JOINT COMMITTEE ON ENTERPRISE AND SMALL BUSINESS díospóireacht -
Wednesday, 31 Mar 2004

Insurance Market Reform: Ministerial Presentation.

Chairman

I welcome the Tánaiste who will make a presentation on reform of the insurance market. The Tánaiste will be aware that this committee has done Trojan work since it was established on the insurance issue and produced a substantial report on the matter in August last year. We hope to produce a further report at the end of May.

The Tánaiste will now give us an update of the position in her Department and tell us how we can assist her further in lowering insurance premiums to help small businesses and job creation. The last interim report concentrated on the motor insurance interest and in the next interim report we will deal with public liability, employer liability and commercial motor insurance.

Tánaiste and Minister for Enterprise, Trade and Employment (Deputy Harney)

It is always a pleasure to come in front of the committee. We must remain focused on insurance reform. Just because we have passed important legislation does not mean that insurance premiums will automatically fall. Important legislation, the Court and Civil Liability Bill, has passed Second Stage in the Seanad and it will have a major impact on the reform programme, as will the road transport legislation proposed by the Minister for Transport.

The legislation to establish the Personal Injuries Assessment Board was passed in December and since then we have been working to put the resources in place for the PIAB.

Deputy Howlin

Has it been decentralised to Tallaght?

Deputy Harney

Negotiations about Tallaght were under way since the autumn and were at their final stage when the Government made the decentralisation decision; we would have been re-inventing the wheel to start the ball rolling again. Tallaght is not in my constituency and the Irish Prison Service, which is in my constituency, is moving to Longford. My constituency is a Dublin constituency and the more I can move out of it the better.

State of the art premises for the PIAB have been secured in Tallaght and the chief executive was appointed earlier this year. There was an incredible response to advertisements for vacancies with 1,000 people applying for the first tranche of jobs. We were most impressed with the enthusiasm to work in the organisation. The people who applied had expertise ranging from working in insurance to the legal profession and other areas and the first job offers for senior staff are now being made.

The software package that will be used for damages and case management is now being finalised. The service centre is being outsourced in Ireland - it has been put out to tender and five companies have been short-listed. The PIAB will make an offer to one of those companies after presentations to the board.

The book of quantum is almost complete and the rules under which the organisation will operate are currently being drafted by a barrister and will be ready soon. The book of quantum will be available to the committee and anyone else who is interested. As we made clear on many occasions, this is not about reducing what someone would get through the courts but ensuring the genuine claimant gets what he or she is entitled to through the Personal Injuries Assessment Board.

The purpose here is to reduce the cost of delivering claims to genuine claimants. In Ireland, barristers are involved in 70% of the claims even though only 10% end up in court. In the UK barristers are involved in 4% of cases. It takes six times longer to get what one is entitled to in this country than in the UK.

Last week the Irish Congress of Trade Unions, together with IBEC, published a useful guide, which the committee will have received, encouraging companies and their employees to settle claims within the company through the insurance rather than even going to the PIAB. That is useful. Everybody is working to ensure that claims are resolved speedily and that people will not have to resort to the PIAB, not to mind the legal system.

With regard to insurance generally, the evidence suggests, as was seen in the CSO figures published in December, that between December 2002 and December 2003 premia have fallen by 11% in the motor sector. It is good news but we hope to have much better news. Recently, the AA has suggested that in some categories premia have fallen by up to 32% in the motor sector. We do not have data regarding employers' liability insurance or public liability insurance at this point. It would be useful to have such data. We have anecdotal evidence. Last night, I met representatives of a company, Aircoach, whose insurance had dropped from €20,000 per bus last year to €8,500 per bus this year. That is a considerable reduction. There is anecdotal evidence that there are substantial reductions but we do not have data. Therefore, I cannot say that employer liability or public liability insurance has reduced by a particular percentage.

We will not see the big reductions until the PIAB is up and running. The intention is that 4 May will be the commencement date for business. I hope to sign a commencement order shortly to establish the board on a statutory basis. It has been working on an interim basis for some time. The board will be open for business from Monday, 4 May, approximately four months from the time the legislation was passed. We must also undertake the enormous recruitment process to ensure the right people are in place. The board will have approximately 85 staff when it is fully operational. It will have experienced, competent staff and it will be able to run efficiently and successfully.

It will mainly be a document based system but the service centre will do more than just answer calls. It will have the expertise to give people good advice. I made a commitment that it would help people. This is a claimant friendly organisation that will genuinely help people so they will not feel the need to recruit lawyers or other experts to assist them. There will be an organisation to help them. The vast majority of people will be able to deal with the organisation through the paper based system. The medical panel has been selected. There are approximately 300 doctors on the panel nationwide and they will be the medical referees to whom the PIAB can refer claims where it considers it necessary.

The reforms introduced by the Department of Justice, Equality and Law Reform are extremely important. I understand the Minister is to appear before this committee tomorrow.

With regard to the Competition Authority study carried out with my Department, the draft conclusions were published some time ago and the public was given two months, to 18 April, to respond. The committee can also respond. It will then come forward with the final report. There were issues with regard to brokers' fees, how they are structured and possible conflicts of interest, of which the committee will be aware.

The other issue I mentioned frequently in the past is new entrants into the Irish market. There is interest on the part of some new entrants to come into the Irish market. However, until the justice legislation is enacted, it will be some months before those new entrants will quote for business in this market. Nevertheless, we are working to encourage that. Increased competition will drive down costs and offer more services to the consumers of insurance products.

Chairman

Given the level of profits of the insurance companies operating in Ireland, particularly in the past year, is the Irish market now an attractive one for new entrants? We have read a number of newspaper and magazine reports on this. Has the Tánaiste had any discussions with Irish banks or institutions about returning to the Irish market?

Deputy Harney

Yes, I have had discussions with a number of interested parties who have expressed an interest, either on their own behalf or on behalf of clients or parties they represent, about entry into the Irish insurance market. To be honest, many of them told me they need the justice reforms as well. They said the speedier way of settling claims and reducing the cost of delivering claims is fantastic but rooting out dishonest claims and accelerating court procedures are crucial. The Competition Authority's report, which will produce more transparent information, has a huge role to play in encouraging new entrants to the market.

Chairman

We must put on record our appreciation of the Tánaiste's commitment to the establishment of the PIAB. In its interim report, the committee called on the Government to enact four Bills. The Bill establishing the PIAB has been passed and the civil liability legislation is before the Seanad. The Minister of State, Deputy Fahey, will introduce a Bill in April and we hope to discuss that with him when he next appears before the committee. Are any other Bills dealing with insurance matters planned?

Deputy Harney

Obviously the road transport changes are crucial. The law in that area is outdated. The operation of speed cameras is a matter for the Garda Síochána. If we want a new system for collecting fines, operating speed cameras and so forth to ensure saturation, new legislation will be required. Driver testing standards would be involved also.

A number of issues affect the motor sector and they are the responsibility of the Minister for Transport, who sits on the Cabinet sub-committee with me. I do not know if the committee has met the Minister, Deputy Brennan, to discuss the reforms but I am sure he would be more than willing to do so. The intention is to introduce legislation fairly quickly in that area.

Chairman

The committee is due to meet the Minister, Deputy Brennan, in the last week of April. We appreciate the help he has given us.

Deputy Howlin

I thank the Tánaiste for her comprehensive response. She is correct that we should not rest on our laurels, having produced the interim report, but see how the recommendations are being implemented. I have a number of questions. The first relates to the Cabinet sub-committee and the Tánaiste's responsibility. A number of important matters must be pulled together and, rather than talk to individual Ministers, somebody needs to be driving it. The Tánaiste mentioned, for example, the proposed road traffic legislation. This committee recommended that the speed cameras be kept under the control of the Garda Síochána. The Minister's policy is to privatise the system.

My concern is that the speeding controls should be used as a means to reduce accidents, not as a mechanism for simply generating revenue. Like all legislation in this area, there must be public support for it. The speed cameras, even the mobile speed cameras, are located in places which suggest that the focus is on revenue generation rather than on making an impact on road safety.

There are other critical road safety matters which we will discuss with the Minister but on which the Tánaiste, as chair of the Cabinet sub-committee, needs to make progress. Last weekend, eight people died on our roads. On Monday I attended the funeral of a 21 year old motorcyclist in my constituency. It was harrowing. We need to do something about motorcycle training. The number of young people being killed and seriously injured on motorcycles is alarming. We must also deal with the backlog in driver testing, which makes a nonsense of full licences, and the impact it has on insurance. These issues go well beyond the financial implications of insurance. They relate to grief and the main cause of death among young people. Will the Tánaiste take control and drive an agenda that is focused on road safety, with an ensuing benefit in terms of insurance costs?

The committee was perplexed by the original presentations from the insurance industry, to the effect that this is a dysfunctional market.

Chairman

It is an unsafe place to do business.

Deputy Howlin

Absolutely. They were Society of St. Vincent de Paul type presentations to the effect that they were in this market out of charity. At the time they were giving that evidence to the committee, their profits were at an inordinate level. They recouped four years' losses in one year.

The Tánaiste cannot give us the data and the committee still has not received them, even though it has asked IBEC, ISME and others for the data on the current reductions, if any, in employers' liability and insurance costs for business. The person best placed to advise us on this is probably the Chair. However, there is strong anecdotal evidence that there is no significant reduction. What can the Tánaiste do to ensure there is a better functioning market? Why are the European players not involved here and what can we do about it?

One of the fears clients have about sourcing insurance overseas is the experience people had with the Independent Insurance Company. When it went belly up, the UK clients were indemnified by the state. The Irish clients were left high and dry. They were not only at the loss of their premia but they also had to pay a second premium to get new cover. If the single market means anything, it should mean a single market in insurance with the same responsibilities for an insurer in Ireland as in the UK or any other place in the Union. What is the Tánaiste doing to establish a single market in insurance and to ensure that people who purchase insurance from Europe Union insurance companies outside this jurisdiction have the same safeguards and remedies as clients in the member state directly concerned?

Deputy Harney

I share many of the views expressed by Deputy Howlin. With regard to the last matter, we have been campaigning at EU level for consumer protection in insurance. The reason the UK clients, and motorcyclists in Ireland, were compensated was that any client who had to have compulsory insurance had to be compensated. In the UK, unlike Ireland, employer liability insurance is compulsory so those clients were compensated. In Ireland, those who had motor insurance with the company, essentially only motorcyclists, were compensated as well and for the same reason.

The reason that Ireland cannot cover everybody who is insured in the Irish market is that 40% of the world's biggest insurers have an operation in the IFSC. If one of those companies went belly up, we would all go belly up with them.

Chairman

Is it 40%?

Deputy Harney

Yes, 40% of the world's insurance companies have an operation that goes through the IFSC. At the time we looked at the issue of how to put a regime in place in Ireland. The only way to have an appropriate regime to protect consumers when shopping across borders is to do so at European level and to enforce the single market in the financial services area.

Deputy Howlin

Where are we in that regard?

Deputy Harney

There are two directives before the Council at present relating to cross-border products to give some protection to consumers. One is a directive from Commissioner David Byrne which might be finalised during the Irish Presidency, although that depends on the European Parliament. The other is from Commissioner Bolkestein and is an internal market related directive. They will have an impact but it is necessary to have consumer protection at European level. Many business people place insurance in the UK but the average person will not take that risk and leave themselves uncovered if they do not have protections.

With regard to the data, employer representative bodies always have data when prices are increasing. I have discovered lately that they have no data when prices are reducing. We have asked the Irish Financial Services Regulatory Authority, which is now the regulator for insurance, to collect data in the same way as it does in the motor sector. Apparently, it will do that for both employer liability and public liability insurance.

Chairman

When will it start?

Deputy Harney

I understand it is about to start. It might be a good idea to invite Mary O'Dea, the consumer director, to come before the committee.

Chairman

The industry representatives are due before the committee tomorrow.

Deputy Harney

The authority will produce data on an ongoing basis. Information can be a source of power for consumers, as we saw recently in that area. They did eight different profiles and got variable results from different insurance companies.

I chair the Cabinet sub-committee. The last few meetings we have had focused almost exclusively on road traffic related elements. As the MIAB report acknowledged, road safety measures would probably make the biggest contribution to a reduction in insurance costs. It estimated that the reduction would be over 30% if appropriate road safety measures were in place. We need to get resources and put them into road safety measures.

Deputy Howlin and I disagree on the speed cameras. The Garda Síochána has approximately 12,000 members. It might be more appropriate and efficient to get a private operator to operate cameras. Whatever one might think about the clampers in Dublin - and if one arrives to find one's car clamped, one is not a happy camper - the operation has been extraordinarily successful. The intention would be not to save or make money but to use the money raised in this way to provide a higher standard of road safety. Everybody wants that.

The driver testing area will be established on a semi-State body basis. That will be good.

Deputy Howlin

Is this service to be privatised on a flat fee basis or on the basis of a percentage of the takings?

Deputy Harney

We have not discussed it.

Deputy Howlin

It is a big issue.

Deputy Harney

Obviously, we want to do it in a way that makes sense from everybody's perspective and to have as many speed cameras as possible.

Chairman

Is the committee to take it that the sub-committee is not considering a dedicated traffic corps?

Deputy Harney

That is not off the agenda. It is a different issue.

Chairman

The committee made a strong recommendation about it.

Deputy Harney

The traffic corps would be involved in stopping people who are speeding or driving dangerously. Cameras are, effectively, the monitors; they are just pieces of equipment. The traffic corps would be enforcing the insurance code, for example. That is the intention.

Chairman

The committee was of the opinion that not only would this be good from the point of view of reducing accidents, it would also be good for monitoring crime and various other activities which Irish citizens do not support. We are strongly of the view that a dedicated traffic corps should be given serious consideration by the sub-committee. Perhaps we can get an update on this when the Minister for Transport, Deputy Brennan, comes before the committee in April.

Deputy Harney

The Minister, Deputy McDowell, is also coming before the committee.

Chairman

He will be here in the morning.

Deputy Harney

It has implications for the Garda.

Chairman

Should we discuss it with him in the morning?

Deputy Harney

Yes, that would be appropriate. Among the areas being looked at in the context of road traffic changes is the number of provisional licences held by motorcyclists. It is a matter of enormous concern. That is the reason the driver testing issue and the speed at which people can do driver tests is most important.

Clearly, the objective is not to save money. Reforming insurance is not just about saving money but also about saving lives, preventing accidents and ensuring that when people have accidents, they are back at work more quickly than is the case at present. The claims culture delays people's rehabilitation back into the workforce. They must wait a considerable length of time to get their entitlements. It would be wrong to claim it is just about reducing the cost of insurance.

It is also about improving safety both in the workplace and on our roads, reducing the number of fatalities and taking pressure off the health service. There is nothing sadder than a visit to the rehabilitation institute in Dún Laoghaire, for example, which I visited recently. A high number of the patients are there are a result of accidents, either on building sites or on the roads. It is enormously sad to see young people paralysed for life. The more we can do in the safety area, the more we gain as a society in terms of quality of life, saving life and improving the facilities in our medical services for other requirements.

Chairman

The committee made a strong recommendation about the level of awards in the courts.

Deputy Harney

The level of awards is extremely high.

Chairman

Have you considered establishing an expert committee to deal with that?

Deputy Harney

As we said when the PIAB legislation was being processed, this was not about reducing what people would get. I do not now want to change what I said then, but if the political system takes the view that the awards are too high, let us wait until we see the book of quantum which contains not only court awards, but also settlements that insurance companies have made between individuals. It will have much more data than have ever come into the public domain previously and it would be worthy of a debate here. I am quite certain it will arouse much public interest when it is published soon.

Chairman

The insurance industry pointed out to the committee, as I am sure it will again tomorrow, that awards were four times higher here than in the UK for various small injuries such as whiplash.

Deputy Wilkinson

I welcome the Tánaiste and her team to the committee. I am delighted to hear of the progress being made on the various insurance issues we have discussed over the past year or so.

There seems to be no doubt that private car insurance premiums have fallen somewhat and by shopping around one is likely to get a better deal. However, I would be slow to hand out bouquets to the insurance companies because of the vast increases in policy premiums over the past three years.

I felt misled by what we were told over the past 12 months or so. With the drop in the cost of private car insurance, we are only at a levelling off period. From now on I would expect a drop. When one looks at the profits made there is scope for a drop. I accept that the insurance companies must make profits and that the awards were high, but what happened over the past three years should not be forgotten easily by this committee.

I am glad to hear that the PIAB will commence on 5 May. That is great progress.

I do have one question, although I do not want to go over all of the area covered. The joint committee requested that all cars being driven without insurance should be confiscated. We are not aware of confiscations at this stage. Has the Tánaiste had any discussions with the Garda on this matter?

Chairman

We will take questions from two members at a time.

Deputy Callanan

I compliment the Minister on establishing the PIAB. It was a necessary move when one sees that solicitors and barristers are getting 40% of claims and that 90% of claims are settled on the steps of the court.

The book of quantum would seem to be important. If one bases it too high, it will cost more. If one bases it too low, they probably will not avail of it. One must be careful to get it right in order to make it acceptable.

I am delighted to hear the Tánaiste say that service centres will be set up to help people. This is necessary because many people would have thought they would need a solicitor. If there is somebody there to help them, they certainly do not need one.

Broker fees has been a prominent issue at this committee. There must be some incentive to provide the cheapest quote. That incentive does not seem to exist and it must be investigated further.

As Deputy Wilkinson stated, our information is that motor insurance premiums are falling but there seems to be no move whatsoever on insurance for commercial vehicles.

Would the Tánaiste consider providing training in schools to make better and safer road users? One must start training people at a young age. They must get used to it. Several young people were killed on the roads at the weekend. They must be made aware of the dangers of the road and the schools are probably the best place to start.

Chairman

The message from this committee is that we are not pleased at all with the reduction in motor insurance premiums. In fact we are appalled at some of the evidence being revealed, where some of the companies are still looking for an increase. The policyholders do not find that the companies are getting an increase until they shop around and Deputy Callanan's very relevant question about brokers is one which we will be dealing with in some length tomorrow when the industry comes before us.

Deputy Harney

I share the views expressed. There are two issues which affect brokers. First, if one is paid on the basis of a commission, there is no incentive to keep reducing what one will be charging the client because one will be reducing one's income. Second, many insurance companies have minimum thresholds, where they will not deal with a brokerage unless it can give them a certain amount of business. This forces people almost to become sole traders for one or two companies. These are the precise issues being examined by the Competition Authority. The consultation period ends on 18 April and we hope to have the report quickly thereafter. It may well be that we need new regulations in this area to cover these situations.

The other issue is whether there are conflicts of interest, where one insurance company decides to give a package of benefits to a broker on the basis of placing business with it. Of course that would be a conflict of interest as far as the client is concerned. Another issue arising is the information the client is given about what the broker gets. These are all extremely important issues.

I agree with the views expressed. While premiums have come down, they have not come down fast enough and we want to see them down substantially more. I believe we will see this happen.

I certainly hope that legislation voted on in the European Parliament yesterday, which would have the effect of driving up insurance premiums for women, does not proceed because insurance must be based on risk. While gender equality issues are laudable and I am always in favour of them, this would be crazy. The conclusion of all of this is that everybody, regardless of whether he or she is a safe driver or dangerous driver, would always pay the same on the basis of equality.

Deputy Howlin

It is like that with health insurance.

Deputy Harney

That is on the basis of community rating.

Deputy Howlin

Absolutely. They introduced the legislation.

Chairman

The Tánaiste without interruption, please.

Deputy Harney

I hope to see the premiums falling for everybody and not increasing for any one category, least of all women who are good and careful drivers. Because we live longer, we pay more for life assurance and lose out there anyway.

Chairman

The experience in Ireland is not what yesterday's legislation in Europe indicated.

Deputy Harney

This is a proposed directive from the Commission. I believe it is wrong and should be opposed by Ireland. It is being handled by the Department of Justice, Equality and Law Reform on equality grounds but the committee may raise it tomorrow, although I should not be telling the committee what to do.

Deputy Hogan

The Tánaiste has supervised the return to vast profits of the insurance companies about which I am sure she is not too happy. AXA has increased profits by 100% to €118 million. Hibernian has increased profits by 83.5% to €130 million. FBD increased profits by 257% to €90 million. Allianz refuses to give data for 2003 but made €96 million in 2002 - I am sure its profitability in 2003 was not less.

Deputy Howlin

It suddenly became a commercially sensitive issue.

Deputy Hogan

In the same period, consumers got a reduction of 10% on average. I am sure the Tánaiste feels let down by the fact that although she has introduced a reform agenda and this committee has supported her, the insurance companies are not playing their part in introducing these reforms. All that has happened is that insurance companies have attained an enormous level of profitability and the consumers have not realised the resulting share of that profitability in terms of reduction of premia.

In Ireland, two companies control over 50% of the motor insurance market and then there are two other companies which control 41% of the public liability market. Did the Tánaiste find it interesting that the Competition Authority has not tackled that issue instead of taking issue with the brokers? The brokers cannot make money. I am a former broker and I make no secret of it. Brokers cannot write business unless the insurance companies are prepared to quote them. I supported the committee on the question of flat fees rather than commissions. That is the way to go, with greater transparency. The Competition Authority did not do us any service in not undertaking a deep investigation into the reasons insurance companies held such a dominant position in segments of the market.

I have advocated for a considerable period the need for a single market for insurance products, and I am glad that almost everybody now accepts that this is the way to go to get competition. Five or six companies in this jurisdiction quoting for general insurance products is not going to work. I am sure the Tánaiste is highlighting this during the EU Presidency.

The collapse of Independent Insurance is costing jobs in many companies because the claims are only now coming through. Before the last general election the former Minister of State with responsibility for commerce, Deputy Noel Treacy, asked for a survey to be carried out of all the companies affected by the collapse of this insurance company. Therefore, there is a file in the Tánaiste's Department on the matter. That is what he said——

Chairman

It affected the hotel business, in particular.

Deputy Hogan

Yes, the company was very quick to get out of the market. When its customers went looking for a quotation from the Insurance Corporation of Ireland or other companies, the quotations carried a loading of 300% because Independent Insurance had cherrypicked a lot of the good, high premia business available. There is an obligation on the State to look at the companies affected by the loss. I am aware that as a result there was a licensing and bonding problem. I am sure every public representative has examples to show why it was wrong that Independent Insurance should have been licensed here. We have washed our hands of responsibility as a result of which jobs are being lost and companies closed down. I ask the Tánaiste to look at the matter again. Is any progress being made in attracting new entrants to generate competition in any segment of the market, whether household or motor, to benefit the consumer through reduced premia?

Chairman

The Tánaiste covered two of those points before the Deputy arrived. I have already raised them.

Deputy McHugh

If I could digress only slightly, I was amused to read in a Sunday newspaper a number of weeks ago that the PIAB was to be located in Tallaght, Dublin. The point was made in the article that there was great fanfare about the programme of decentralisation and so on, and that a commitment had been given in December 2003 that any State or semi-State agency coming on stream after the programme was announced would be located outside Dublin. As far as I know, the PIAB did not come into being on a non-statutory basis until January this year. It will not officially come into being until May. If I am correct, this is a case of a body coming into being after the programme was announced. I am amazed to hear confirmation of this from the Tánaiste. It makes a joke of the decentralisation programme. I ask the Tánaiste——

Chairman

The Deputy does realise that there are more people living in Tallaght than in the constituency of Longford-Westmeath.

Deputy McHugh

I know but the Tánaiste should have located it in the west——

Chairman

Tallaght has its share of problems. What is the Deputy's question to the Tánaiste?

Deputy McHugh

There is a view among those interested in this issue that if the insurance companies are not monitored, they will not deliver reductions in premia. Has the Tánaiste any plans to set up a group within her Department to carry out this monitoring, compile records and - to use a dirty term in education - publish league tables if need be? The group might even go so far as looking at sample businesses with the same number of employees, of the same size, with the same risk and so on, and publishing sample quotations from insurance companies in order that the public can be guided by the Tánaiste and her Department on where they should go to get bargains.

I say this because there is a view that when one shops around among insurance companies, one gets reductions in premia. That is okay for those who actually can shop around but for lots of reasons others cannot. For those who do, it is their own personal, private business and they are not inclined to go public on what happened when they did. However, if one talks to groups, one will find out. The objective is to get the idea into the public domain that when one does shop around, one does get reductions. This should be done a semi-formal basis within the Tánaiste's Department in order that the public can be guided on what happens when this action is pursued.

Deputy Harney

I shall respond first to Deputy Hogan. Independent Insurance was licensed in the United Kingdom. If one is licensed in one EU member state, one can carry on business in every other member state. The UK authorities were the regulator, not us.

In answer to an earlier question from Deputy Howlin, there is a major problem within the European Union in regard to the single market for financial services because of inadequate consumer protection on a Union-wide basis. There are upcoming directives which I hope will increase the level of protection we can give consumers in order that they will have the confidence to get, say, a French company based in Paris to insure them. That would bring real competition to the market.

In regard to new entrants, I acknowledge what has been said about insurance companies. Yes, we have had reductions but they are not by any means as substantial as we expected. The most effective of way of getting real reductions is through enhanced competition.

I have been talking to some possible new entrants. While they may not locate here, they may trade on an agency basis because this is a very small market. We need more companies quoting for business and I hope this will happen very soon. New entrants are particularly anxious to see legislation from the Department of Justice, Equality and Law Reform enshrined in law before they take the risk of quoting for business here. To be fair, FBD and Quinn Direct have provided good competition, and if we can get even one more player on the motor insurance side, it could have an impact.

On the location of the PIAB headquarters, when I was processing the legislation through the Houses, I said the negotiations to acquire the headquarters had begun in the summer of 2003. It had all been agreed, apart from being legally signed, when the Government announced its decentralisation plan. If we had to start from scratch again, we would have lost six to 12 months. We did consider this because the auditing authority——

Deputy McHugh

The decentralisation programme did not happen overnight. Surely the Tánaiste knew what was in the pipeline.

Deputy Harney

That was a matter for the board of the PIAB to decide. It was not a matter for me to tell it that the Government was going to make an announcement on decentralisation at the end of the year and that it had better wait until then. The reason I had established it in the first place was to——

Deputy McHugh

It did not have to wait as it could have been directed where to go.

Deputy Harney

It could not have——

Deputy McHugh

It could have been told to move out of Dublin.

Chairman

The regions have a funny way of appreciating each other. The Tánaiste to continue without interruption.

Deputy Harney

We are also establishing the new auditing supervisory authority which will be located outside Dublin. I am extraordinarily committed to decentralisation. Even Tuam, which the Deputy represents, would be a lovely place to which to decentralise.

Deputy McHugh

The Tánaiste forgot about it the last time.

Deputy Harney

If the Deputy was nicer to me, I might consider it more favourably. Seriously, in regard to premia, more competition will drive down prices. On monitoring, the Irish Financial Services Regulatory Authority is collecting the data the Deputy has sought and it would be a good idea to have a discussion with it.

Deputy Lynch

I agree with the Tánaiste about the directive on equality. If one looks at all of the data available on what women earn, as opposed to men, one sees that in most industries we still do not have equal play, yet women are involved in fewer accidents. I am aware that my colleagues on either side will say women cause more but I——

Chairman

That is a fact.

Deputy Lynch

I do not believe it for one minute. I agree with the Tánaiste that anything that increases insurance costs for any sector should be opposed.

Will the information provided for those interested in having their cases dealt with by the PIAB be in the form of a booklet that will make it very clear that if they are dissatisfied with the award made, they will have the option of going to court? That is important. This side of the House had reservations about whether people would be able to represent themselves properly. Some simply cannot do this and may well have go to a solicitor to have the form filled. Will cognisance be taken of the fact that they have had to get legal advice because they were simply not capable of filling out the application form themselves? It needs to be stated clearly that information will be clear and precise. I know from personal experience that people do not read documents in the way they should and misunderstand information to a great extent. Information such as this needs to be clear and precise.

On the Competition Authority, I agree with Deputy Hogan that brokers were probably a soft target to pursue in the first place, even though I must admit I have no great sympathy for them.

I made a few inquiries a number of months ago and found there had been no reductions in motor insurance premia. What staggered me was that an insurance quotation for somebody already insured, in exactly the same circumstances, had varied from a figure of €1,500 down to €600 simply by changing insurance companies. When I went back to the same broker who would nearly be considered a family friend at this stage because of the level of business we have been doing with him, as a result of one telephone call, he was able to bring the quotation of €1,500 which we had been paying down to €900. There is something wrong.

If premiums do not come down, as they should, without persistence and shopping around which we are desperately trying to encourage people to do, what measures will the Tánaiste take to ensure there is good value in insurance? It appears that unless one is very persistent, has time to shop around and knows what one is doing, the highest figure will be quoted. It does not matter to the insurance companies. I would hate to think that we are doing all this work, producing all of these reports and putting this entire system in place and the only beneficiaries will be those making vast profits.

The compensation awards made in court are not that considerable. Whereas one used to get £30,000, following the introduction of the euro, one is getting €30,000 and more than likely far less than this. If they have not levelled off, awards have dropped in most instances. We need to know that we are not doing all of this to give insurance companies greater profits. We need to know that there will be a mechanism by which we can make them give people a fair deal.

Chairman

There are many examples such as that given by the Deputy. That is what concerns us. This is where we will have to roll up our sleeves tomorrow when industry representatives come back to us. We were on a fact-finding mission for the past 12 months but now is the time for action. I am glad the Tánaiste is present today to begin the intensive investigations for our second interim report. We intend to see consumers are given a fair deal which they are not getting, with the possible exception of the two companies the Tánaiste mentioned. There are many examples where they have come to the rescue and given heart to this committee in the hard work we are doing in the interests of the people.

Senator Leyden

I welcome the Tánaiste and appreciate her great co-operation since we assumed our role over a year ago. She has always been accessible and come to our meetings when requested. This shows her commitment to the reform of the insurance industry. She and her Department have done excellent work. I hope that before she finishes her term in June or July and moves on to pastures new——

Deputy Howlin

When she gets to retire.

Senator Leyden

I said "pastures new" within the Government——

Chairman

Does the Senator have a question for the Tánaiste?

Senator Leyden

——not any other patchwork Government that could be formed.

Deputy Lynch

That will ensure the Senator a post of Minister of State in the next Government.

Deputy Howlin

Is the Senator happy with his patches?

Senator Leyden

The Tánaiste and I worked together as Ministers of State. When she was in the then Department of the Environment, she did a great job in keeping Dublin smoke and smog-free.

Deputy Lynch

This is different.

Chairman

The Deputy should not invite comments from the Senator. She knows his style. Senator Leyden to continue without interruption.

Senator Leyden

I will try to avoid lighting candles in case I cause more smog.

Deputy Howlin

The Senator has crawled enough to keep his job.

Senator Leyden

During her visit to the Gleneagle Hotel, Killarney, was the Tánaiste inundated with people complaining about insurance costs or have there been fewer complaints to her Department because of the work of this committee and her own good work in that regard? The PIAB will be a great success. It is a new initiative for which the Tánaiste fought and in respect of which she received enthusiastic Government support.

The issue of decentralisation was raised by Deputy McHugh. It was also mentioned during the course of the debate on Second Stage of the Bill. Boyle, County Roscommon, is also seeking decentralisation. As I am being so positive towards the Tánaiste today, I am sure she will consider its request. It is better to make polite representations.

Deputy Howlin

The Senator has surely crawled long enough.

Chairman

The Senator should conclude.

Senator Leyden

Members are being very provocative and trying to upset my train of thought.

The Tánaiste mentioned the free market. Surely protection should be provided by the European Union for all insurance companies operating within and throughout the Union? For instance, there have been tremendous developments on the Internet in the purchase of airline tickets. Surely we have reached the stage where one should be able to get an insurance quotation from an insurance company in Germany, France, Britain or any other member state in the single market? I am glad the Tánaiste stated there were companies entering or interested in entering the market as this would provide real competition. This is a small market but there are companies which may be prepared to quote if the circumstances were right. The Internet provides access for them. Instead of establishing offices here and putting expensive infrastructure in place, the Internet could provide them with an opportunity in that regard. The European Union and the European Commission should provide protection for all companies operating within the Union, unlike what happened in the case of the company mentioned which folded leaving many companies in dire straits.

Senator Hanafin

I want to ask the Tánaiste a question in connection with competition. I have a difficulty with regard to the dog that did not bark. In most good detective stories the dog did not bark because it was an inside job. Real competition in the marketplace appears to be provided by Quinn Direct and FBD. We have seen the profits of the following insurance companies rise to over €500 million in total: AXA, €135 million; Allianz, €143 million; FBD, €110 million; and Hibernian, €130 million. It does not make sense, therefore, that major players are not knocking on our door looking to gain entry to the Irish marketplace. This is not logical.

While we were meeting last year, a cartel was proven to have operated between the major insurance companies in Germany. If at the end of this year some of the major insurance companies are not making a play to enter the Irish insurance market, whether by way of the Internet or establishing a direct retail branch network, we should ask serious questions. The Tánaiste, this committee and the Oireachtas did not do all of the work on the PIAB, the MIAB and the legislation, either on false claims or to ensure the courts work efficiently, just to put more money into the coffers of the insurance companies. The purpose was to ensure the consumer benefited.

The outrage of what was going on within the insurance industry was beginning to directly affect our national competitiveness. This was not necessarily because of what was happening within the companies themselves but because of claims, mistakes and mishaps that should not have happened. If we do not see competition from the other insurance companies, can we bring this to Europe to ensure that we see real competition in the Irish marketplace?

Deputy Harney

A number of issues were raised. First, I put it to Deputy Lynch that the figures she quoted indicate that there is competition and that it is important to shop around, especially if there is a variance of between €600 and €1,500 in premiums. The Deputy said this came about as a result of a single telephone call, so I would not regard that as excessive shopping around. I am not trying to be smart but I have much anecdotal evidence of people using the Internet or making a telephone call and even getting a reduction from their own company if consumers get tough with them.

I share the views expressed about the insurance companies. They are making considerable profits. While I am not against anybody making profits - it is why people go into business - I hope that encourages new entrants and I believe it will. Whether or not they are of the variety that Senator Hanafin spoke of, those who do their business through the Internet, locate in the market or do a combination of both will benefit.

It is probably very similar to what is happening in the travel industry in many parts of the world, with travel agents now being by-passed, particularly by travellers who want low cost fares, which is most normal people. I suspect that most people who travel business class or first class are not paying for it out of their own pockets. The vast majority of other citizens who travel tend to use the Internet with the result that there is big pressure on travel agents. I suspect the same will happen with insurance brokers. That is the way the market will develop and it will creates a challenge for brokers to develop new skills and products and perhaps concentrate on adding value in that kind of environment, which will not be easy.

I have had discussions with some operators and am reasonably optimistic, without being certain, that one player in particular is about to enter this market which will offer considerable competition to all players across all insurance categories. It did so in another jurisdiction.

Deputy Lynch is right in her comments on the question of awards. They have gone down in relative terms. The figures that used to be quoted in pounds are now done so in euro. To be fair to the Judiciary, it is taking a much more vigilant view of what one would regard as high risk claims, new categories in which people are seeking compensation, which is a very good thing. We must tackle this together at all levels in society. My only advice to the committee, which I perhaps do not need to give, is not to take the eye off the ball. I am delighted that the committee has invited all the players to attend its deliberations because while peer pressure is always a good thing, public pressure is even better.

The PIAB guidelines will be issued to people making claims which will be very simple and easily understood. Officialdom can often write things in a way that nobody understands, even people like us. There will be guidelines for respondents, insurance companies and treating doctors. The idea of outsourcing the service centre is to have expertise in delivery of information. The National Adult Literacy Association is also working with the PIAB to try to deal with some of the literacy-related issues, so hopefully lawyers will not be necessary to complete forms. It would be an insult to lawyers to tell them they were professionally qualified only to help people complete an application form.

Deputy Howlin

That is the job of Deputies.

Deputy Harney

It often is. Of course, the website will give all of this information. This will be a very transparent, claimant-friendly organisation which will operate six days per week and very long hours, unlike some of our public service institutions, which tend not to operate outside regular hours. Hopefully it will have the necessary effect. The chief executive of the organisation has just been appointed, and perhaps when she finds her feet in a few weeks it may be a good idea for her to come before the committee and talk about some of the logistical issues with which she is directly involved.

Chairman

Did you, Tánaiste, or your Department give consideration at any time to the solvency requirements of insurance companies and, consequently, to their capacity to sell insurance policies?

Deputy Harney

Yes, we have always taken a tough line on that. We were criticised, perhaps by this committee——

Chairman

No, it was not this committee.

Deputy Harney

—— for being too tough. Our solvency requirements are very high, and higher than some other countries, in order to protect consumers. That is now a matter for the regulator as we are no longer the regulator for insurance. Our only function is to see this reform package through. Following that, the committee will be talking to other people in regard to insurance.

Chairman

Is that an indication that the Tánaiste will no longer be at the Department for——

Deputy Harney

No, when all the reforms have gone through the Department of Enterprise, Trade and Employment will no longer be involved in insurance. The regulator will be the Irish Financial Services Regulatory Authority, where all the expertise and competence lies.

Chairman

On behalf of the committee, I thank the Tánaiste and her officials for coming here. It has always been a great occasion for this committee to have the Tánaiste present. She is very forthright and upfront in regard to her plans for her Department, and we consider it a great honour and privilege to act in a supportive role when addressing the challenge of the high costs of insurance. We will continue to do this for as long as the Tánaiste thinks it fit that we should do so. We are determined to ensure the plague of high insurance costs is fully addressed.

The joint committee adjourned at 4.05 p.m. until 9.30 a.m. on Thursday, 1 April 2004.