Mr. Crowley that he would be unwilling to accept.

Mr. Crowley

I thank the Deputy for his consideration.

Deputy T. Dempsey

Mr. Crowley mentioned the joint employment report from the Commission of European Communities to the Council, which said that Ireland had the lowest workplace injury rate in the EU.

Chairman

Second lowest.

Deputy T. Dempsey

The one I got said it was the lowest. I am not saying it was correct.

Chairman

The Deputy can supply that to Mr. O'Reilly.

Deputy T. Dempsey

It is the joint employment report of 2000 or 2002; I am not sure which. The point is being missed today that we actually have a very low workplace injury rate but a very high premium rate.

Mr. Crowley

My colleague, Mr. Delaney, would like to reply to Deputy Murphy and his concerns about compulsory insurance.

Mr. Delaney

I do not believe compulsion is any guarantee of compliance. We see that in motor insurance where compulsory motor insurance is in place. The MIAB suggests that having compulsory motor insurance adds about 7% to premiums because people still drive without insurance. I do not believe compulsory employers' liability insurance will change anything. The statute of limitations of one year is a sensible move and one which we endorse fully. With regard to audits, the point I was making was that where companies are operating without insurance or self-insurance it does not mean they are above the law. The directors of those companies are putting themselves at huge financial risk in the event of a claim. The possibility of a claim is the reason the auditor will not sign off on the books if the company does not have insurance, although he or she will if all insurances are in place. If there is no insurance an auditor cannot sign off the books as a true and fair reflection of the company.

Deputy Murphy

Could Mr. Delaney comment on the problem of excesses?

Mr. Delaney

Excess is a gamble. It is a sharing of the risk that the insurer takes. The committee will have heard in previous submissions that excesses can be up to €250,000 in some industries and as low as €5,000 in others. It is a choice the company makes. It is entirely the choice of the company whether it carries an excess and its level, whether it is a total excess or only for accidents. Excess is a way of reducing overall exposure to premiums. However, it highlights the exposure to claims costs on top of the insurance premium.

Senator Leyden

We need a dedicated Minister for insurance, appointed by the Government, to pull all the Departments together. There is such a crisis at the moment that some action is needed to pull everyone together and get results - we need action, not talk. By the way, Chairman——

Chairman

I want to ask my questions now.

Senator Leyden

I would recommend the Chairman for the job.

Chairman

I have listened to Mr. Delaney as a person who has been in the business world for a long time. He stated before the committee that the value of €100 of insurance in Ireland compared to €17 of insurance in the Netherlands. What is the difference between the ground rules in the Netherlands and those we have here?

Mr. Delaney

The systems employed in the Netherlands and the UK are totally different from ours. In many cases they are non-adversarial and they have books of quantum. For that reason alone an underwriter will choose to take a risk because he or she can quantify the outcome of any accident. At the moment in Ireland an underwriter cannot quantify the likely outcome of any claim. The variables in the claim and the costs associated with it are enormous. Also, the length of time in which the system works is far shorter than it is here. In Ireland it takes approximately three to four years for a claim to go through the entire process. There is no rehabilitation process for the injured person and there is nothing to suggest that the injured party should continue to work. The opposite is true, he is encouraged not to work until such time as the claim is dealt with. That is the system and we must look at it.

We ask the committee, in its deliberations, for three things - to improve the functioning of the market because there has been a failure of the market in the insurance sector, to decrease the costs of delivering compensation and to investigate the competitiveness of the market. We see those three issues as the core of what should be examined.

Chairman

We will certainly do that. Is Mr. Hennessy comfortable with what has been said?

Mr. Hennessy

Yes.

Chairman

I thank both organisations for coming today. They have been very helpful and as I have said to every group who has appeared before us, they may be recalled at a later stage where the evidence and advice they have given may be clarified. In the next four years we look forward to seeing the groups again to help us and to work closely with us in the interests of the State.

The committee will sit at 10 a.m. tomorrow when ISME and IBEC will continue the oral hearings on the insurance industry.

The joint committee adjourned at 6.05 p.m. until 10 a.m. on Wednesday, 9 July 2003.