JOINT COMMITTEE ON ENTERPRISE AND SMALL BUSINESS díospóireacht -
Thursday, 13 Nov 2003

Vol. 1 No. 29

Insurance Industry: Presentation.

Chairman

At yesterday's meeting representatives of Quinn Direct, Allianz and the Irish Insurance Federation were in attendance. The representatives of Quinn Direct raised the concern of access to brokered channels. Although it had experienced a 250% growth in business, in some instances Quinn Direct products were not being offered to some consumers because of cosy relationships between some brokers and some insurance companies. Quinn Direct does not operate on a commission basis. Instead brokers operate a policy in which consumers pay a fee to the broker for his or her services. Quinn Direct believes its products are not being offered to consumers by some brokers because of this policy. I suggest that the committee pass this comment to the Competition Authority and ask it to investigate. Is that agreed? Agreed.

Before commencing the 11th day of the insurance inquiry and the second of our resumed public hearings on reform of certain aspects of the Irish insurance market, I welcome back Mr. Myles O'Reilly and Ms Aoife Teehan, our consultants. We have representatives of Hibernian, AXA Insurance, FBD Insurance, IBEC and the Small Firms Association. They are all most welcome. I draw attention to the fact that members of the joint committee have absolute privilege but the same privilege does not apply to witnesses appearing before it. 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 hope the contributions from the insurance representatives will last no longer than ten to 12 minutes. I now call on Mr. Philip Fitzsimons, chief executive, and Mr. Adrian Taheny, director of marketing and sales of FBD Insurance.

Mr. Philip Fitzsimons

I would like to make a few opening remarks. FBD is pleased to respond to the joint committee's request to attend this meeting on insurance reform and insurance costs. As members will be aware, we forwarded our briefing document to the committee a few days ago. Earlier this morning we circulated the appendices that were referred to, which we did not finalise until yesterday evening. The briefing document the committee received responded directly to the specific information it requested to the extent that we were able to in the time available.

We expressed the view in the document that the most realistic way to measure premium trends and premium reductions is to check at different dates the premiums payable for identical risks. That is what we have done for a very broad spectrum of car insurance cases in the appendix, which the joint committee received this morning.

The appendix tables show that FBD has implemented significant premium reductions between the two periods the joint committee signposted, namely, October 2002 versus October 2003. We implemented the reductions considerably prior to the October 2003 date. As members will see from the document, the rate reductions average 20% for mature policyholders, varying depending on cover type, car type and gender. The average reductions for other age categories are even more significant.

These reductions, in addition to property reductions of up to 10%, which we also recently implemented, clearly demonstrate that FBD has responded to the improved claims climate that has emerged. We are glad that in general this favourable trend has been maintained and it augurs well for all interested parties. Analysis of our motor experience is ongoing and we anticipate further reductions in certain risk categories in the near future.

Employer's liability and public liability losses are beginning to reverse. Evidence of this is shown in the briefing document we circulated. We are analysing the business sectors where these trends are emerging. We anticipate finalising our analysis and implementing premium reductions at an early date for those sectors where reductions are warranted. The same comment can also be made about property insurance rates.

FBD is four square behind the efforts of the Government, business organisations and consumers in identifying and implementing the reforms needed to resolve the underlying reasons for relatively high insurance premiums in Ireland. The efforts and commitment of all need to be maintained in order to ensure full delivery. Necessary resources must be made available to achieve the objectives as any cost benefit analysis would support such allocations.

I acknowledge the important role this Oireachtas committee is playing in ensuring the agenda is advanced.

Chairman

I thank you all for producing at short notice the comparative figures for the 43rd week of this year against the 43rd week of last year. I welcome Mr. Dick O'Driscoll, general manager, Mr. Brian Huston, director, and Ms Laura Booth, executive manager of the product and pricing department of Hibernian Insurance.

Mr. Dick O’Driscoll

This is the second time my colleagues and I have appeared before the joint committee. Today's presentation is to focus on the questions asked by the committee and revisit some of the topics about which we spoke here early in July. As members are aware, Hibernian made a written submission in March and gave an oral presentation in July. We commissioned some independent research into the sector, which we also submitted to the committee in July. All of these documents and submissions remain valid.

In looking at the background to the Irish market, it is important to reflect on a few key issues. The MIAB action plan outlined 67 recommendations that would make a fundamental difference to the insurance market in Ireland. Eleven of these recommendations were directed at the insurance industry. Ten of the 11 have been implemented, with one outstanding concerning the standardisation of renewal notices which will be implemented on 1 January 2004.

The joint committee issued its own report and recommendations, which we support. As members are aware, the Competition Authority and the Department of Enterprise, Trade and Employment are carrying out a joint study of our sector. We have been co-operating with and welcome that study.

In the 12 months since the introduction of penalty points system there have been 77 fewer deaths on the roads. It is important not just to skate over that information but also to reflect on the fact that that has made a very significant difference in 77 different households.

The joint committee requested information on rating action. I will deal with motor and commercial insurance separately. I will portray the information both on the comparative dates and with some independent verification of Hibernian rating actions. We have had no increase in motor insurance rates since July 2002. We have a formal 10% decrease for penalty point free customers effective from 1 November 2003. Since October 2002 the rates on our motor commercial business have dropped by 5% while the rates on our motor fleet business have dropped by 10%. We are talking about the three sectors of the motor market - private motor, fleet and commercial motor.

In the typical small to medium enterprise sector there has been a 10% increase in rates for equivalent exposure from 2002 to 2003. We, in Hibernian, have introduced specific initiatives, about which I will talk later, to facilitate customers to reduce their insurance costs.

In doing the motor cost comparisons, our presentation sets out three dates as requested, 28 October 2002, 28 April 2003 and 27 October 2003 and shows the average premiums for those weeks. The average premium moved from €787 up to €796 and down to €710, giving a 10% reduction in that period. The increase in the middle point is because the business we were writing during that period is more high exposure younger driver business. I will talk further about that when I talk about the Hibernian ignition initiative for inexperienced drivers. This is why the average premium is higher.

Deputy Howlin

What does the policy count indicate? Is that the number of policies?

Mr. O’Driscoll

It indicates the number of policies traded during the weeks for which the data were requested.

I will move to independent verification of how the numbers present for the customer. The MIAB requested the IIF to provide formal data on a certain frequency for standard cases that the MIAB identifies. These are not cases that Hibernian has identified but those identified by the MIAB. In the period from November 2002 to October 2003 there were premium reductions of 22%, 13% and 26% for the cases for which the MIAB required quotations.

Hibernian's approach to the commercial insurance market has been to participate with partners that represent the commercial marketplace, particularly the Small Firms Association, which is represented here today. We have participated in that sector by educating companies in how to reduce their insurance costs. I will mention some specific initiatives in that regard later. We have circulated to the members of the committee a number of our publications, which help small businesses to reduce their year-on-year business costs. We have circulated accident packs and we have introduced rehabilitation programmes and a property management emergency guide for that sector.

We have circulated details of specific case studies where we have identified small businesses that have particular difficulties with their insurance and demonstrated how we have helped them to reduce their insurance costs through risk reduction initiatives. Two specific cases are outlined where the customer has availed of our RiskASyst product, which is our risk reduction initiative, to achieve 23% reduction in insurance costs year-on-year. Where the customer took an excess - in other words, to participate slightly in the risk - the premium was reduced by 7.5%.

I have mentioned our Ignition, RiskASyst and penalty points initiatives. Our solutions focus around engaging with customers in the management of their risk and rewarding people who engage in that manner in reducing their risk with lower premiums and assisting them all the way to do this. In 2004 we intend to continue with our innovative product launches to ensure that our customers have an opportunity to reduce their costs where their risk management is improved.

Some members will be familiar with our Ignition scheme, an initiative for inexperienced drivers. In Ireland there was not enough capacity to support the young driver market. It involves the introduction of sophisticated driver training at Hibernian's cost. We have introduced 25,000 seats capacity in 2003 and have already processed 15,000 inexperienced drivers through the programme. The testimonials on our presentation are widespread. The feedback from the product is excellent. We have invested €5.8 million in training for inexperienced drivers. It is not all about premium reductions; it is also about investing in people through education.

Our RiskASyst product was introduced because we believe we must change the way people conduct their commercial business. This Oireachtas committee will have moved on, the world of insurance hopefully will settle down to a more stable marketplace but if we have not changed the fundamentals, we will be back here in five years time talking about the same problems. The introduction of risk management systems at our cost is what is driving down costs for our commercial customers.

We gave a specific commitment on penalty points because we believe that penalty points will make a difference on the roads. Some 97% of our customers will benefit from that from this month forward. It indicates that the vast majority of drivers want to behave responsibly. We have applied that discount and have got fantastic feedback from our customers. That initiative on its own takes €30 million off our profits in a full year as that is the amount of discount we are applying.

We believe the way forward is in innovative products to engage customers in their own risk, the continued roll-out of all the commitments that have been made for PIAB, the recommendations of MIAB and the involvement of the insurance sector in maximising the benefit to the customer of these initiatives. That is Hibernian's position. I will conclude by saying we support the work being done by this Oireachtas committee. We must be careful not to limit ourselves to looking at what is happening here in Ireland. My colleagues and I were in Munich looking at reinsurance products for 2004 as recently as Tuesday of this week. I am afraid, while we recognise the progress we have made with the initiatives in our market, the external market that brings the capital to our industry is very sceptical about our ability in 2004 and 2005 to drive through the reform agenda that will make a difference to our customers in the long-term.

Chairman

I thank Mr. O'Driscoll. If we had known that was taking place, we might have considered attending. Perhaps we can consider it for the future. I welcome Mr. John O'Neill, chief executive, and Mr. Paul Moloney, corporate affairs manager, representing AXA Insurance.

Mr. John O’Neill

Tá an-áthas orm bheith libh arís. As I told you when I was here last, AXA Insurance came to Ireland in 1999, through the purchase of the Guardian PMPA group. Many of the members will recall that some 20 years ago, around this time, the PMPA was deemed to be insolvent and went into administration. In 1999 and 2000, when AXA took over the Irish business of Guardian PMPA, we were in the invidious position of having to ask the company for €200 million to boost our reserves in order that we would have sufficient money in hand to pay the claims that we had incurred in this State. Around that time we put together a plan to rebuild the company in Ireland. Part of that plan involved us exiting the commercial non-motor insurance market as the loss experience in that area for us was deemed to be unsustainable. From then onwards we effectively became primarily a motor insurer. That is why I specifically answered the first question that the committee put to us; we do not have any business other than motor and home insurance.

We were able to answer specifically the question related to volumes and premium for both of the periods in question. That answer is in the letter I have submitted to each member of the committee. For private car insurance, as I have indicated, because of our continuing improved profitability we have been able to give back premium to our customers. The specific reduction for those periods that the joint committee requested was 13% for private car business, which is our primary activity.

I also took the opportunity, with the permission of Declan Cahill of the Automobile Association Insurance Services, to give the joint committee a copy of its most recent independent survey of prices for private car insurance. It is interesting that across seven different categories and six different insurers, including some of those represented here today and yesterday, the reductions range from 13% down to 1% or 2%. I think the committee can be assured that it is not just talk when insurers come here. The premiums are actually reducing. That is why it was so good to be asked a specific question and to be able to respond in that way to assure the committee that what we are saying is the truth.

Profitability for motor insurance for our book of business is improving. I emphasise that I am speaking only for AXA and private car insurance. One would have to be somewhat cautious, however. We have reflected the improvements that we see in those premium reductions we have put through. I informed the joint committee about our results the last time we were here. In 2001 we made a profit of €30 million; in 2002 we made a profit of €60 million and in 2003, at the half year mark, we declared a profit of €52 million. We are optimistic as to the outcome for the balance of 2003 but because we are a publicly quoted company outside this State, I cannot give forward looking statements. We anticipate our good fortune will continue but part of that is the recognition that when we put that €200 million into reserves, in 1999 and 2000, we were taking certain forward looking views at the time. Thankfully, those views have turned out to be on the pessimistic side. We are in the comfortable position in our current trading year, having settled significant numbers of cases, that we can have some releases from those reserves. Our results as posted, and as likely to be posted, will include reserve releases. That is money the shareholders gave us for premiums that were paid many years before.

It would be wrong of me not to thank the Lord for our good fortune as regards major weather events. Since 1996 AXA has not made any money on home insurance in the Irish market, except for 1999, when we just about washed our face on the performance of that account. Because we have not had a major weather event to date this year, we anticipate that across our book of business, it is worth between €10 million and €12 million to us in profitability. We have our fingers crossed. This is abnormal. I would not put a bet on our being in the same position next year.

From AXA's position, we will continue to invest in improving the environment. I spoke yesterday to the Minister for Transport, Deputy Brennan, about his initiatives, particularly as regards the points system. We referred to the atmosphere created by the road safety advertising. It meant that when the Minister was in a position to introduce that legislation, we did not have the same type of opprobrium as has applied to recent proposals on smoking, for example, even though both are killing people. Together, we had worked with the National Safety Council to bring those advertisements to the public area. AXA will continue to support those for the next three years.

We have brought new technology to bear for young drivers and we are pleased with how that is running. Over 1,000 young drivers are using the device which monitors speed and which we believe makes a significant contribution to road safety.

Chairman

One thousand.

Mr. O’Neill

Over 1,000 now. In conclusion, Chairman, thank you again for asking us to come along. The joint committee is good for demonstrating how things are improving. It is not always obvious but we can now see that improved profitability for insurers is good for the insuring public because we can see the premiums reducing.

Chairman

I welcome Mr. Tony Briscoe, assistant director of social policy with IBEC. I wonder if he agrees with all that he has heard.

Mr. Tony Briscoe

I would not necessarily say I disagree.

Chairman

That is good. We are delighted to hear that.

Mr. Briscoe

The reality is that anecdotally we have observed a levelling off to some extent. The last IBEC survey the joint committee will be aware of is the one we did in 2002. We observed over the two year period that insurance premiums had more than doubled. Starting from a point of 100% and then doubling, this year we did a survey among some 400 member companies employing nearly 200,000 people across a broad range of sectors. We asked a specific question as regards business overhead costs. Insurance was ranked number one and significantly outranked all of the other costs. There was an indication that increases last year were of the order of 50% plus, coming down to about 30% plus, between this year and last. That is based on that particular analysis. While it is not a detailed analysis, it suggests that there is some improvement but room for more.

There is a sense in the business community and an apprehension that while the indicators may be positive, we would like to see them improved. There is some apprehension that this might not happen, particularly in the context of measures such as the PIAB and others we believe to be important. I would not disagree with the observations but we have had a hard hit in business over the last two years. The level of adjustment one would expect to see as a result of the developments we anticipate should be much larger we believe.

Chairman

I welcome Mr. Kieran Crowley, chairman, and Mr. Pat Delaney, director, of the Small Firms Association. Do the delegates have any hard evidence since the last time they were here on behalf of their members that what these gentlemen are telling us is happening on the ground?

Mr. Kieran Crowley

Thank you, Chairman, for the opportunity to return to the joint committee and address you a second time on insurance. The opportunity is all the more valuable to us because our members in our annual survey indicate that insurance is currently the single biggest concern of small and medium business. In commenting on what has already taken place in the proceedings today, we focus on the experience of people paying insurance premiums. While I am happy with the information provided by the three speakers from the insurance companies, it is worth noting the scale of the reductions they are talking about and contrasting that with the scale of the increases experienced by our members in recent years. Today we are talking about 10% or 13% or perhaps 1% or 2% and I laud them for these reductions. However, they must be placed in the perspective experienced by our members who have had cost increases of 30%, 50% and 100% in premiums. That is the type of change that the reform being demanded must achieve, as seen by the Members of this House in a cross-party perspective, the imperative necessity to pass the legislation that will come before the Oireachtas in connection with civil liability insurance and the setting up of the PIAB.

I would like to comment on particular aspects of what has been said. It is worth noting what Philip Fitzsimons said about employer's and public liability premiums, that he can see some evidence of reversal in their claims experience and that they are waiting for a sector by sector analysis before they move towards reducing premiums. He has told us in that information that it has not happened yet. That is our constant theme to this committee: it has not happened yet. Much has been said and done but our members are still facing large premiums.

I would comment on what Dick O'Driscoll said. I thought he made a fine presentation. We are particularly supportive and co-operative with the Hibernian Insurance initiative in engaging with its customers. We think the measures Mr. O'Driscoll outlined in terms of encouraging our members to manage and understand their risk and recognise that their own behaviour and the steps they take are part of the process of reducing the cost of claims and premiums. He put this extremely well and I would like to record our support for the measures his company has taken and our continued intent to co-operate closely with Hibernian in this programme of education, through small and medium business.

John O'Neill was interesting in using lovely language like "good fortune" and mentioning AXA's comfortable position and the movement on reserves. I am happy to hear his evidence on the status of his company's accounts. Insurance is a mutual activity and to create the kind of mutuality involved in the pooling of risk, it is necessary that the people who organise the pooled risk make money out of it. We would always respect the requirement that it should be a profitable activity and that the profitability should be proportionate.

As a result of the initiatives towards reform we expect to see a significant reduction in risk. We expect to see a significant improvement in the relationship of premium and pay-out in the insurance industry. We badly want to see that reduction in pay-outs reflected in lower premiums. We are hugely dependent on the fact that when the Oireachtas passes the new laws and when we deliver a more educated small and medium business sector and behaviour in risk, the insurance companies do their part. They must do their part in terms of fair and honest treatment of the gains they will experience. Fair and honest treatment requires that reserve accounting and movement in reserves act in recognition of what has happened in the market and do not conceal, obscure or hide this and prevent it being reflected in lower premiums for business.

I wish to pick up on the Chairman's opening remarks when he commented on the broker channel. From a small and medium business viewpoint, I draw attention to the significance of brokers. They are not parasites and not people who do not perform a function. They perform a number of services to business in so far as they know where to go for cover, the rates available in the marketplace, the attitudes towards risks prevalent among different underwriters and the sectoral appetite for risk they share. They perform a valuable service. In the past they have probably done themselves no favours by being remunerated on a commission basis where this would be seen to have been maximised by higher premiums. It would be better for their cause if they were remunerated on a fixed fee basis. However, brokers are a significant source of service to small and medium business.

I am reminded by my colleague to, once again, point out how utterly inappropriate it is for the Exchequer to seek a 2% levy on insurance premiums when their cost is such a burden on all premium payers.

Chairman

We are not looking for 2%. We are looking for 30% as stated in our report. I repeat what I said yesterday: the ratio in Ireland is one of the lowest in this regard. I carried out my own research in anticipation of radio and television interviews on our interim report - roughly 11% to 15% of the member states, I understand. As regards Mr. Crowley's views on brokers, Quinn Direct made a serious statement yesterday and we have to act on it as a committee. Is the Small Firms Association in correspondence and dealing with Quinn Direct about that company's views on the current state of insurance business?

Mr. Pat Delaney

The Small Firms Association would never say one product is better than another. It seems to us the Chairman's opening comments suggest Quinn Direct is finding it difficult to talk to people. The marketplace is there if it wants to engage in it. I am sure it is comfortable with its product and profitability. It has to compete on the same basis as everyone else. If it finds brokers make it difficult to sell the product through that business arena, the question should be referred to the Competition Authority. If there is a problem the Competition Authority should give judgment on it. It is not for the Small Firms Association to say whether Quinn Direct should have greater or lesser access to the market.

Chairman

Will Mr. Delaney answer the question?

Mr. Delaney

I think I have but could the Chairman repeat the question?

Chairman

Has the Small Firms Association returned correspondence to Quinn Direct?

Mr. Delaney

Yes, we have had dialogue with Quinn Direct.

Chairman

If the joint committee needs further clarification, is the Small Firms Association prepared to come back and pursue this?

Mr. Delaney

Of course.

Deputy McHugh

I want to ask a simple question that I think is fundamental to the joint committee's business. Why have employer's and public liability premiums not fallen to the same degree as motor insurance premiums? Could we get a handle on the situation as regards employer's and public liability insurance? I understood FBD to say the situation was starting to reverse and Hibernian to say there is a 10% increase. I believe Mr. Briscoe, in particular, said he anticipated a 30% increase. We have three reputable bodies here and they all give us different information. We need to be in a position to decide which is correct. I am not questioning the figures we got from FBD or Hibernian but there is a disparity. They are both in the same business. How can there be such a disparity between the two companies? Are we to assume FBD gets more compliant or more conscientious employers who have all their health and safety arrangements in place and that Hibernian deals with different types? Why is the increase almost being reversed in one case while the other is up by 10%? Why does the evidence from IBEC, in particular - the Small Firms Association might concur - contradict what the insurance companies say? At best there is a 20% difference between the companies and at worst 30%. I ask the employers to respond to the statement from Hibernian which says, in effect, that if businesses do not change their fundamental behaviour everything will move on and business insurance will still be a problem.

Mr. Fitzsimons

The Deputy's query, to begin with, on the different experiences of FBD versus Hibernian, is one specific question. Experience is going to be different because each company writes, in many ways, a substantially different book of business. The portfolio of business that FBD would underwrite in the business sector may be substantially different from Hibernian's. I can talk for FBD and state that our basic target market is the SMEs, the retail outlets and shops. That is the ticket we have targeted. We do not go in for the major construction risks, marine and so on. There is a difference between the book of business that companies write. Therefore, by definition, the experience will be different.

On the question why employer's and public liability rates have not fallen - I indicated we were reviewing the situation and anticipating reductions - I refer the Deputy to the document submitted in advance of the meeting which shows the story as regards our underwriting results for employer's liability and public liability insurance. From this it will be seen that from 1999 to 2002 there were substantial losses on employer's liability insurance. I said that trend was being reversed and there is evidence from the figures for the 2003 half-year. We have seen that employer's liability insurance which had underwriting losses of €5 million in 2001 and €7 million in 2002 is down €135,000 for the first half of this year. Public liability insurance had losses of €9 million in 1999, €4.9 million in 2000, €5 million in 2001, €6 million in 2002 there was a positive turnaround for the 2003 half-year, the first time in the history of FBD. That supports what I said, which is that we are seeing a reverse and identifying precisely where it is coming from. We want to be satisfied that it is sustainable and long-term and we indicated that we would be moving shortly. It is important that we exercise a certain prudence. Not long ago we had a couple of major liability underwriters in Ireland who lost a fortune and caused chaos in the market because they got it wrong.

IBEC and the Small Firms Association will clearly know the downfall and disaster that means for business who are left without a responsible insurer. Caution is the word. It is good to see and we welcome the improving trend. We have indicated that once we see the road is correct and mapped out, we will reduce.

Mr. O’Driscoll

To respond in a slightly different manner to the same question, the employer's liability figures provided for us were for employments that accounted for 200,000 people through 400 companies, averaging 500 per concern. I do not doubt the quality of the data but 500 people in our business is a large industry or company to be insuring. Like Mr. Fitzsimons we would not necessarily be represented in that sector in a significant fashion. Therefore, the numbers quoted do not align with the book of business that we have. The liability markets have been in underwriting loss right up to the end of 2002. That has been reported by all liability underwriters. There is a turnaround. There is an improvement. In Hibernian we have been trying to generate that improvement through participating with individual companies in managing their liability and that is starting to work. Those companies which have participated have had up to 25% of a decrease in their premiums. That has to be more widespread.

The motor insurance market improved faster than the liability insurance market and penalty points drove this. We do not have a penalty points initiative in the liability insurance market. Therefore, we are trying to drive initiatives to get that market into better shape and naturally the motor insurance market was going to produce better results more quickly than the liability insurance market. I believe that is the timing difference about which we are talking.

Chairman

Can we get one thing clear? I believe Mr. O'Neill said the last time he was before the joint committee that motor insurance accounted for 85% of his business. Mr. Fitizsimons said that 57% of his business was property driven. Is that not right?

Mr. Fitzsimons

No, 57%.

Chairman

Could Mr. O'Driscoll say what is Hibernian's?

Mr. O’Driscoll

About 53%.

Chairman

The joint committee is getting a good broad experience from the data being disclosed. The only thing is we have no hard evidence whatsoever. I discussed this with some members of the committee before we started this morning. One letter, I suppose out of 300 that I have received, stated a reduction was received in the premium for motor insurance. The committee is not interested in the hard work and the difficulties the companies are experiencing. It is a difficult industry. We are interested in a no claims bonus after five years for a premium holder. That is something we will certainly be looking at in the next round of investigations - where the person has a five year no claims bonus and it is not being passed on. That is why we are taking a strong line on one's bona fides in coming before the committee and giving us these data. It is worth its weight in gold but if the premium holders are not getting the benefit, we want to find out where the reduction is going. We do not have any hard evidence, except what we heard yesterday and what we hear this morning from company representatives. We are heartened and delighted to hear it but we will be watching with bated breath over the coming months to see whether this will be passed on. As I have said, we have no evidence whatsoever.

Mr. Fitzsimons

My colleagues in the industry will confirm what I am saying, I hope. Figures as regards private motor car premiums for the first half of 2003 versus the first half of 2002 show either a 0.1% or a 1% increase. That is the hardest evidence of all as regards the market as to what is happening in regard to private car insurance. Perhaps Dick O'Driscoll or John O'Neill could confirm that I have got that figure right but the Irish Insurance Federation has it. Is that Mr. O'Neill's recollection?

Mr. O’Neill

I take exception to the tone. We were asked for a specific answer. We based our answer on 11,678 policies. I would have to take legal advice as regards protection of data but I am prepared to give a print-out of one day's business which might amount to 2,000 policies and the specifics of the reductions in premiums. Our premiums have come down. This is clear from the renewal notices sent out. Next year we will take in €34 million less than this year for our particular book of business because we are giving the premiums back. I do not make up these figures. These are the facts as they are provided to me. I know they are correct and I take exception to any allegations to the contrary about our premiums. I have given specific evidence to support this in letters I wrote to the joint committee over the past three months in response to representations made in the newspapers to the effect that premiums were not falling. We have evidence to back this up from an international firm of market consultants which specifically asked for quotations in April 2003 and October 2003. As I said, the reductions range up to 30%. Every committee member has a copy of this information. I intend seeking legal advice on giving specific names and addresses from our database to demonstrate that we are reducing premiums every day of the week.

Chairman

I merely relay the information we receive.

Deputy Howlin

Perhaps that raising of the temperature is good. Passion is good as long as we understand we all have the one agenda.

The insurance industry is in business to make money. This is a good, healthy and desirable aim. We want to have a functioning insurance industry with little or no barriers to competition which is why we have worked so hard at producing an agenda for change.

We are trying to do two things, one being to get a fix on where we are at in regard to premia. The real answer to the Chairman's question is that people who get reductions are not inclined to write to us while people who do not are very inclined to write to us. Notwithstanding that, we have to ensure the data we receive, because they are globalised or snapshot data, are typical and consistent. That is our focus.

It is interesting that the presentations we have had in the past 48 hours from most of the major players indicated significant reductions in premia across most areas. Of all the companies which have come here, Hibernian seems to be the least inclined to shine the light. The company is more inclined to hide its light under a bushel. Even in a public statement quoted in today's newspaper, a spokesman for Hibernian said the company had no long-term plan to make any announcement for 2004 but had not imposed any increases in line with inflation in the past year. In the context of what the other insurance companies said to us, that is a limp enough presentation. In fact, the data we have from Hibernian seem much more positive than the fairly limp presentation we heard.

From the data we received, significant reductions in premia are evident across all risk categories and areas of insurance. By and large, this has come about before the implementation of the measures laid out in the reform package in our first interim report. What is the companies' analysis of the impact of that reform package, in as much as they can actuarially do such analysis? They are all in the business of making educated guesses. What would be the future impact on premia if the entire package of reforms is supported in the way that the IBEC and the Small Firms Association exhorted us to do on a cross-party basis?

The PIAB legislation is due to come before the Seanad next week. The legal industry is already revving up with full gusto in regard to this. It has its own views about these matters. Is there any indication of what impact the PIAB will have on premia? We have had many false dawns in that we were told that if we did away with jury courts and so on we would have a significant reduction in premia.

I understand 15,000 inexperienced drivers have been through the Hibernian Ignition scheme. Is this a one day training programme? Will it automatically qualify an inexperienced driver for a 50% reduction in premia?

My final question goes to the heart of what we are about and also reflects the Chairman's question. Mr. O'Neill is forceful in arguing his case and rightly so; we can all be in high dudgeon in regard to the defence and purity of the data we present. We are practical people. A headline in today's The Irish Times reads: “Cynical about logic of insurers”. The following is a quote from the article:

So insurance is getting cheaper? Try telling [a named individual], owner of a Dublin hygiene-product distribution company. . .

Since 1995 the public liability insurance for Bluebell Business Park, the south Dublin industrial estate [I do not know if any of the companies present have this portfolio] where his business is located, has shot up from €6,980 per annum to €60,000.

[Mr. Martin said] Ridiculous insurance costs have definitely eaten into turnover and profits. When I hear the industry say its premiums are falling, I find it difficult to believe.

I can quote this because it is available in the media. Anecdotally this is what we hear in our clinics or from people who contact us when they hear of the work of the joint committee. We want to give them the benefit of the good news that we are hearing. Is this entirely atypical? Is there some set of circumstances that makes them out of line with what is happening generally within the industry? What is the reality on the ground from the perspective of the data that must be pouring into the Small Firms Association and IBEC?

Mr. O’Driscoll

First, in regard to the prospect of future rate reductions, the Tánaiste has been quoted on occasion as setting a 30% target for reductions.

Deputy Howlin

That is the Chairman.

Mr. O’Driscoll

If it is the Chairman's target, the Tánaiste has marketed it elsewhere. My understanding is that an analysis was completed of the MIAB recommendations. An attempt was made to attach a value to each of the recommendations. If all the recommendations are fully implemented, this could give rise to a 30% reduction in insurance premiums. We have no reason to doubt that 30% reductions are achievable with full implementation. We will do everything we can to ensure this happens. The committee must understand that while the legislation is drafted we still do not have a PIAB, court reform or the Garda traffic corps as promised in the Programme for Government.

Deputy Howlin

Is Mr. O'Driscoll saying that a 30% reduction in premia is an achievable consequence of the implementation of these measures? Do I understand that the 30% reduction is from today's base since it has not yet happened?

Mr. O’Driscoll

One of the recommendations was road safety which, according to my recollection of the analysis, had a value of 10%. The 10% reduction we introduced this month for penalty points free drivers is a direct reflection of what can happen when recommendations are implemented. The starting point includes the 10%.

Chairman

Would an individual with two points be entitled to a 10% discount?

Mr. O’Driscoll

It would not make a significant difference to the premium. I do not believe——

Chairman

They would not get the 10% decrease.

Mr. O’Driscoll

They would not get it today but 97% of customers get it. We will continue to review the experience of penalty points on the market.

Chairman

Some 97% of customers.

Mr. O’Driscoll

Yes. The Ignition scheme is a one day, in-classroom and on-road training course. Independent professional testers and instructors from the Institute of Advanced Motorists conduct the course. Approximately 80% of participants in the programme automatically qualify for an initial minimum discount of 20%. The discount can increase to 50% depending on the product options chosen and the performance of participants in the assessment. The minimum discount is 20%. The cost of the programme, which is significant, is borne entirely by Hibernian.

Chairman

That is significant. If a person does a one day programme, he or she gets a minimum reduction of 20%.

Deputy Lynch

How many doing the course achieve discounts of 50%?

Mr. O’Driscoll

Quite a small percentage for the reason that few clients opt for the curfew component of the discount which prohibits the use of a car by inexperienced drivers between 11 p.m. and 6 a.m. When we researched that market, there was a great deal of appetite among people who said they only wanted their car to go to work but when we offered them the option to avail of a further 10% discount through not using the car during those hours, virtually nobody took it up. A significant proportion earn up to 40% discount while only a small proportion earn up to 50%. I do not have specific numbers.

Mr. Delaney

Deputy Howlin raised the issue of whether we might be back here in three or four years time talking about this matter again. If we do not get the legal and legislative reform which we have been talking about, we will be back. Irrespective of what the industry and business do, if the necessary legislative reform is not implemented, insurance costs will continue to increase. It has been pointed out that when it comes to the reinsurance issue, people look at Ireland and say they cannot quantify the risk in the market as nobody knows what will be the cost of claims. Insurance costs are high because legal and administrative costs are high and this is what needs to change. The remit of the joint committee is to ensure legislation is passed by the Oireachtas to bring about the necessary changes. If this happens, industry and businesses will thrive but if it does not, we will be back here in four years time as we will still have this problem.

Deputy Howlin

We have acted on recommendations in the past that have not had the necessary impact.

Mr. Delaney

If I may interrupt, it is one year since the PIAB was announced.

Deputy Howlin

If I may finish the point, as a committee, on an all-party basis, we have agreed on a series of reforms. The interim report that has been endorsed is our work, not the work of Government. The Oireachtas is committed to driving through this reform. We pushed for the legislation and will enact it. We will take on all-comers in regard to the recommendations, albeit with trepidation in some areas. There must be a guarantee that the consequences will be positive in terms of the insurance market. I am anxious to nail down this matter. I do not want to hear in future that there is something we forgot, or something that the industry forgot to mention, that requires something else to be done to send the fool further. This is a package of measures that should significantly reduce insurance and keep it down. We want to nail that down now.

Chairman

We have the Taoiseach's commitment that insurance will remain the number one priority in regard to the legislation that will come before the House in the autumn session. The PIAB Bill will be published tomorrow, 14 November, which heralds a significant step forward. Colleagues in the Oireachtas, in the committee and elsewhere, are doing everything that is humanly possible to achieve progress in this regard. We have to ask the questions put to us by our constituents and colleagues who are not members of the joint committee.

When other colleagues have asked their questions, I will ask one about employer's liability and public liability. As an employer, I do not see a reduction in premiums. This is the second largest item of expenditure for an employer.

Mr. Briscoe

I wish to respond to questions from Deputy Howlin and another Deputy about the experience of business. Because of the interest in this area, we have been observing it for a long time. The difficulty businesses face is that they see the potential for all of these measures coming in but it has not yet happened. Over the past two years the levels of increase have been crippling and there does not appear to be any abatement. When I referred to 30%, that was in the context of a sample of industries, some of which may have had significant increases. Some of them may also have had reductions but over a broad sample the general experience was of increases rather than reductions.

In the industry's fact file for 2002, the number of personal injury claims notified in the year was 6,860 in terms of employer's liability and 15,300 public liability claims. In the year 2000, claims in regard to employer's liability were of the order of 11,000 claims. In another year, there were 20,000 public liability claims. While there may be other factors at play, there is a significant indication that the level of claims has come down. If this is the case, the expectation for business would be - I accept that it is not as simple as that - to see a conversion in regard to premium. The problem in this country is that on average it takes three and a half years to process claims. I suggest that if the PIAB were up and running in the morning many claims could be processed much more efficiently. This is no good either for the genuinely injured individual. I presume the industry has to make provisions in its reserves. Therefore, when one looks at a particular year, one is really only looking at a small proportion of the total extant claims.

Deputy Lynch

As provision is made from the time the claim is made, additional premium is being gathered while waiting on the legal process to be completed. It is not just a case of companies being hung out to dry and that they are at a loss all of this time. They actually gather funds to meet such claims in the meantime.

Mr. Briscoe

Absolutely. Businesses often ask for more transparency on how reserves are addressed. We do not know how this is done. We see the figures for claims incurred of €300 million or €1 billion in regard to motor but we do not know how it is made up in regard to the reserves. There has to be balance in this approach. We do not want to see a situation where the reserves are inadequate. It is vitally important that we have an industry providing cover for liability where these reserves adequately address the potential liability, that they cover the liability of business and that businesses are not exposed. We have had that experience in the past and we do not want it again.

Mr. Fitzsimons

In response to Deputy Howlin's query as to whether the 30% is achievable or if it will go beyond this rate, the target figure was based on the implementation of various recommendations in terms of motor insurance. Mr. O'Driscoll pointed to road safety as one of these. It is important to recognise that the major element in the reduction of premiums has been the claims experience and two factors are of significance in this regard. The incidence of accidents has fallen and this can be attributed to road safety initiatives such as penalty points. However, it is debatable whether the actual lowering of the level of awards and settlements is an even more significant contributor. I see the award level as the major driver. I would not agree with Mr. O'Driscoll in attributing it all to penalty points.

In terms of the reform measures that have yet to be implemented, while they will add further to what has happened, we should not confuse the issue; frequency of incidents is a major factor as well as the level of awards. This was not quite factored into the figures in terms of the expectation of 30% reductions. We heard talk of what a book of quantum might deliver but someone would need to read us the figures to see what that might deliver.

Chairman

Does Mr. Fitzsimons agree it is not a question of one item in particular, that a series of recommendations have to be implemented?

Mr. Fitzsimons

That is correct. In many respects there has been a sea-change in the attitude towards claims. In the final analysis the Judiciary will set the benchmark that will filter back through the system in terms of award levels. When the PIAB is established, it is essential that we look at it in terms of competition. We are competing internationally. We must look at quantum levels abroad rather than relying on previous levels in Ireland which by common consensus are deemed to be too high.

Chairman

That is a good point which was also made yesterday.

Mr. O’Neill

I wish to respond to Deputy Howlin's points. While we concur with the figure of 30% in regard to the positive effects of premia quoted by the other members of the insurance federation, we have slightly different views as to the constituents. As I said in my letter, I look to the past as a good indicator of what will happen in future. I draw particular attention to the necessity for road safety measures to be enforced. There is an obvious lack of enforcement at present. The industry and individual companies have brought in anti-fraud measures. Another factor is the amelioration of awards by the courts. I accept what Deputy Howlin said about sending a fool further.

The 30% target is achievable. We are about halfway along that path. We must remain cautious. What has tended to happen in the past is that when insurance company profitability improved, which takes on average about two years after actual events occur, the awards given by the Judiciary tended to climb upwards. We do not have any way of addressing this issue, even with a book of quantum. That is my single significant concern as we start to produce profits. On a tracked basis we know that the amounts we pay for fairly serious injuries have levelled out or there has been a small reduction. This is what has enabled us to reduce premiums. We are not the Society of St. Vincent de Paul. We are in business to make a profit and, equally, when we make a profit and see the sectors that are profitable, we reduce the premiums because these fine gentlemen here will follow us and reduce their premiums and take the business away. This is what actually happens.

Deputy Hogan

They think Mr. O'Neill is following them.

Mr. O’Neill

No, in this case we are leading. I will finish on the movements in premium. The joint committee should forgive me for being so determined and passionate about this issue but it is important that a distinction is made between what I call commercial insurance, which is really the area that has been talked about, and personal or motor insurance. I am frustrated because although we worked hard on the road safety initiatives that have now been delivered, we are being boxed in on the liability side which is why we are not involved in this sector.

Deputy Howlin

Mr. O'Neill is in the wrong building if he expects credit.

Mr. O’Neill

No credit but - this is important as it goes to the heart of the Chairman's query - there is publicly available information from an independent source - the MIAB. I refer here to private motor insurance. From 1990 to 2003, motor insurance premiums grew more slowly than average earnings. Motor insurance premiums grew by 5.01% and earnings grew by 5.5%. We should take a moment to reflect on what happened the premium between 1990 and 2003. I can give the years when it was completely stable. From 1992 to 1995, in spite of inflation, premiums were absolutely stable in the category of driver referred to with the maximum no-claims discount.

Deputy Howlin

It was an excellent Government.

Mr. O’Neill

We give up to 70% discount for drivers who have over five years claims-free driving. As far as I am aware, this is the largest discount on offer in the market. One has to make the distinction between the two. These are the facts based on independently audited figures.

Chairman

Mr. O'Neill's company is the leader in the field. How can the joint committee address the problem I outlined? I accept the bona fides of the eminent ladies and gentlemen coming before us to tell what is happening in their companies. That is not at the heart of the problem. If this problem cannot be solved today, then perhaps witnesses will inform us how it can be done at a later stage.

As I said at the start of the process, we have to work together on this. We all want to achieve the same goal which I hope will happen more quickly than we anticipated. We all know the problems. We accept that there are major road safety problems and these have been highlighted. We will take this on board in the coming weeks.

Mr. O’Neill

The recommendations in the interim report are spot on. The joint committee is going down the right track. All we ask is that what has been promised will be implemented and the delivery will be forthcoming. We have taken action.

Deputy Hogan

I was interested in Mr. Crowley's remarks about flat rate fees versus percentage increases. It is a bit like the national partnership talks. If we could only get a flat rate on everything, it would be a great country in terms of cost base. This is a perfect opportunity to deal with this matter.

Mr. Crowley

Hear, hear.

Deputy Hogan

I am pleased to hear that Mr. O'Neill is washing his face and doing so well into the future. The background to this is that insurance companies have declared profits of €183 million that have nothing to do with the reform package we are discussing. The industry is able to make money without any reform. We heard all the usual excuses about the type of insurance market that exists in Ireland. The events of 11 September 2001 have also frequently been wheeled out as a factor. The fact remains that the industry has made a profit of €183 million. I accept that reinsurers have had difficulty in the marketplace but without any reform or recourse to penalty points, profits of €183 million have been generated. Penalty points only took effect in November of last year. How will Mr. O'Driscoll find out who has penalty points?

Mr. O’Driscoll

The primary responsibility is on the insured person who has a contract with us to inform us of any offences.

Deputy Hogan

It will be on the renewal form.

Mr. O’Driscoll

That is the primary source of information.

Deputy Hogan

People will have to declare if they have penalty points on the renewal form.

Mr. O’Driscoll

It is already on their renewal documentation.

Deputy Hogan

That is at variance with what we were told; that it would be made available through the Department of Transport. We were told that an arrangement was reached with the industry.

Mr. O’Driscoll

We have been given undertakings in respect of access to the data. We are working with the Data Commissioner to facilitate automated access to the data.

Deputy Hogan

As I said publicly, I was concerned that the reform package was not being taken into account in the context of the withdrawal of cover from drivers with five or more penalty points at a time when we were doing our best to bring down the cost of processing claims. Mr. O'Driscoll refuted this contention. I had no difficulty with loading cover for such drivers but the opportunity was being taken to refuse to quote people with five penalty points or more. I was interested to know where Hibernian Insurance was to get its information. The Minister for Transport said he would give it to the company.

Mr. O’Driscoll

In quoting for new customers, we simply ask the customer for the information. It is not a matter of gaining access to any files.

Deputy Hogan

That is what I thought would be the case but I was told something different previously.

I wish to address the issue of reserves. Mr. O'Neill has explained why AXA required €100 million in 1999.

Mr. O’Neill

It was €200 million.

Deputy Hogan

It is even worse than I thought. It was a difficult situation and I understand the reasoning involved. Does Mr. O'Neill agree that there is great potential to manipulate underwriting losses or profits in the context of reserves? Looking at it from the outside, one can see a temptation. I am interested to know how much of the reserve is allocated to motor insurance. I acknowledge that AXA is more dependent on motor insurance than the other companies here. How much is allocated to motor, property and household liability, respectively? There is a perception that one can increase or decrease reserves to meet certain circumstances which arise. I am interested to know how the process works.

Mr. O’Neill

I am happy to talk about that as it represents, in fact, a very sorry chapter in the history of our organisation. The PMPA did not have sufficient reserves which was why it went into administration. I dare say, the Insurance Corporation of Ireland went into administration for the same reason. I speak here only for our own company. We were in an unhappy position in 1999 and 2000.

Sitting suspended at 11.15 a.m. and resumed at 11:35 a.m.

Chairman

I apologise for the unfortunate and untimely interruption which was caused by the sounding of fire alarms. Much of our attention this morning has focused, quite rightly, on motor insurance. However, we have not heard much mention of the reductions in employer's liability or public liability premiums. I would like committee members to ask questions about these matters.

Senator Coghlan

Deputy Hogan had to leave. He asked me if I would resume briefly for him.

Chairman

There is no problem at all. I will allow the Senator time to catch his breath. Deputy Wilkinson is next and the Senator may speak after him. Government members have not had an opportunity to contribute yet and it is already after 11.30 a.m.

Deputy Lynch

It is most unusual.

Chairman

It is unusual for me and I can assure the joint committee that it will not be the norm in future.

Deputy Wilkinson

I welcome the delegates and the presentations they have made. It is a positive development that the issue of insurance is at least being debated. A start has been made and the trends look well. I listened to Mr. Briscoe say it might take three and a half years for those trends to manifest themselves properly. I contrast that with the way premia increased quickly and steeply. Small businesses will face six and half years of very high premia before the situation is clear. That is not acceptable.

I mentioned yesterday some of the premia being paid by very small businesses. Many small business owners and others have spoken to me about insurance costs. Last year the premium of a small transport company with a claims free record increased from €17,000 to €38,000. The premium of a small builder with no claims increased from €4,000 to €12,000.

Chairman

Was this in one year?

Deputy Wilkinson

Yes. The premium of another small builder with no claims increased from €12,000 to €34,000. I find this hard to justify. I welcome the fact that everybody is now aware of what is happening but I am not happy with what I have heard today. I am unhappy to hear the note of caution which has been introduced into the debate by various speakers in respect of the prospect of the continuation of a downward trend in premiums. There seems to be a note of caution from the various speakers.

Let me take up another point in respect of motor insurance. I would like to ask a question about the Ignition and RiskASyst schemes being provided by Hibernian Insurance. Is it wise to ask a driver to reduce his or her premium by not driving after 11 p.m.? I do not think it is right. People will take the reduced premium and then drive uninsured after 11 p.m. I think there is a risk in that regard. I also have worries about the RiskASyst scheme. When these products are sold to the various commercial people, are there occasions when they will not be insured? It is all right to say that they bought into it and they were aware of it beforehand, but various things happen in business and in driving. Insurance should cover a driver or a business for 24 hours of the day.

I am not convinced that insurance costs are slipping backwards. Perhaps there have been some small reductions but there were massive increases in the last three years. I said yesterday that many premium holders should be credited for the massive increases they had to pay. I refer, in particular, to those who have not made a claim. It is extremely difficult to justify what has happened. I welcome the trend. I welcome what the joint committee has done, is trying to do and will do in the future. I welcome the legislation that is about to be introduced. The committee's role is to examine various matters from the viewpoint of the consumer and ensure those who have a legitimate claim are properly looked after. There is a long way to go if we are to bring acceptable insurance premiums to the people.

I would not like to say the joint committee was misled when various companies addressed it and gave their opinions. I would not like to suggest that the truth was not told. A different story from that which had been told to the committee was heard when the companies' profits were announced. I am strongly on the side of the consumer. There is a long way to go. I referred to just three businesses but I am aware of several documented premium hikes. These increases are unfair and unacceptable and should be reversed. Many businesses are operating without insurance because of the premiums they are being charged. The committee's role must be to bring about a change in this regard.

Deputy T. Dempsey

Having listened to Mr. O'Neill's passionate contribution, I intended to give a passionate reply. The passion has left me, however, because of the long delays that resulted from the ringing of the bells. Before I entered politics, I asked myself on a number of occasions if a Deputy could make a difference. I have not yet arrived at an answer to that question but know it will be determined by developments in respect of insurance. Members of the Oireachtas, including members of this committee, have been forced to intervene in the world of insurance.

I listened with interest earlier to Mr. Delaney who said that we might be back here in four years time. I suggest to him that his association will have far fewer members if he is here in four years' time. The tragic escalation in insurance costs cannot be entirely attributed to the insurers. Those in the legal and medical spheres have played a role in putting insurance beyond the reach of the members of IBEC and the Small Firms Association. The committee faces a challenge in that regard. I will judge my time in the House by what happens in respect of insurance.

Although we seem to have halted the escalation in insurance prices, I am not sure if there have been reductions. There has not been a decrease in my premium or that of my son. I will follow up that matter at a later stage. I accept the argument, made by Mr. O'Neill and others, that motor insurance costs have started to decline. I am interested in where they are decreasing.

The fact that insurance is still the second highest cost factor in manufacturing production is not sustainable. As an exporting nation with high labour costs, Ireland cannot afford to have high insurance costs. Our insurance levels are out of proportion to other countries. We cannot continue in this manner. There needs to be co-operation between politicians, insurers, IBEC, legal personnel and the medical profession. We all have a role to play. We have to ensure there is a reduction in insurance costs.

The Chairman mentioned this morning that the Irish Hotels Federation's costs have increased by 300% but I think they have increased by about 400% in the last six years. It is obvious that some hoteliers have gone out of business. It was indicated in Quinn Direct's submission yesterday that hotels' insurance costs have decreased by over 20%. I have faxed their submission to a member of the IHF and I am waiting for him to get back to me. I will do the same with the submission we received today. I want people to tell me if their experience is in accordance with the arguments being made by Mr. Fitzsimons or Mr. O'Neill.

Chairman

Is the member of the IHF contacted by the Deputy involved in the same sport as him?

Deputy T. Dempsey

He has been involved to a certain extent.

Chairman

We know who the Deputy is talking about.

Deputy T. Dempsey

He will get back to me. He spoke about this matter on the radio last night. As a politician, I am puzzled by the fact that we do not have sufficient competition. It is good that insurers are making money but why are other insurers not entering the market? Is there a cosy cartel between the insurance companies and their sister organisations in other parts of the world? Has it been agreed that such organisations will stay away and leave the market to the Irish insurers? Very few insurance companies have entered the market. The fact that there is not enough competition is part of the problem. Legal and medical fees are too high. Too much money is being given to such people for the work they do. Can FBD Insurance and Hibernian Insurance give me a figure for hotel insurers? I would like figures that compare the prices in October 2002 to those in October 2003. Have premiums fallen for hotel insurers? If so, by how much?

Chairman

I know it is running late. Our sessions normally last two hours. We will hear from Deputy Lynch and Senator Coghlan before we finish.

Deputy Lynch

I will be brief because we have had a fairly long session.

Chairman

I thank the Deputy.

Deputy Lynch

I agree with most of what was said by Deputies Howlin and Hogan. I agree that it is important that reserve is maintained in respect of insurance. None of us wants to see insurers being unable to meet their liabilities. We have to be extraordinarily careful in that respect. We should consider the issues of future predictability and what one is supposed to be good at. That is why it should not happen.

I made a few telephone calls about motor insurance this morning before the meeting started. I am interested in the impressive contributions made by the various hotels. We should bear in mind that hotels are huge employers. I am most interested in motor insurance, however. When we were on our break, I conducted a quick study of people who are generally in the same categories as me. I refer to categories such as age and competence. I asked such people if their motor insurance costs decreased this year. One person told me that there had been a reduction, but everybody else said that their insurance was not cheaper. I asked these people when they had renewed their insurance, which is important. There is not much use asking a person whose insurance is due for renewal next January. People who renewed their insurance in July and August did not receive a reduction. While the costs did not increase, they most certainly did not decrease.

We have had five different contributions from insurance companies in the last two days. All of them have told us that their premiums have reduced. Ireland has such a restricted market that I take it that those five companies are representative of the across-the-board picture in respect of car insurance. The companies are stating the premiums have been reduced but the people with whom I have discussed this matter - individuals from Kildare, Dublin and Cork - have informed me that this is not the case. The evidence is, therefore, that premiums have not been reduced. I accept that my survey is very cursory in nature. In addition, I accept the figures that have been placed before us. However, if those figures are so generalised in nature is it not possible that we are not getting a picture vis-à-vis what is the average?

My insurance premium has not been reduced and all of those to whom I refer have five year no claims bonuses and are not in the 18 to 25 year old category. What we are being told is not reflected in the position that obtains on the ground. Why is that the case? I accept that the companies must ensure the reserve is correct and that they must not sell insurance in respect of which, at the end of the day, they cannot deliver. Those are my views on what is happening in general.

Senator Coghlan

I apologise on behalf of Deputy Hogan who was obliged to leave. I also apologise on my own behalf for being absent earlier but I had to be in the Upper House for the Order of Business.

My experience is similar to that of Deputy Lynch; my motor insurance premium has not been reduced. Friends have also indicated that their premiums have not been reduced.

I understand Deputy Hogan addressed a number of questions to the representatives of Hibernian before he left. I have three brief questions. Each insurance company manages its investments centrally and allocates investment income to each of its product lines according to the MIAB. How is this allocation made? Bearing in mind that the choice of allocation has a major effect on the apparent profitability of each type of insurance, what independent means exist for assessing the levels of return insurance companies derive from particular lines of business? Do our guests accept that there should be no production quotas established by any insurance company which might inhibit or prevent brokers from giving independent advice to their clients?

Mr. O’Driscoll

I will begin by addressing the question raised by Deputy Wilkinson about the Ignition scheme. It is important to recognise that all motor insurance is governed by the provisions of the Road Traffic Act. We cannot remove third party liability from any motor product. In the event that somebody has taken a restriction and an accident occurs, the third party claim still has to be paid by Hibernian. That is a point of clarification. There will be no Hibernian customers abroad who will not be insured at any particular point in time.

The same is true of the RiskASyst scheme. It is a voluntary decision by someone insured by Hibernian to become engaged in the RiskASyst programme. If they fail to perform, for whatever reason, the only penalty they may suffer is that they will not obtain the discount that applies to using RiskASyst. We are not setting out to uninsure people; we are trying to improve risk by having people co-operate with the management of their risk.

A point was raised in respect of competition and cosy cartels. I must inform Deputy Dempsey that it is an inappropriate tone to introduce to this debate. I know of no financial service business in which 25% of customers leave their supplier and go to a new supplier every year. Approximately 25% of motor insurance customers in Ireland choose a new supplier each year. That percentage may rise or fall by a few points, year on year. That is the strong evidence of competition in this market. I guarantee members that if the opportunity arises, through someone else's poor pricing behaviour or cartel like behaviour, to grow Hibernian's business, we will do so very quickly. Our shareholders will push us to do so in order to maximise our position in the market. Unfortunately, members of the public at large can be given unrealistic expectations when people refer to issues such as cosy cartels. Forums like this committee - which is an excellent outlet at which to debate the issues - can get the wrong message out to the public that there is some magic solution or that someone is going to find the switch to the cosy cartel and turn it off. That is just unrealistic.

Chairman

Is Mr. O'Driscoll's answer no?

Mr. O’Driscoll

Absolutely. We have always operated independently of the market and will continue to do so.

With regard to finding anecdotal evidence, I appreciate that Deputy Lynch acknowledged that she has engaged in an unscientific process. Only one twelfth of customers renew in any one month. In the first half of this year, many more customers would have received the same premium as last year with no increase. It will be in the second half of the year that people will see more reductions. The reductions Hibernian is putting into the market have only kicked in since October. Therefore, it will be 12 months from October.

On the specific questions about reserves, it is important for the joint committee to understand the reserves held by any insurer are subject to scrutiny. These ultimately make their way into the profitability of those companies. If a company sets out to manipulate its reserves or over-pack them, those reserves will ultimately be released. The insurance regulator independently appoints an actuary to review the liability based reserves we hold. Our auditors audit these and our shareholders scrutinise them. We are essentially saying, therefore, that, if those reserves are not a fair reflection of what they should be, those professional people who carry out the work to which I refer are not competent to do the job with which they are charged by the regulator or under the law. That is difficult to accept. It is important to be aware that even if a situation of over-reserving emerged - Mr. O'Neill stated this morning that claims are being settled at a slightly lower level than the reserve put aside for them - that money will ultimately come back to the customer by way of reduced premiums or to the shareholder by way of increased profits. Either way, the money becomes evident to everybody. It is not hidden.

With regard to the matching of reserves and the questions asked on behalf of Deputy Hogan, investments are made in respect of the reserves held for the individual classes of business - liability or motor - as appropriate. My comments overall in respect of reserves stand.

Deputy T. Dempsey

I asked if Mr. O'Driscoll could provide comparative figures for hotel insurance between 2002 and 2003. With regard to competition, I cannot understand why there is a reluctance on the part of major players to enter the Irish market, particularly as it is profitable.

Mr. O’Driscoll

It would be highly dangerous to try to give a sub-sector analysis of the position vis-à-vis hotels at this point. However, we will consider the position on behalf of the joint committee.

The absence of competition, as some might view it, or the lack of capital arriving in this market is due to its historically volatile nature. There is an inability on the part of capital providers to see what sort of result they will achieve over a reasonable period in the market. We do not want the peaks and troughs we see in the performance of the business and neither does the customer or the committee. We need to create an insurance environment that gives a steady flow of business and premiums and a similar flow of claims to match those premiums. The reforms we are seeking, which we have already implemented and are recommending for acceptance, be they the establishment of the PIAB, court reforms or increased Garda enforcement, will lead to a steadying of the ship. When that happens, competition will arrive in greater numbers in this market. However, there is serious competition.

Chairman

This follows on Mr. O'Driscoll's earlier remarks that capital providers in Munich are sceptical about Ireland.

Mr. O’Driscoll

That is correct.

Chairman

Is it upon that Mr. O'Driscoll based his analysis in order to make the statement he did?

Mr. O’Driscoll

No. We have held that view for some time. There has been political commentary on the absence of competition. The Tánaiste told the insurance institute that it was her intention to indicate the profitability of the market to external providers to encourage them to arrive in the Irish market. That is laudable but the Irish market results are transparent for the world to see. My comments in regard to talking to reinsurers is that when they look at the Irish market they see its historic volatility. They see reform coming, prices stabilising and reducing and they see penalty points and enforcement having an impact. However, they are of the opinion that one swallow does not make a summer. We have a lot to deliver if the external capital markets are to believe that Ireland is a healthier place to trade for insurance in future.

Mr. Fitzsimons

I do not have a great deal to add to what Mr. O'Driscoll has said. In regard to references to profitability, the reality and figures are there for all to see, even in regard to the market performance in 2002, that the total was a negative figure. As long as that situation obtains, capital providers will not rush in to invest in this market, which point Mr. O'Driscoll has made strongly. We should recognise that there has been a change in recent times. Deputy Wilkinson is suggesting caution and it is in the nature of insurance providers to be so. Nonetheless, we have signalled that things are going in the right direction and that reductions in premiums can be expected. FBD anticipates them in the near future on employers and public liability. I want to leave the joint committee with that message today.

Chairman

As FBD has a large part of its portfolio in property and most of the emphasis in this morning's meeting has been about motor insurance, how does Mr. Fitzsimons see the question of employer's and public liability insurance being addressed, since most of us are concerned about the jobs implications? Hotel insurance has been particularly affected in this regard. Do hotels make up a sizeable section of FBD's portfolio?

Mr. Fitzsimons

No. We got our fingers badly burned years ago and decided not to insure hotels and steered clear of them. We left it to others to insure them.

Chairman

What about the position of employer's and public liability insurance in general?

Mr. Fitzsimons

A large part of our business is in the farming sector. We are doing shops and medium-sized enterprises and we expect reductions in the short-term on employer's and public liability premiums for those businesses. We need to work our way through it. We are seeing the evidence in first half year results but one swallow does not make a summer. As Deputy Lynch has said, we do not want to over-react because it is not in the long-term interest of anyone if there is a cyclical situation.

The record speaks for itself. People have referred to premium increases of the order of 300% and 400%. Anyone who looks at FBD's figures for employers' and public liability insurance will see there is nothing in the region of those increases on our account over the years. One must also bear in mind that our book has grown in that territory. We have a good record of which we are proud.

Mr. O’Neill

I wish to briefly address some of the points made. Deputy Wilkinson referred to profit. At my last appearance here, I specifically gave the profitability figures for the company from 2000 to 2003 and indicated precisely when we returned to profitability and why I believed we had turned. If the Deputy was surprised when our figures came through, perhaps our letter was not clear enough. I specifically emphasised our trend in profitability, which I have drawn to the attention of the Chairman.

Deputy Conor Lenihan stated at the press conference we had that our profits were rising. In regard to Deputy Hogan's remarks in regard to the reserves issue, as Mr. O'Driscoll has already said, it would be wonderful if we could manipulate reserves but we have a certifying actuary who has to sign off and has a statutory responsibility to do so. We have all seen what happens when sufficient reserves are not provided for. However, as Mr. O'Driscoll said, as the claims get settled and our reserves picture becomes clearer, those reserves are released to profit which enables us to give some return to shareholders and do the things we are with premiums.

If the Chairman asked me if a cartel was operating, I would tell him no. The two primary pieces for evidence one should look for in establishing whether a cartel is in operation is convergence of price for the service and extraordinary levels of profitability. I ask any Member of the Oireachtas to review the profitability of Irish insurance business and see the companies which exited this market because they could not give a return to shareholders. The profitability argument does not stack up.

Let us examine premiums, for example, €494 against €728 hardly represents a convergence, likewise with €560 against €851 and €550 against €730. The local player is the one with the higher premiums in all cases, acknowledging that they have reduced their premiums significantly. However, they are still across the board dearer than the rest of the market. There is no cartel of which I am aware. We fight like cat and dog to get business from anyone on the street. We must not lose sight of the issue of uninsured motorists. That burden is on every person who pays a motor premium.

Chairman

That was our first recommendation.

Mr. O’Neill

That is correct, which is why I acknowledge that the joint committee is on the right track and more power to it. This robust discussion and our ability to come before the committee to make our case is valuable. We do not want plaudits or halos but we would like people to think we are not horned devils, trying at all times to extract the maximum from the public. We are the public too.

Chairman

Did Mr. O'Neill reflect on what I asked him to before the fire alarm sounded? We are getting new evidence, accept the bona fides of his figures and are delighted on behalf of policyholders. How can we come to terms with the fact that we are not getting this information from the general public? We are the conduit between Departments and the industry. The industry is professional and we will act according to the advice given by it in every shape and form. I apologise to Mr. Crowley for delaying him.

Mr. Crowley

Reference was made to the ghastly possibility that we might be here in four years having effected no change.

Chairman

We know that will not happen.

Mr. Crowley

The only way that will not happen - the magic bullet to which Mr. O'Driscoll referred - is by the introduction of new competition. No matter what members heard from the chief executives of the insurance companies - I do not question their honesty or belief in the performance of their auditors or certifying actuaries - these professionals expressed their judgment which reflects their optimism or pessimism at a particular time. As a qualified accountant, I can state that the accounts of insurance companies are exceptionally difficult and not transparent to anyone. They are vulnerable to short-term reflections of the state of mind of the people who are making judgments. The only true way of keeping profitability in providing this essential underwriting service to the community is to see a larger number of people there. Over and over my members say they are not getting any other quotes.

Much of today's discussion has centred on the narrow area of motor insurance. However, employer's and public liability insurance mean huge premiums for my members and they tell me there are too few players. In regard to renewals the recurring theme is that their brokers tell them a premium is the best quote they could get, that it is significantly higher than the previous year and, from the broker's knowledge, he or she tells my member to accept the premium quoted because there is nowhere else to go. The test of competition is whether there is another quote to be got at a reasonable price.

It was interesting to listen to Mr. Fitzsimons's answers when the Chairman delved below the broad category of a particular class of insurance and began to probe at segments. Mr, Fitzsimons's reason for his organisation selecting to operate in particular segments and not others was also interesting and may be worthwhile examining further. It should see whether there is competition in particular segments in employer's and public liability insurance. From the experience of SFA members, I suggest that is not the case.

Deputy Lynch referred to the need for reserves which we accept are an unarguable requirement for a healthy strong underwriting contribution to our community. However, I wish to correct any misapprehension that the highly publicised failures of the Insurance Corporation of Ireland and the Independent Insurance Company were not about a failure of the relationship of the premiums charged and risks written. Rather, it was a failure because of unauthorised activity by senior officials who exceeded their brief.

Deputy Lynch

Has Mr. Crowley seen a reduction in premiums for his members this year?

Mr. Crowley

No. The evidence has already been laid before the joint committee. We are seeing a reduction in the rate of velocity of increase.

Deputy Lynch

Therefore, there has been no increase but no reduction.

Mr. Crowley

No. I did not say there had been no increase but rather a reduction in the rate of velocity. That means we are still going forward but at a slightly lower rate of forward progress.

Mr. Briscoe

May I bring matters into some sense of reality from a practical point of view? I used to manage an insurance portfolio for a large semi-State organisation. We calculate our insurance premiums by sitting down with our underwriters every year, examining our claims' experience over the preceding five years, putting a figure to each of the extant claims and estimating an appropriate amount and dividing the result by five, and the resultant figure is referred to as the business burning cost. A ratio of 100 over 70 would be placed on that to cover whatever arises. That would be the renewal premium for the future year.

If one can improve on accident experience and reduce claims experience, the premium can come down. However, if the claims experience increases, so does the premium. This portfolio comprised 40,000 people, therefore, there was some experience in this regard. The claims extant for estimates purposes might be what a judge may decide in regard to a particular case this week or next month. One may then examine the issue again and rethink the value of the case. However, provided all such cases were settled in the five year period, it came out in the wash and one could pass on the benefit. However, if these went over five years it became more doubtful.

The goalposts have changed for businesses in the past few years. That experience changed to the example which Deputy Wilkinson described, where businesses with no claims have premiums increasing from €18,000 to €36,000. For a business with a net profit of 10%, that converts into an additional turnover of €360,000 being required in order to achieve the same net profit in order to pay the insurance premium. This is a significant impact on that business. Their difficulty is in understanding that if claims levels appear to be coming down and courts are taking a more reasonable approach, the problem must be with the adjustment in technical reserves. I accept the insurance industry's point - we want solvency and to see it continue - but we need to be able to explain this is needed, how it is needed and how it works.

Mr. O'Driscoll may correct me if I am wrong but I think it is only in the past two or three years that actuarial certification was introduced. Therefore, it was an imposition on the industry rather than the industry seeking it. If I was an actuary signing off on a particular reserve, my inclination would be to make sure I got it right, which is understandable. We need more transparency.

I agree with Deputy Wilkinson that, if we do not have a contribution of support from the legal profession and if the thousands of extant claims up to the introduction of the PIAB, do not convert, we will have a problem. There are issues around that in regard to costs incurred by the legal profession on the cases. There is provision in the PIAB for people to lock out of that system and have their case settled under the PIAB process. With the book of quantum and the PIAB process, a raft of options will exists for business in the context of covering liability. If one knows the extent of one's risk and the quantum in regard to loss for a particular injury, one can look at a range of options such as group personal accident insurance, with an element of catastrophe insurance. There is also the option of insurance companies providing a claims management service to businesses. All these options contribute added value to the industry and are beneficial to business.

I see the future as having a clean system with no exaggeration or fraud, which is swift and efficient in delivering compensation with no extra costs or "adversariality". We can get people well, get the compensation out of the way and have more certainty in regard to compensation values. The whole will be greater than the sum of its parts. The synergy of all these aspects working together will have an added value beyond insurance and the 30% figure which has been referred to here might be improved on.

Chairman

That was only for starters.

Mr. Fitzsimons

Mr. Crowley made reference to the fact that I had said we picked segments of the market. In that context, in the free market, competition is the duty and responsibility of management to determine the segments of the business and the areas which are profitable. The Chairman is a hotelier and I am sure he decided whether to run a disco on Wednesday or Thursday night.

Chairman

I do not run it any more. I am a dream policyholder.

Mr. Fitzsimons

Mr. Crowley referred to unauthorised activity being the cause of the problems in the Independent Insurance Company. As far as I recall, the unauthorised activity was the non-inclusion and non-reporting of claims. They were kept in drawers and never got into the provisions of the estimates until they were discovered and World War IV broke out.

Reference was made to an independent actuary being appointed. In the Irish context, one of the major reasons the Department decided that an independent actuary should confirm the reserves of the different companies was of the collapse of Independent and its concern on provisioning. It is important to understand and accept that companies are being watched on reserves. The proof of the pudding is in the figures for run-offs reported by companies for any underwriting years. People can see the reserving outturn for each company and each class of business for any year. These are worth looking at by people who think there is over-reserving or fiddling of the books. That is simply not true.

Chairman

There are several safeguards in place because of the difficult experiences from Mr. O'Neill's PMPA days to what has been outlined today.

Deputy T. Dempsey

Mr. Fitzsimons's submission reflects my worry that there is insufficient competition. Before today, I would have thought that FBD would compete with Hibernian for the hotel industry but it does not. We need more competition, the absence of which is probably the basis of the difficulties we face. I agree with Mr. O'Driscoll that if premiums levelled out and the market was less volatile, more people would enter it.

Chairman

I am still all ears in regard to employer's and public liability insurance. The Small Firms Association held one of the most prestigious events in Dublin last Friday, for which I congratulate the Chairman and Mr. Delaney. The Taoiseach and other esteemed and experienced persons were present, yet I have not heard anything to suggest that the 1,600 or 1,700 who were there can look forward with confidence that something will be done about the second highest item of expenditure on their balance sheet. Will someone talk to me about this?

Mr. Fitzsimons

In regard to Deputy Tony Dempsey's point about FBD not competing for particular types of business, until the reforms which have been clearly signposted, namely, the PIAB, book of quantum and so on are put in place, it is a lottery in terms of what premium to charge for certain risks. That infrastructural reform must be put in place because it is the nub. Insurance is one of the few products one prices before one knows its cost. There is a great deal of uncertainty as to what the outcome will be. If people are nervous or see uncertainty, they cannot assess the risk. We follow our customers as they move into businesses. However, we must be cautious in terms of a concerted effort.

The sooner the reforms to which the joint committee, Government and all parties are committed are put in place the better. That is the solution - there is no other way around it.

Mr. O’Driscoll

We look forward to better prospects for employer's and public liability insurance. The results in the motor market improved before the results in the liability markets. Many have made the point about how long it takes to settle liability claims in this jurisdiction. Mr. Fitzsimons made the point that it is a lottery to write this business when one does not know what the settlements are going to be. As Mr. Briscoe pointed out, we have seen a drop in frequency and number of liability claims which should ultimately reflect in lower premiums. We have also seen an improved settlement trend in the courts, particularly in recent months where individual cases which might, a year or two ago, have generated a significant award, have been thrown out and settlements in general have been a little lower.

We need to be careful to understand that, within that context, if someone who slips or trips on a business shop or pub floor and gets €20,000 in Ireland, where the person would be awarded €5,000 or nothing in another jurisdiction, we will still end up paying higher insurance premiums in Ireland as a result. There is plenty of reform of the system coming, which we all heartily support. We will do with our customers what we can to educate them to manage their risk better and reduce claims. However, if the award levels in Ireland, whether under PIAB or the current courts system, are higher than other countries, premiums will continue to be somewhat higher. There is an opportunity to capitalise now because frequency has reduced and there is a trend towards better settlements and now is the time to do it.

Chairman

I was given the example that just 4% of these cases go to court in the United Kingdom whereas in Ireland the figure is 70%. The reduction is starting and the industry will respond accordingly in the coming years.

Mr. O’Neill

In regard to Deputy Tony Dempsey's comments, sometimes we get carried away with the fact that we are on an island. The Small Firms Association mentioned the burden of insurance and there have been histrionic references in the newspapers to allegations that companies have been put out of business because of the increasing cost of liability insurance. I have no doubt the insurance is a burden because the claims are a burden. However, this does not just apply to the Republic of Ireland. I am the chief executive officer of AXA Ireland and we have an operation in Northern Ireland. I was asked by the Northern Ireland Office to attend a special meeting of insurers who operate in Northern Ireland. There was a representative from Allianz there because that company operates in the same manner as us. The sort of noise we hear here was being repeated in Northern Ireland but is reaching a crescendo. Small businesses, particularly one and two-man operations in the contracting trades, are unable to get insurance cover at all.

The work which is being done in an enlightened way by the committee and the Government is some way ahead of our UK colleagues who are facing into these difficulties. Our premium levels, particularly in regard to motor insurance, are converging towards a European norm. That is the direction. The goal of 30% is laudable but we need to have a convergence towards a European norm. That is where we see our premiums going and that is what our expense base is based upon. Keep up the good work - it is going in the right direction and the dividends are coming through. We will find some methodology to demonstrate to you names and addresses without interfering with data protection issues.

Chairman

I appreciate that.

Deputy Lynch

If premiums come down in the way we are told, in one category we are talking about a 50% reduction. I noticed immediately when my insurance went up by 10%. Therefore, I would notice if it came down by 20%. That has not happened. Only Mr. O'Driscoll answered that it would not be until the start of next year that people would begin to see premium reductions. There will be no need for the witnesses to come back with names and addresses because we will know since we all buy insurance. There are seven in my household who buy insurance. I am sure everybody is in the same boat. We will know if our premiums come down. What I am saying is that it will not be good enough that we will drive the agenda. What is necessary is that the insurance industry responds to that agenda and we see that response. It is as simple as that.

Chairman

We have teased this out at some length. Deputy Lynch and I are singing from the same hymn sheet. I want to let the former Minister of State, Senator Leyden, contribute. I express our appreciation of the money the industry is investing in marketing on radio and television. It is an educational process for the entire island. It is a motivating process for those who are creating employment and everyone who is playing a part in any way. I ask that it be increased, if possible, and for this good work to be kept going because it will certainly pay dividends. I certainly applaud the industry for what it is doing in that regard.

Senator Leyden

I apologise for not being present for the joint committee's full deliberations as I was called to Chair the Seanad for an hour. I am very impressed by the turnout from the insurance industry, including the Small Firms Association and IBEC.

The first report, which has been adopted generally, showed the seriousness of the joint committee. The PIAB Bill is about to be published. It is 120 pages long. There is a problem with its printing. They are trying to get it into the Seanad next week. Otherwise, it certainly will be taken there the following week.

The Law Society has mounted a major campaign, through Oireachtas Members, in opposition to the PIAB on the basis that it is said the companies will throw the kitchen sink at claimants and claimants will not have the support of solicitors in such cases. I want to say the following to the insurance companies. To make the PIAB work, there must be a level playing pitch. I hope they can, by some method, allay the fears of the Law Society which is saying the insurance companies will have all the power against the claimant and the claimant will not have the support of a solicitor. That is the biggest source of opposition to the PIAB to date and they are lobbying strongly on the issue all over Ireland.

The Bill is coming before the House and I hope we will give it a very quick passage. I hope it will realise all our ambitions and that we will bring about the reduction in premiums we all are trying to achieve. We also want to protect the viability of the insurance companies because there is no point in reduced premiums if the companies are not viable.

Chairman

I thank the Senator for bringing us up to speed on the printing of the Bill but we will not know the position until we see it. The Tánaiste and Minister for Enterprise, Trade and Employment must be applauded for getting it through Cabinet and taking it to the Oireachtas. It will be through both Houses by Christmas and law on 1 January. We look forward to Ms Dorothea Dowling coming back to the joint committee in the next few weeks and assisting her in any way possible.

I want to get Mr. O'Neill's opinion on recommendation No. 20 of our report because it has not had too much of an airing in the media. It called on the Government to permit insurance companies, as part of their solvency requirements, to invest in public private partnership and infrastructural projects on a basis to be determined annually by the Minister for Finance.

This is an old hobby horse of mine and I also raised it yesterday. Having listened to the evidence given to the joint committee for the interim report, my understanding was that only 15% of premium funds could be invested in property. I asked Mr. Fitzsimons on his last visit here why this was the case and was told that only 15% could be invested in property. Bearing in mind the massive fall in the NASDAQ from 5,000 to 1,800, there was the general massive decline in funds invested. Was that - as well as an increase in the court awards - the reason premiums had to be increased so much? Had this a significant bearing on the decision to increase premiums to keep reserves at the level at which they were supposed to be kept?

Mr. O’Neill

I will give a clear answer to that question. As I pointed out on the last occasion, we had virtually nothing in equities because our constrained position related to capital. Because we simply did not have enough in reserves, we stayed well away from the equity markets. There has been no increase in premiums because of any deterioration in our investments.

Chairman

Mr. O'Neill was in that happy position.

Mr. O’Neill

We were in that very happy position and in quite a different position from our group and other insurers.

Chairman

What was Mr. Fitzsimons's position?

Mr. Fitzsimons

I would make two points. It probably is time to look at the allocations of capital insurance companies have for solvency measurement purposes, that is, the percentage that the regulator states can go into certain categories such as equities and property. When I replied that the figure was 15% in property, I think I am correct in saying it is probably a lower level in any individual property but the joint committee should not pin me to it. We certainly believe it probably is time to have a look at the limits for any one category of investment because times have changed. If one is talking about good secure capital investments, both capital secure and return secure, why not choose Government bonds or gilts? That would be my first view.

On how the fallen stock markets have affected FBD Insurance, it is important to remember that, in the manner in which profits are now reported, operating profits take out the fluctuations in the market - they are nearly below the operating profit line. The profits and losses we talk about are pre-market fluctuations. One takes a long-term view. We would not have invested in the NASDAQ, etc. but would take their impact over a five or seven year period. They would not have made a significant impact on pricing because we take a longer term view.

Mr. O’Driscoll

I would make two points to reinforce what has been said. First, the solvency calculation that the regulator applies to our business is likely to change on the basis of some development in that regard in Europe and it is important that we make sure that we are operating best practice in this market. It is also important to ensure there is a matching process between one's calculation of both solvency and reserving and the business that one has written. If one is writing purely property business, where all the claims are likely to be settled in the current year, then one does not have an issue around long-term liabilities. Therefore, there needs to be matching in that regard between the sort of investments one has and the likely payment periods drawing from those reserves, and that would vary from company to company.

To answer the specific question on the impact of equities on our business, like the other companies we would have had a very small equity exposure - less than 10% of our reserves - and it would not have carried through to the customer in terms of a material impact.

Chairman

We have come to the end of a very fruitful day. I thank all the witnesses for staying here so long. That was not our intention. Normally we try to get through the business in two hours. We look forward to assessing all the information we have received. It has been enormously helpful. We hope to see them all again, possibly in six months time, to assess the position again. If we require any information to allow us to continue our inquiry, I know all we need do is contact the secretaries of the people concerned and we will receive their full co-operation. This co-operation has been very much appreciated. In the national interest and in the interests of policyholders, in particular, we hope the sector will progress as favourably as we expect.

The joint committee adjourned at 12.40 p.m. until 11.30 a.m. on Thursday, 20 November 2003.