We have two sittings today in regard to the insurance inquiry. I welcome the Minister for Justice, Equality and Law Reform, Deputy McDowell, who will make a presentation and update us on his Department's reforms in regard to the insurance market. The Minister is aware that the committee has done Trojan work on the insurance issue since its establishment and that it produced a substantial interim report in August 2003. We hope to produce our second interim report at the end of May 2004. I welcome the Minister and his officials and thank him for all that he is doing in this regard.
Reform of the Irish Insurance Market: Presentations.
I welcome this opportunity to speak to the committee again, and I congratulate it on all the hard work it has been doing on the insurance issue.
I believe passionately, as most members will accept, that one of the greatest motivators and conducive factors in an environmental sense to enterprise and full employment in this country has been the regime of local taxation we have put in place. It has always been my view that if we removed high taxation but at the same time allowed other factors to creep up, the good effects on competition, enterprise and employment of the Government's tax policies could be largely swept away. This would be the case if we allowed insurance premiums in particular to produce an insurance wedge which wiped out enterprise.
Now that we are on the eve of an expanded European Union of 25 member states, with ten additional member states joining on 1 May, we must realise that our cost base is a fundamental issue in maintaining employment. Although the figures for 2003 in terms of employment creation were good, and are equally good in 2004, if the ESRI is to be believed, we nonetheless must do everything within our capacity to ensure that the compensation culture and the lack of competition among insurance companies does not impose a self-inflicted and unnecessary anti-competitive disadvantage. Jobs will go to where the climate is most conducive to profit making.
Since I came here on 22 July 2003, two things have been done. First, the Tánaiste, as the committee knows, has pushed through the Personal Injuries Assessment Board legislation. Second, I have introduced in the Oireachtas - and am now on Committee Stage in the Seanad with - the Civil Liability and Courts Bill 2004. Those two measures are a very important part of a comprehensive overall response to the problems faced by industry and consumers in regard to insurance. I can deal with the Civil Liability and Courts Bill 2004 later.
I shall go through a number of proposals the committee has made and draw to its attention a few features in regard to them. The committee's second recommendation was that the provisions of the Court and Court Officers Bill 2002 regarding the financial limits of the civil jurisdiction of the courts should be brought into force as a matter of urgency. In this, the committee is well aware that it takes a different view from that of the Motor Insurance Advisory Board, which proposed that nothing be done for the time being.
The committee's reasoning in support of its approach is that the increased jurisdiction might bring benefits in so far as more cases would be heard in the lower courts. It is certainly possible to argue this, and this view obviously underlies the recommendation by this committee in respect of commencing those sections. The alternative view is that of the Motor Insurance Advisory Board and others to the effect that an increase in jurisdiction limits could lead to an inflation in the level of awards. I need hardly add that this is something which nobody in this room would want, so which decision do we make?
I hope the committee does not regard my view as unduly cautious, and it is certainly not motivated by any ulterior motive, but it is to wait just a tiny bit longer before making this decision until we see how the PIAB actually works and whether my new legislation has an effect when it gets through the Oireachtas.
On the basis of strict rationality, one would assume that if more cases were heard in the District and Circuit Courts, the costs of cases would be lower. However, the MIAB's concern, which is not fanciful, is that the Judiciary tends to regard its jurisdiction as a given. It is worried that the Judiciary will regard the increased monetary jurisdiction as the capacity to give more money to people who fall within existing categories. It would be disturbing if that mindset filtered through. I want to hesitate a little longer on this issue because I do not want to make a fundamental mistake which will reverse recent trends.
To the year end of February, 2004, for which we have the most up to date figure, the Tánaiste's Department calculates that transport insurance costs are down 11.7%, almost 12%.
Is that commercial costs?
No, this is transport insurance. That contrasts with an increase in 2003 of 7.8%.
We have not been given those figures.
That is what I have been told today.
One day at a time.
It seems to me, therefore, that there has been a decline in insurance costs and a number of motorists now realise that significant reductions of up to one third of premiums are available as a result of competition in the market.
I do not profess to be an expert in insurance competition. However, I know there are new players in the market and they and the existing players are playing a different game. We have more direct insurance and more direct settlement of claims, etc. The accident rate is in decline despite our growing population and we have reasons for optimism from a number of points of view. However, I always put that optimism in the context of the exponential increases in insurance premiums which followed on the events of 11 September 2001. I do not want to make a false move at this stage which would reverse the trend.
A number of committee members raised the matter of capping compensation. I will have to take advice from the Attorney General on this matter. I believe there could be significant constitutional problems in fixing by statute a maximum sum for a broken leg or arm, for example, or a lost eye or whatever. Capping is not very desirable.
On the other hand, the Personal Injuries Advisory Board is engaged in the putting together of a book of quantum. The committee suggested that the courts should be directed to have regard to that book of quantum with regard to fixing compensation. I am sympathetic to that proposal and am minded to consider recommending to Government that we amend the Civil Liability and Courts Bill to insert an obligation to have regard to the terms of that document when cases are being decided.
A suggestion was made that when a PIAB assessment is not accepted, a person should not be entitled to costs. I want to examine how the PIAB and the general rules of civil liability will intermesh in order to get this right. If a person rejects a reasonable settlement and goes on to court to obtain a settlement, that should not be allowed without penalty. The legislation I have tabled, which is before the Seanad, makes provision for final offers to be made on both sides. I presume that in most cases a PIAB offer would be reflected in a final offer. We may therefore have arrived at that recommendation by a different way.
Another recommendation of this committee was the appointment of a panel of judges to hear personal injury cases. Mrs. Justice Denham is currently examining all aspects of practice and procedure of personal injuries litigation and her committee's report is awaited. In that context, if we fragment the court system to the point where there are no general practitioners on the bench, we do not know what the effect will be. We now have specialised lists for family law, commercial cases and other cases. I do not know who we would exclude by deciding to have a specialist panel of personal injuries lawyers.
It is important, and the judicial studies institute should be used, to bring about more discussion on the implications of compensation. We also need seminars for judges who are assessing personal injuries, with a view to having them think through the implications of some current damage awards. The creation of a general awareness among judges of the economic implications of the personal injuries compensation system would also yield good results. I know of one judge, whose name I will not mention, who told me privately that because he had to study the issue the scales fell from his eyes with regard to the implications of what is happening.
The question of legal costs was also raised. I have significant concerns in this regard. In our current system costs are generally awarded to successful litigants on the basis that they are to be indemnified against the reasonable cost of having gone to law. A system is in place where litigants seek payment of their costs by a process of adjudication by taxing masters, with an appeal to the courts. The principle of this process is that their reasonable outlay on litigation should be recouped to them if the court awards costs.
This system is based on a number of assumptions one of which, largely fictional, is that the client, solicitor and barrister in a case discuss the cost of the case on the basis of X hundred euro for the solicitor and the basis on which the barrister will be remunerated before agreeing to proceed and that then, the client having agreed to the proposition and undertaken to pay the lawyers, the courts award costs in like measure, provided the agreement was reasonable. However, the truth is radically different. In many cases no agreement of any kind is even attempted prior to the commencement of a case and many are run on the basis that there will be no payment of costs whatsoever if the plaintiff does not win - the no foal no fee system. Before we deprecate that system too much, it is perhaps preferable to what goes on in the United Kingdom - where there is a comprehensive civil legal aid system - where the costs to the taxpayer are colossal and insupportable because the UK Government is trying to vary its legislation.
We must ask whether, in view of no foal no fee type arrangements and of the fact that there are inadequate pre-litigation agreements between clients and solicitors, we should continue to award and assess costs on the basis of largely fictional transactions. The other question we must ask——
What does the Minister mean and what is he doing about it?
I am about to address the Deputy's point that I should establish an inquiry. This matter must be considered and the time has come to inquire into the indemnification, taxation and appeals systems. We have veered between a number of quite contrary arrangements. When I began practising as a barrister, there was a statutory scale of fees for the Circuit Court. However, it had become so out of date that nobody was using it anymore. Judges were certifying for larger sums on what was then called a Bar Council scale for barristers' fees. At least there was a scale. Competition law has made scales drawn up by the Bar Council unacceptable and a free for all has developed. The question that arises is whether that system is supportable. In my opinion, it is not.
When I started at the Bar in the 1970s, a brief fee for a barrister in a Circuit Court was 42 guineas or less. That was roughly the cost of a good bicycle. That position has changed dramatically.
A Ferrari.
It would certainly not have been a Ferrari. The Circuit Court has become relatively much more expensive in that the fees charged would buy one a motorbike in some cases. Whether that motorbike would be brand new would be a different matter.
The inflation in the cost of taking Circuit Court proceedings must be addressed. In the happy days to which I referred when I commenced practising, ordinary Joe and Josephine Soaps could contemplate taking a Circuit Court action about a boundary dispute without ruining themselves financially. Now, however, even Circuit Court litigation can be ruinous. I refer, in particular, to the family law courts, where costs are a major factor for those taking cases. I intend to address the matter and establish a study group. The committee has stated that this should not be composed of lawyers and I agree with that. On the other hand, some legal input will obviously be necessary. That is a useful proposal.
The Competition Authority is considering competition in the legal profession. To some extent, the two issues may overlap. I had thought to inform the committee that I would wait for the Competition Authority. However, I believe it is a separate issue. The Department of Justice, Equality and Law Reform should study the costs issue separately and in parallel, while not inhibiting the Competition Authority.
A representative of the Competition Authority has attended our hearings, so we are working hand in hand on that matter.
Good. I am glad to hear that.
In respect of road safety, the penalty points system is anticipated to come into force with full computer support in the middle of the year. That system has been a long time in the offing. The Minister for Transport, Deputy Brennan, has had to make paper driven efforts to make the penalty points system work. The system has had some effect and from now on people who engage in careless driving will be given five penalty points. That will have a significant effect. In future if a person crosses the white line or is in any way to blame for an accident, the likelihood is that they will receive a large number of points on their licence.
One of the difficulties with the system was that until it was computerised it was immensely difficult to operate. For the State, as a bureaucracy, to be aware of what is happening in Skibbereen District Court, translate that to a file and impose the relevant number of points is an extremely complex process. We are on the verge of introducing a fully computerised system.
By the middle of the year?
Yes, it is envisaged to introduce it mid-year.
Will it be as effective as PULSE?
It will be as effective as PULSE. The latter is extremely effective. Many people think that it is not effective but that is not the case. There are some problems with it but it is much more effective than the paper and pencil system which preceded it.
The committee was concerned about speed cameras. The Minister for Transport, Deputy Brennan, and I have discussed this matter at length. If I were to make speed cameras solely operable by gardaí, the latter would spend their time travelling around erecting and servicing speed cameras and removing and processing film from them. Whereas the Garda should have an overall superintendence role, I am of the view that the better way to proceed - particularly in respect of the straitjacket in which I must operate in respect of public service numbers - is to enter into a contract or contracts with a private sector company or companies to operate speed cameras and process the film therefrom. We must also put in place effective software and computer programmes so that when a person is caught speeding, a letter will issue to the registered owner of the vehicle. We must be in a position to prove these things by means of a statutory declaration rather than by having people attend in court. All of the material must be capable of being generated without over-involvement on the part of the Garda Síochána.
The committee is also aware that if such a proposal comes to fruition, it will be possible to dramatically increase the level of surveillance in respect of speeding. I do not want to turn the country into a boot camp. However, I am of the opinion that the greatest deterrent vis-à-vis speeding is the thought that in every hedge there will be a camera monitoring the roads, that one will be detected and that there will be consequences. People will take that one board. Until clamping commenced in Dublin, nobody took the law seriously. Following its introduction, however, people began to do so. The same applies in respect of speeding.
What about the traffic corps?
I have spoken to the Garda Commissioner who has come up with certain proposals in respect of the city of Dublin on which we are working. Numbers in the traffic units of the Garda Síochána throughout the country are a matter of concern to both of us. We intend to address that issue but I do not want to say today what we intend to do. The Tánaiste informed the committee yesterday that simply segmenting the Garda and saying that 1,500 members will form a new traffic corps is not an option that is open to me at present because the implications for ordinary policing would be extensive.
Will there be a reduction in crime?
I do not want a demarcation attitude to develop within the Garda Síochána whereby members of the force who would not be involved in the traffic corps would ignore speeding cars or where traffic corps officers would not feel it would be a good idea to ask someone in a car they had stopped to open the boot. The committee may be aware that, tragically, a Guardia Civil patrol stopped the vehicle in which most of the explosives used in the Madrid atrocities were being transported but did not carry out a search on it. They checked the ownership of the vehicle and then let it pass. This shows how demarcation can be damaging.
I have done, in large measure, what the committee asked me to do on the previous occasion in regard to the Civil Liability and Courts Bill. This is a tough item of legislation and I look forward to the debate on it, particularly if proposals are put forward in terms of the way it might be strengthened or made more effective. I will not outline the contents on the Bill because time is limited.
Those are the matters being dealt with in the justice area in response to the report tabled by the committee.
I thank the Minister. He has given us much food for thought. The committee is pleased that the Minister has seriously examined the recommendations in its first interim report. We were anxious about one in particular. The joint committee recommended that all cars being driven without insurance should be confiscated. We are not aware that confiscation of uninsured vehicles has begun. Have there been any discussions between the Minister and the Garda Síochána on the committee's recommendation?
I forgot that point. I agree there has been inadequate progress in that area. There are legal provisions. However, because of the way in which public finances are operated here, the expenses involved in seizing cars and putting them into a pound must be paid out of the budget of the Garda district in question, whereas the Minister for Finance gets the poundage fees and penalties and so on which are paid when the car is retrieved. That issue must, therefore, be addressed first.
What is the experience in other jurisdictions? The Minister might examine it.
I do not know what the experience of other jurisdictions is. However, it would seem that until carrying out this function does not involve financial disaster for the impounding authority, it will not be carried out with the appropriate enthusiasm.
I have one other question before I invite my colleagues to contribute. We also requested that provision be made for the exclusion from data protection legislation of the records of claimants in personal injuries cases. Does the Government propose to accept this recommendation?
That is being studied. I do not know how far the committee meant the Government to go with that recommendation. For instance, the fact that I have claimed three times in respect of falls on pavements could mean that I am unfortunate.
I know of an example of one person claiming on three occasions in respect of one incident.
In England potholing is a sport. In Ireland it is a profession. I have no objection in principle to the collection of data of this kind. However, I do not want immensely intrusive data, such as people's medical histories, being "masked" on a computer somewhere. By the same token I will favourably consider an amendment of the data protection legislation to provide some exemption for this because insurance companies need help in detecting fraudulent patterns of excessive or serial claiming.
Let me make one observation and ask three questions. I welcome the alacrity with which the Minister has addressed many of the issues we have raised and look forward to the early enactment of the courts Bill.
I have heard the balancing argument regarding the variation of limits between different courts. The view of the Oireachtas has already been determined on this and legislation has been enacted. I appreciate the Minister's fears about this, but it would capture in the Circuit Court cases that are being funnelled into the High Court. If judges were given the type of explanation about which the Minister spoke, an automatic increase in awards in the Circuit Court simply because it had greater jurisdiction would not necessarily arise.
I welcome the Minister's acceptance of our recommendation that an inquiry be held into current legal fees. It seems that everybody is taking the strain on this issue now, except the insurance companies, which we will deal with later today. However, the legal profession has not yet taken its part of the strain. Perhaps the Minister would expand on the timing and composition of this inquiry and the timeframe within which it will be expected to report, because it has already specifically accepted that legal fees are a real issue.
The second question also relates to fees. The Minister did not address our recommendation that taxing masters should not be members of the legal profession and that the decision of taxing masters in awarding fees should be subject to a lay appeals board. That recommendation will probably send shock waves through the Minister's former place of employment.
In fairness, it must be said that the Minister has been very courageous.
The proof of the pudding is always in the eating. In terms of the Minister addressing this issue it is the committee's strong view that there is no necessity for lawyers to set legal fees. That should be done on an objective basis by accountants or actuaries. No other profession sets its own fee basis. What is the Minister's response to that?
The committee felt very strongly on that.
It did. My third question relates to enforcement and the traffic issues that fall within the Minister's area. We will deal with the Minister for Transport separately. We want safer roads, not only to benefit insurance payers but for the safety of citizens. A number of terrible tragedies happened last weekend. I indicated to the Tánaiste yesterday that I had the dreadful misfortune of attending one of the funerals, that of a 21 year old Wexford man who was killed.
We need to make our roads safer, but my fear is that speed cameras will be placed on safe roads to notch up revenue. I have been told by members of the Garda Síochána across the country that there are what amount to quota systems and that if the local Garda superintendent feels the number of speeding crimes is a bit low he will suggest that it be ratcheted up on a road where catching speeding cars is like catching fish in a barrel. That is the approach that is taken, rather than focusing on making our roads safer.
There is not necessarily a direct correlation between the number of fines imposed or motorists caught speeding and a discernible improvement in road safety. Although the issue of the speed limits to be imposed is a matter for the Minister for Transport, and we will deal with him on that, the potential of speed cameras in every hedge, as the Minister put it, certainly needs to be comprehensively addressed.
If the Minister rejects our view and privatises the operation of speed cameras, will the payment system be on the basis of a flat fee or a percentage of the take? That would have very serious implications for the way it might operate and ultimately for public confidence in it.
I shall answer the last question first. I would oppose a system based on a percentage of the take. It would be inappropriate. I understand that clamping in Dublin is not done on a percentage basis. It would tend to corrupt people's view of the system if they thought it was being operated for private gain.
Likewise, I fully take on board what Deputy Howlin says regarding the location of cameras. At the moment they are put in boxes where everyone can see them and the road is marked out. The result is a very visible and well-known system in terms of stationary cameras. Then one has members of the Garda Síochána road traffic units going out themselves with the hand-held cameras on tripods. In that context, it is true to say that they have been following a policy of doing it in a high visibility way because part of the criticism of the inadequacy of the present system is that there is no visibility. There is no point in being well concealed, with everyone sailing through and then receiving fines. The message does not get home.
The private system should be operated under the general superintendence of the Garda Síochána and the remuneration system should reflect that, providing that a reasonable degree of activity takes place. One cannot have a system in which people get money for doing nothing. Provided they do what they contract to do, they should be paid on that basis.
What Deputy Howlin is saying is absolutely right in one respect. When one thinks of all these young men, as it frequently is, who end up seriously injured or dead from road traffic accidents at 3 o'clock in the morning on roads which are not main roads, one cannot really expect the Garda to be out on those roads waiting for them. They are ideal candidates for speed cameras and they would perhaps think twice about booting down a minor road at a very high speed. I will discuss these matters further with the Minister for Transport, Deputy Brennan.
The question of taxing masters and of lawyers effectively being seen to fix their own fees and decide what is reasonable will be part of the study I will announce. The whole structure must be looked at, and not just in tweaking mode.
Deputy Howlin asked me to amplify this inquiry. To be absolutely honest with the committee, I only made up my mind on this when confronted by the fact that I was coming before this committee. I have not yet put a timeframe on it or considered personnel issues or terms of reference. I hope to make an announcement within four to six weeks but I obviously want to consult my colleagues in Government on that.
Another recommendation of ours was an inquiry into solicitors. I was amazed that nobody in the media took this up. We should avail of the opportunity to ask the Minister for his views. First we will take Deputy Callanan's questions.
I welcome the Minister. I compliment four Ministers on getting so involved in the issue of insurance costs the Minister, Deputy McDowell, the Minister for Transport, Deputy Brennan, and the Ministers of State, Deputies Michael Ahern and Frank Fahey.
We were told initially that what was really wrong was the lack of competition among insurers, fraudulent claims, lack of safety at work, speeding, costs of claims and costs of legal fees. I welcome the idea of using the book of quantum in the courts and I am delighted that the Minister shares this view. We hope that the Minister of State, Deputy Fahey, will bring in a Bill to improve safety at work.
The Chairman mentioned legal costs, a subject I have been talking about for quite a while. We have been told that 40% of all claims are made up of legal fees. We are also told that 90% of all claims are settled on the steps of the courts. As a farmer I do not understand that type of language. Does it mean that a barrister or solicitor gets more money when the case is brought to the steps of the court than when it is settled back in the office? I have tried to get an answer to that but I am finding it pretty difficult to understand. Perhaps the Minister can fill us in.
I also have young barrister friends who find it very hard to get work. Is there a closed shop? Do barristers recommend one another? How does one get into the circle if there is one? The Minister has told us that there has been a reduction of 11% in insurance quotes, which we very much welcome, but we have found very little reduction on the commercial side. In fact there is no reduction whatsoever.
We compliment the Minister on all that he has done in regard to fraudulent claims. A Supermacs case, for example, ended up in court and it is great to see that type of thing happening. We look forward to seeing the four Ministers keeping at this problem as seriously as they have been in the last six months and a reduction in insurance costs of 30% rather than 11%.
Is the Deputy saying there is no movement on commercial motor insurance?
Yes, that is what we have found. There seems to be no movement at all in that area.
I compliment the Minister on his comprehensive and direct response to the recommendations we put before him and the no-nonsense way in which he dealt with them. There is very little we can say in regard to our own recommendations because the Minister has addressed them so comprehensively. Regarding the financial limits for different courts I suppose we must wait to see what will happen with the PIAB and so on.
We are meeting groups later today and one of them will put forward two particular recommendations with relevance to the Minister. I know my answers to the proposals but would like to get the response of the Minister. One is that the provisions of the Civil Liability and Courts Bill 2004 should apply to all cases not yet at litigation stage. The other is that provision be made in the Civil Liability and Courts Bill 2004 so that judicial autonomy does not allow fraudulent or non-compliant complainants to play the court system at the cost of the economy. I do not know if that is clear enough to comment on.
I shall deal first with the points raised by Deputy McHugh. The Civil Liability and Courts Bill 2004 will apply to all claims which are pending. It will not apply just to cases which are commenced after it comes into being. If one has commenced a fraudulent case and persists with it after the commencement of the Act one will be liable to all of its penalties. I cannot provide that anything that was not a crime will be a crime in retrospect, but I can provide that if one does anything after the commencement of the Act in regard to a claim it is irrelevant whether the claim was commenced before or after the coming into operation of the Act.
On the judicial point, I think what the Deputy is driving at is that in most of the provisions of the Civil Liability and Courts Bill 2004 there are clauses such as "unless the court otherwise directs for exceptional reasons" or whatever. One of my problems with this is that the Bill is so strong in its medicine that I did not want to risk an Article 26 reference or somebody saying that it is unconstitutional because it is so draconian and does not allow any judicial discretion. I have had to include safety valves, but if they were to be abused, to become escape channels or to cause the legislation to be diluted dramatically, I would not hesitate to strengthen it again.
One must be careful about providing that in absolutely every case if somebody tells a lie the whole case goes down the tubes. One might, for example, find a woman - or a man, I must be careful in these day of equality - lying about his or her age or something for some totally ridiculous reason, and if something like that were to topple a case in which millions of euro might be at stake it might be seen to be overly draconian. One must allow some margin so that a law does not become unjust and I have done that as best I can.
Deputy Callanan raised several issues. The 40% figure which is bandied about is slightly misleading. Usually the costs of a case are set at 40% and that percentage includes the fees of barristers, solicitors, doctors, actuaries and engineers and also VAT of 21%, etc. The 40% figure is not simply what the lawyers are getting but covers the costs of both sides in preparing for the entire case. The insurance companies' costs in terms of doctors, engineers, etc., are also bundled into the figure. In fairness to lawyers, the figure of 40% for them is not true.
Does the Minister agree that the larger proportion of that goes to solicitors?
Yes, but solicitors carry out the largest proportion of the work and they have the greater overheads. It is they who service the claim. A barrister's work in personal injuries cases is incidental and on a per item basis.
We find it difficult to come to terms with the difference between Ireland and the United Kingdom in the time it takes to get a case to court. The Tánaiste mentioned this matter yesterday also.
Much of that has to do with the difference in culture. The Civil Liability and Courts Bill will cut the period from three years to one year, although a number of Members of the Seanad cavilled at this and thought it unfair. We will have to examine that again.
This committee welcomes that.
The "steps of the court" syndrome, to which Deputy Callanan referred, has been the norm in many people's psychology, but not all. Some people feel they should let it run the whole way. In weak cases especially, people do not want to confront the issue at an early stage. This is why we are providing for mediation in all of these cases. A judge who senses that a case is weak may decide the case should not be put down for trial but should be the subject of a structured discussion through which the weaknesses or strengths of both sides emerge and they agree to settle. The steps of the court syndrome has largely been driven by what used to be the procedure where the legal team did not get full costs unless it had been out on the battlefield. We must respect the truth of the matter that the vast majority of cases are settled informally without going to court.
The difference between Ireland and England is that here barristers are more involved in that settlement process. In England, solicitors tend to take more charge of the settlement process. They are aided in that by the fact that the English Judiciary has traditionally been more cold, clinical and conservative in its awards than the Irish Judiciary, which has been more humane, as it sees it, in its approach to damages.
Some 95% of cases are settled and do not go to court. Mr. Fitzpatrick from the Courts Service provided that figure to us.
It is not as if the majority of cases are listed for hearing. Many are settled at an early stage.
Does quite an amount of structured discussion take place?
Yes, but the current structured discussion is bilateral. The solicitor from each side, the claims manager and frequently the barristers are involved. It is an unusual feature of Irish law that the Bar is so involved. Solicitors tend to rely on the barristers to act as mediators or informal secondary advisers.
Deputy Callanan also raised the issue of a closed shop among barristers. Two different groups of barristers are involved in this. Insurance companies have panels of barristers and they choose their barristers by reference to whomsoever they believe will produce good results. Claims managers in insurance companies often watch other barristers functioning against them and, if they are doing well, decide they should brief them. A restricted number of barristers do defence work for insurance companies but there is no restriction on the other side. A huge spread of barristers work for plaintiffs and one could not say it is a closed shop on that side.
Neither is it fair to describe the defence side as a closed shop. Any claims manager of an insurance company would want a tight panel of people working for him or her. If one spreads the work all over the place, one gets both the good and the bad and does not have enough leverage over one's counsel to show them the whip, to use horse-racing parlance. One must have a group of people to whom one can give a sufficient volume of work in order to have some leverage over them which will ensure they respond with the effort one requires.
We called for an inquiry into solicitors. Does the Minister wish to respond on that?
I hunted through the documentation for that. Where is that request?
We shall come back to it. My consultants are going through it.
I welcome the Minister. I compliment him on the measures introduced to date and look forward to those yet to come.
He mentioned judges and seminars. We are concerned that they do not always sing from the one hymn sheet. Are seminars held on a regular basis and is there much discussion, especially in areas which might impact on awards and damages? The Minister mentioned further study being required but I missed his point. Was that in connection with the Civil Liability and Courts Bill? Is the Minister just being cautious with regard to some matter in connection with that? With regard to that Bill, which has only to go through Committee and Final Stages in the Seanad, when does the Minister envisage it will come into force?
I congratulate the Minister, the Tánaiste and the Minister for Transport, Deputy Brennan, on the introduction of a culture change with regard to our approach to insurance and insurance claims. Should we use the second level education system, or could it be used more effectively, to bring about this culture change for Joe citizen? For example, I made a proposal at a parliamentary party meeting some time ago that the theory section of the driving test could be done in transition year or as part of the CSPE programme. Can this be done?
We should also use the second level education system to address the claims culture. As a nation we appear to have grown used to a culture that believes that nobody pays the high compensation personally and that it is grand to keep making claims. Now we are beginning to realise that we all pay the cost. The second level education system could and should be used more to provide education in this regard. The Minister's Department should be the one to become involved in introducing a consciousness as to how the law should work.
A culture change is also required with regard to the education, if that is not too precocious a word to use, of judges. People from industry and insurance companies have told us that some judges are claim friendly, some cases take forever to get to court and that award levels here greatly exceed those in other countries. A culture change is obviously needed within the judicial system. Is there a proposal for training or retraining of judges in that area, given that the cost of insurance is the second highest cost of production?
With regard to solicitors, the information is contained in No. 29. It is stated that the Government should establish an inquiry, composed mainly of non-lawyers, into current levels of legal fees in personal injuries actions and that the inquiry should undertake a study of the costs and consider whether the current level of fees being awarded by the taxing master is reasonable in respect of the work being undertaken by solicitors in preparing cases for trial. The Minister has agreed to that, a fact about which we are pleased.
I wish to make one point about this matter. We have a system in place at present whereby solicitors and barristers comprise a split profession. People ask whether that is unnecessary duplication and whether it adds to the cost of litigation in Ireland, particularly when compared to countries in which the profession is unified. Ireland is a common law country. There are many examples of countries with single and split professions. It is purely a hunch on my part but I would imagine that fusing the professions does not reduce costs.
The other matter we must bear in mind in terms of the difference between barristers and solicitors is that if there are two or three small firms of solicitors operating in a particular town and if they are to have experienced and capable litigators on their staff at all times, their costs would rise substantially. People ask why their solicitors cannot just take a case on their behalf. If a solicitor is facing into a personal injuries action for a client where he or she is representing that client personally, it means that, effectively, the solicitor must travel from the town in which those two or three firms operate to the county town where the Circuit Court operates or to the High Court in Dublin and block out his or her diary for a week. If the case takes seven days rather than five days - in legal terms, this is one and a half weeks - the person will be unavailable for that entire period. In terms of economics, that does not work for small solicitors firms. One cannot merely walk out of one's office and state that one will return in a fortnight. There is an economic argument, therefore, that if we want a spread of legal services throughout the country, specialisation works.
The second factor is - one does not see much publicity in respect of it in the media - that the system of barristers and solicitors ensures there is rough equality of firepower between defendants and plaintiffs. Solicitors and barristers are roughly drawn from the same pool and are of equivalent capacities. In general terms, plaintiffs' barristers are as good those of defendants. A small solicitor from a rural area can bring a constitutional action on behalf of a client without saying that to do so would be way beyond him or her and obliging the client to approach one of the ten major firms in Dublin. People never take into account when considering the operation of the system that it is possible to approach one's family solicitor and commence a Supreme Court constitutional action. The only way that could happen is by means of a split profession. If we wanted something different, we could take the American route. However, even the Americans have a distinction between trial and other types of attorneys.
The question of why there is a split profession has not arisen too much in the deliberations of this committee but it arises in the public arena to a major degree. People can make arguments for a unified profession but they must bear in mind that they would not be able to go into a solicitor's office on the main street in Cahirciveen and state that they wanted to take a constitutional action.
Perhaps one could call to the local legal aid board.
I knew I should not have mentioned this matter.
I am glad the Minister clarified that specialisation is the order of the day.
There are other systems. If one considers the systems in operation throughout Europe, one will find that they are split in one way or another or lawyers divide by court in one way or another. There are few systems under which a lawyer from a small country town in Tennessee will, in practice, go the whole way to the Supreme Court in Washington on one's behalf. It does not work that way.
Deputy Tony Dempsey referred to the education system. That is really a matter for the Minister for Transport, Deputy Brennan. I am not responsible for driving tests. One can teach theory in terms of safe distances, the rules of the road, etc., and inculcate those values through the education system. The difficulty is, however, that if one is talking about 16 and 17 year olds who are preparing to sit the leaving certificate, introducing a new element of the syllabus relating to driving might be problematic.
There are radically different forms of driver testing and examination available. A three or four-day residential system should run parallel. Under this people would be obliged to sit down, view videos and be bombarded with all the relevant facts and material, practice their driving and undergo an extensive programme of training. We have been extremely unimaginative in our approach to this matter.
The phrase "training" is one that judges hate but that of "education" is one with which everyone can live. Deputy Dempsey and Senator Coghlan inquired about what happens. I am of the view that the judicial studies institute is working well. It holds regular meetings and seminars, some of which I attended in my former capacity as Attorney General.
I thought it was in preparation.
No, the institute does hold such meetings and seminars.
I am sure it does.
I have attended seminars on sentencing, libel law, etc. I will confer with the presidents of the courts to see whether more could be done in terms of holding seminars on the issue of damages, etc. I cannot honestly state what is the position at present in that regard. I am of the opinion that it does, from time to time, invite experts to address meetings and seminars on different subjects. However, I cannot state that it covers the economic consequences of the level of damages or matters of that nature.
I thank the Minister for his co-operation with the committee. The committee system is somewhat new to me, given my recent return to the Houses, but it is extremely effective in terms of the fact that a member of the Government can come before a committee to discuss issues of great importance, sharing views and taking on board many of the worthwhile suggestions made by Members.
The Minister's replies were comprehensive. I have grave reservations about privatising the operation of speed cameras. There may be difficulties with their operation at present but new technology will improve the situation as regards the collection of data and the direct transmission thereof to Garda stations in the regions.
One of the cameras which appears to be most profitable is located at the Spa Hotel in Lucan. The speed limit in that area varies from 30 mph to 40 mph, to 50 mph and back to 40 mph. There is no logic in the system of speed limits operating there. It is grossly unfair. The vast majority of members of the driving public are law-abiding. The Minister should not alienate them by introducing draconian measures.
It is evident that behaviour in terms of speeding has improved. However, if people are fined because a camera photograph has recorded them speeding at 51 miles at the Spa Hotel in Lucan it will do the relationship between the Garda Síochána and the public no good. The Garda operate with the utmost discretion. However, private operators will go out of their way to make the maximum amount of money, irrespective of the consequences for law-abiding citizens. They will be like the clampers. It is pretty rough here in the city. The clampers have a job to do but there is not much humanity about it.
In my experience in public life and before that, the Garda Síochána operates the law with absolute discretion and is very fair. In a case where the birth of a child is imminent, for instance, there is no question of discretion because a camera picture does not indicate what is happening. There is in the case of gardaí, and they are very caring and kind. The Minister should bear that in mind. He should not allow this to be turned into a money-making racket. That might happen because private operators will place cameras in locations where they will get maximum results. This will damage the good relations which exist between the public and the Garda Síochána. The public are the eyes and ears of the Garda Síochána. It is therefore vital to maintain good relations between it and the public at the highest possible level. It would be acceptable for civilian technicians to work with the Garda Síochána on that section of business because it is very technical. That is what I recommend to the Minister.
He has done an excellent job in the Department of Justice, Equality and Law Reform. He has been very open to suggestions and what he has done to date has been quite revolutionary.
In response to those remarks, if we are to have comprehensive speed camera coverage it will either be operated by the Garda Síochána or it will not. I can predict what will be said if it is operated by the Garda. People will complain that the gardaí are running around with speed cameras and will want to know where they are when their houses are broken into.
The crucial question is whether it will be profit-driven. I have indicated to Deputy Howlin that it should not be profit-driven because it would sour people's view of the whole system if they thought it was being operated with a view to getting rich. There must be an objective standard of public law enforcement. Profit driven law enforcement is not a good idea.
I am aware this is not the Minister's area, but rational speed limits are also necessary.
That is true.
They should not be designed to trick people.
I have often been driven on the road in question and noticed brake lights coming on all over the place as people reached it. It is well known. That suggests that the whole system of speed limits there is self-defeating. Having been driven on that road on many occasions, if the Deputy were to ask me what the speed limit is at the point to which he referred, I could not tell him.
It is 50 miles per hour.
I did not know that.
Part of the dual carriageway is a 40 mph zone. I have spoken to the NRA about it. It agrees it is bizarre.
These are being changed in September when we go over to the metric system.
Regarding Senator Leyden's point, if this is operated by civilian staff through a private company with all the flexibility of hiring and firing and getting people to do the task efficiently, it may have the effect the Deputy hopes for, that people will not perceive it is the Garda that is doing this but the Minister for Transport, Deputy Brennan, or somebody else. They will not blame the Garda and it will not affect their relationship with the Garda Síochána. They will know the Garda has a very limited involvement in the whole process.
On clamping in the city of Dublin, one could argue that what goes on now is a bit mechanical. I receive a fair number of letters from people who feel they have been scorched by late night clamping, for example, in my own area of Ranelagh. If the Garda were to do it in present circumstances people would wonder why gardaí were wandering around clamping cars instead of stopping drug selling or whatever. The clampers in Dublin seem to be very effective and have produced dramatic change. However, clamping is perhaps of a different order from what we are discussing.
We are not simply viewing this from the point of view of insurance premiums. We are talking about people's lives and horrific injuries. Road deaths are only the tip of the iceberg of the amount of injury and the numbers of young men who end up in Dún Laoghaire. That is what we are talking about.
On behalf of the committee I thank the Minister for coming here with his officials. We look forward to AXA, FBD, Hibernian and Quinn Direct along with the Hotels Federation and the Alliance for Insurance Reform coming before the committee at 12 noon. We appreciate the hard work and respect the Minister has given our inquiry. We look forward to working with him for many years to come in the effort to bring about change and face the challenge of high insurance premiums, especially given the €0.5 billion profit insurance companies made last year, an increase of 100% in the case of one company and 257% for another company. There is much that can be done.
The Minister has helped us to start our day well. We are pleased he has taken on board so many of the proposals in our first interim report and thank him again for attending the meeting.
Sitting suspended at 10.50 a.m. and resumed at 12.20 p.m.
We had an earlier informative session with the Minister for Justice, Equality and Law Reform this morning. A number of groups are making presentations today. I welcome them to our meeting. We are pleased to have them all back. I propose that we have a five minute contribution from each group. That will be followed by a question and answer session with the members. I welcome all the insurance companies, the Irish Hotels Federation and the Alliance for Insurance Reform.
I remind our visitors that while the comments of members are protected by parliamentary privilege, those of our visitors are not. Members are also reminded of the long standing parliamentary practice that members should not comment on, criticise or make charges against a person outside the House or any official by name in such a way as to make him or her identifiable. I also ask everyone, including those in the Visitors Gallery, to ensure their mobile phones are turned off. It is nice to see so many people from the media and the industry here at this meeting. The Competition Authority is also represented here, as it has been at every session on the insurance inquiry.
I welcome Mr. Dick O'Driscoll, Mr. Brian Houston and Ms Laura Booth, who represent Hibernian here today. I ask Mr. O'Driscoll to make his opening remarks.
Mr. Dick O’Driscoll
I welcome the opportunity to update the committee on Hibernian's position and to address the questions which have been passed to us by the committee. I will spend a couple of minutes talking about and refamiliarising ourselves with what has happened in this market over the past couple of years.
Two to three years ago we were in a situation where we had a poor road safety record. We did not have penalty points, we had limited insurer choice due to a lack of capacity in the market and insurer profits were perceived at the time to be inadequate to attract new capital. There was a strong claims culture in this country with high attached legal costs. The regulator, the customers or the shareholders were not happy. Everyone was unhappy with the situation which prevailed.
What type of progress has been achieved? We have had a reform agenda in operation for two years. It was spearheaded initially by the MIAB, the suggested and about to be launched PIAB, the introduction of penalty points and the contribution which institutions, such as the joint committee, have made to the debate. The early indications in the claims environment are that there has been some improvement. The maintenance and sustenance of that improvement is important. We have seen the level of settlements improve and we have seen a dip in the frequency of claims. We have seen customers taking more responsibility for their behaviour and participation in risk.
What Hibernian has done to participate in that changed environment is that we have run a number of specific initiatives which are geared at identifying the opportunities for customers who are prepared to participate in risk reduction. The first one of those is our Ignition initiative, which we mentioned here before. We have spent €6.5 million training people to participate in the ignition programme, which is free to the customer. Those customers have generated more than €7 million in premium reductions by participating in that programme. Similarly, when penalty points ran for six months from May last year we indicated our future faith in the system by saying we would introduce a 10% reduction on the first anniversary of penalty points. We did that last November and it will cost us more than €30 million annually. We had to invest significantly in our support systems. That is also the case with our risk assist programme in the commercial sector, which is geared towards enabling people to reduce their premiums through the management of risk on a system supplied free of charge by Hibernian.
I encourage the committee to consider the good news side as well as the continuing challenges. We now have penalty points. The PIAB has been established, although it is not yet operational. We have a return to profitability in the insurance sector, which is important if competition arrives.
The Competition Authority's study of our industry was important from my perspective and from the perspective of the general insurance market. The comments made by the authority should be considered in light of some of the statements made in recent years about the openness of this market. We have a new regulator who has brought independent surveys, for example, to the motor insurance market which will be constructive in the future. There has been doubt and debate in this room and elsewhere about price increases and reductions. We submit information, but people doubt it. The independence of an organisation, such as IFSRA, in surveying the market is important and we should encourage that. The Civil Liability and Courts Bill, which will soon be enacted, provides further substantial opportunities to improve the situation relating to fraud and exaggerated claims.
Where do we go from here? We cannot state often enough the need to enforce road safety. We have said that consistently since our first written submission to this committee. However, we have huge concerns that what we have seen in the first quarter of this year is a big reversal of trends. We need the PIAB to be fully supported and we intend to do that. We must not forget the court reforms, which I mentioned. The outstanding MIAB recommendations need to be implemented because a target was set by this committee and elsewhere to get a 30% reduction in premiums arising from the implementation of the recommendations, many of which have not been implemented. We need to deal with the testing backlogs on the motor side. In this regard the continuing poor performance of the motorcycle safety environment is a huge concern, especially to Hibernian.
To deal first with the committee's questions on premiums, through this year Hibernian intends to focus on further reductions in premiums, attached to the most responsible customer behaviour patterns. The return to underwriting profitability for Hibernian in 2003 followed a period of poor returns to our shareholder. These profits are attributable to an improvement in the environment in Ireland; to the Hibernian initiatives I outlined earlier; to benign weather last year; and to the underwriting actions supported by a shift in culture in which people who used to make claims are beginning not to so do.
The Competition Authority identified three aspects of the market. First, there are no restrictions on the numbers of suppliers that can exist; second, there is evidence of entry and growth in both motor and liability insurance; and, third, there is little or no evidence of price co-ordination in either motor or liability insurance markets in Ireland. With respect to the committee, we have been pushing this line for some time but it has not always been accepted.
On the question of DET returns around claims provisions, we need to focus on the fact that our claims provisions are audited externally and are reviewed by our own internal actuaries. They are reviewed by independently certified actuaries who are approved by the regulator. If there is a shortfall, as there has been in the past, a company will fail. If there is an excess in provisions, that will emerge as profits which will be taxed in due course. The track record of Hibernian on provisioning has been strong. We have been about the most accurate in the market over the years.
In response to the question of whether solvency constraints or demands are too tough in this market, I would say the regulatory requirements are not set by us; we follow them. We would have opinions on them in a different environment and we would trade in that different environment. Certainly Europe has begun to set some changes that might prevail in the local market in the future.
What is Hibernian's opinion on solvency rates?
Mr. O’Driscoll
We have followed the solvency requirements. Our opinion is that they are tough and they were tough at a time when the market was changing as rapidly as it was two years ago.
Are they appropriate now?
Mr. O’Driscoll
They are probably appropriate to a very stable environment where prices are relatively stable. I raised in November the fact that we found the re-insurance market was unaccepting of the improvements in the Irish environment. We have worked hard in the meantime to try to convince the re-insurance market that Ireland will be a better place to trade. We saw neutral renewals at 1 January but we have weather catastrophe cover renewals due today and we are seeing some improvement in rates. It is marginal but we are seeing some acceptance that the environment has improved.
We have said to the joint committee in the past that we do not set the award levels; we service whatever society and the Judiciary, which runs the system on behalf of society, demand. If, however, award levels are twice as high in Ireland and continue to be higher, we can have a better legal environment and more efficient insurers but still have higher insurance costs.
Thank you, Mr. O'Driscoll. The first time you came to the committee you gave us the one-liner we have never forgotten, that Ireland was an unsafe place in which to conduct insurance business. Have you changed your mind about that?
Mr. O’Driscoll
I have not changed my mind.
Have there been improvements which would change your mind?
Mr. O’Driscoll
We accept that the environment is improving and that is reflected, both in our new business and in renewal prices. We made that submission on the basis that we employed a reputable external consultant to bring independence to the commentary on both the road safety and the health and safety environments in Ireland. That consultant has met with a number of the people who analysed workplace safety from a different perspective. I have not seen anybody successfully challenge the basis on which those comments were brought to us by the consultant. We shared them with everybody in this committee and we also shared them with anybody outside Hibernian who wanted those data.
What is your own opinion?
Mr. O’Driscoll
My own opinion is that Ireland's safety record in the workplace is improving but I would still continue to challenge the basis on which some of the reporting on workplace safety is done.
Thank you, Mr. O'Driscoll. I welcome Mr. John O'Neill, chief executive, Mr. Pat Healy and Mr. Paul Maloney of AXA.
Mr. John O’Neill
With your permission, I will make use of the five minutes but will ask Mr. Pat Healy, our chief finance officer, to address the second half dealing with the more finance based questions.
I remind the committee that AXA is composed of what was formally Guardian Royal Exchange and PMPA. Some 85% of our premium income in Ireland is from motor insurance and 15% is from home insurance. We are not engaged in the commercial non-motor insurance business - specifically liability, property, hotel and farm business. AXA is essentially a French company with world-wide operations. It is the second largest insurer in the world.
The committee has received a five-page letter from us which goes into specific detail on every aspect of the questions it has raised. The first question related to the reduction in premiums. As I stated the last time I was before the committee, we are pleased with the way our results were shaping up and we have already reduced premiums for customers. The reduction in premiums over the past 12 months now runs at about 17%. That means we have reduced our premiums by €60 million across our motor account. In addition, we have been enhancing benefits. We have been giving no-claim bonus protection and additional benefits to our customers free of charge.
Looking forward, the key is accident-claims frequency and our experienced claims frequency. We are appalled at the increase in road deaths. It is the financial consequences of those with which the committee is concerned but we are also concerned with the human aspect and the effect on the greater community. We believe that insufficient attention is being paid to the issue of the prevention of road accidents. We have spoken about this before it was either popular or profitable to do so and we will unashamedly continue to exhort this committee, and anybody else who listens or cares, that stopping accidents happening is the issue we need to be addressing. All the rest is flim-flam.
We have shared with the committee information on our profitability trends. The committee knows that in 1999 and 2000 we lost approximately €200 million in this market. Since then our profitability has been improving, as we have signalled each time we have come here. The result in 2003 - a profit of €123 million - was a good outturn for this business but, as I have said, we have already reduced premiums to customers by €60 million and that will feed through in our results in 2004 and 2005.
Volatility is the key issue. We must satisfy world-wide shareholders that it is worthwhile committing capital to the Irish market and that they can get a reasonably steady and realistic return on capital. We are not past that bridge yet but we are working well along the road. The reception we get from our chief executive in France and from our shareholders generally is much warmer than the reception I was getting in 2000 and 2001.
What happened our 2003 profit levels? There were a number of significant issues. We must not forget about the simple issue of weather. In 2003 the weather was very benign, which was worth €15 million to AXA in Ireland. Good weather was worth that much to us. Unfortunately, we do not have a crystal ball. Last year, 2003, was the first year since 1996 in which we made any significant profit on our home insurance business. On whether we have experienced stability in the settlement of claims, there is evidence that the Judiciary is ameliorating the awards given in the courts and this feeds through to those cases that are settled out of court. This is a welcome development.
Within the Irish portfolio of business we also include Northern Ireland and this area performed reasonably well for us. We only recently took over that business and we have benefited from some profits. In the matter of the Competition Authority report, we do not feel it is appropriate to comment on a report that is at an interim stage.
I will conclude by dealing with some of the more factual questions. A question was asked about top-ups of our claims provisions. These occur when a company finds that its claims provisions are not adequate, when it has underestimated the cost of claims. Normally this happens when there is a change in the claims environment and something unanticipated happens. A company may then find it does not have enough money in reserve. In the case of AXA, we have not needed to top up our claims provisions since 2000. In 2003 we were able to release a significant sum from our prior year's claims provisions. The position has been very stable in this area.
It was asked whether, if the number of personal injury claims was reduced, the company would experience significant once-off profits because of excessive provisions. This is not the case. Provisions are for claims which have happened in the past. Any change in the future has no impact on claims provisions.
Reduced court awards surely have an impact.
Absolutely. A change in court award levels will certainly affect claims costs into the future and the level of claims provisions. Our ability to compete has not been constrained by capacity over the past two years? In that time we have had adequate capacity to compete. In 2000 and 2001 our solvency position was much more constrained because of losses in our business at the time. However, this was not the case in the past two years.
We were asked about Irish solvency requirements. We do not consider these excessive compared to other EU countries. However, a change is needed in the structure of Irish solvency requirements to relate them more to the circumstances of individual companies. Solvency levels are applied on a standard basis, irrespective of the risk carried by individual companies. There are moves at EU level to change this position and we strongly recommend that these are advanced quickly.
Over the past three years there has been a significant increase in the level of reinsurance cost. As Mr. O'Driscoll said, however, we found at our last renewal at the end of 2003 that there was a reduction in the level of reinsurance cost for catastrophe cover. That affects our household property account. The cost of reinsurance for large personal injury claims has not reduced. That has been increasing steadily in recent years.
On the level of personal injury awards in Ireland, my answer is similar to Mr. O'Driscoll's. We do not feel it is for the insurance industry to say what the level of awards should be. It is our business to match the level of awards with the level of premiums. We remind the public, however, that high awards will lead to high premiums. It is problematic for insurance companies if there is a change in the level of awards. A sudden change can make insurance companies insolvent.
I thank the representatives for their submission. I welcome Mr. Kevin Lunney from Quinn Direct, Mr. Shane Morrison, the financial planning director, and Ms Sylvia Goldrick, the underwriting manager.
Mr. Kevin Lunney
I trust everyone has a copy of our presentation. I thank the Chairman and the committee for giving us the opportunity to speak. The submission we will make today follows submissions we made last July and last November. I will try to update the committee on the trends we have experienced and the premium reductions we have had since that time. We will also make the committee aware of any changes in circumstances in the market. The format of the presentation broadly follows the questions outlined in the request for information sent by the committee.
Overall, Quinn Direct had a successful year in 2003, with 38% annual growth. So far in 2004 we are continuing to experience strong market penetration. Specifically, in this period we have focused much of our effort on the commercial insurance market in an attempt to expand that market share, and we have been quite successful in doing so. We have also brought an additional level of operational efficiency to that market.
The first point in the committee's request for information concerned premium reductions. Since November 2003, the date of the previous submission, we have reduced our average prices for private motor insurance by 5.1% and for commercial motor insurance by 8.7%. There has been a 10.1% average reduction in commercial liability insurance in the same period and a 9.5% reduction in commercial property insurance. We fully support the Government's initiatives and its reform programme and we have fully participated in that programme as it has developed.
Our average premium reduction for private motor insurance from week 43 of 2002 to week 11 of 2004 was 24%. Since week 43 of last year, the date of our last submission, we have reduced our premiums by 5.1%. The position for commercial vehicles is similar. The average commercial vehicle premium is down 22.9% in the same period over 18 months and since November of last year it has been reduced by 8.7%.
To give the committee some context, we will use the same specific examples as we used the last time, carried through the following two periods. We have given the average premium at December and March this year and the trend is of significant ongoing reductions in each category. A 19 year old male with a full licence with third party fire and theft insurance in Dublin is now charged €2,221, which is 26% lower than 18 months ago.
Moving on to commercial insurance price reductions, given our increased standing in the market we have continued our presence in the commercial insurance sector. There have been significant reductions throughout the December to March period. This trend will develop if the Government reform programme continues on its current course. The average cost of insurance for an engineering factory in Offaly with a turnover of €1.5 million and wages of €264,000 is €21,327, which is a 24% reduction from 18 months ago. There are further examples of this in property and liability insurance.
In its request for information the committee asked us specifically to comment on our results, for last year in particular. In 2003 we had a gross written premium turnover of €355 million, on which we had an underwriting return of €72 million, which was very positive. We had a €56 million investment return, which was also very positive. After tax and other adjustments, profit for the year was €113 million.
It is evident from the tables included in our submission that our profit margin has remained consistent over the two remaining periods. As premiums have reduced, we have been able to ensure our operational efficiency has carried us through. We have maintained that level of profit margin.
Specifically in regard to contributors to profit, we see operational efficiency as a key aspect of what we do. In comparison to the industry at large, we are operating on a significantly lower cost base than heretofore. Obviously, that is significant in the context of our operation and as its scale grows. We also consider claims management efficiency to be a key aspect, specifically our ability to remove legal costs from the process through the proactive handling of insurance claims.
Investment income in 2003 contributed significantly to our position, as did the reduction in claims frequency, largely through the introduction of penalty points. There has been some anecdotal evidence of moderation in court awards, which is also positive and to be welcomed.
We broadly welcome the Competition Authority report which we found to be a useful and interesting view on the industry. We reaffirm our position that fixed-fee percentages for brokers are not in the long-term interests of the consumer and ask the committee to work on this basis.
The Competition Authority raised the issue of a greater level of data sharing, about which we would have some concerns. It may give rise to anti-competitive issues but, again, that is for the Competition Authority to decide.
The second part of point No. 2 on page 8 of our submission indicates that the funding of the MIBI represents a significant cost element to the insurance industry. This is one of the issues of greatest concern to us, particularly in regard to the proportional share of the historical liabilities taken on by new entrants. This matter is deserving of review.
Moving to page 9, the committee asked us to comment specifically on top-ups. This follows the Dorothea Dowling review which accompanied the Competition Authority report. To put the Quinn Direct position in context in regard to the insurance industry at large, one will see that the first line of the table shows that there was a €322 million top-up in 2002, as per the Dorothea Dowling review. The Quinn Direct position at the same time showed a downward adjustment of €300,000. In effect, therefore, there was no movement in that context. The results for 2003 have not yet been published but we will see a modest reduction in our reserves for the previous year. The process of topping-up is not part of Quinn Direct's strategy and not relevant in the context of what we are doing. Our approach is to reserve claims correctly upfront from the initial stages or when we get the best information. We are not in the game of topping up reserves in order to manage results.
With in excess of a 10% market share and having started in the business a short time ago, we do not consider that our ability to compete has been constrained by solvency requirements or the current rules under the IFSRA. In respect of the CASS report, the solvency regime in the Irish jurisdiction is in place for the protection of consumers. We do not believe it is unduly hard on insurers. An issue of greater concern is the MIBI funding requirements for new entrants to the market. Our experience is that reinsurance premiums have increased by in excess of 50% since the events of 11 September 2001. We have worked hard to keep this to a minimum in how it is passed on to the consumer. We have done this by tightly managing the process and also by being in a position to provide for a higher excess reinsurance entry point.
Personal injury awards are too high and should be modified in line with those in the rest of Europe. Insurance fraud, including exaggeration, should be made a criminal offence. Where exaggeration is discovered, the full claim should be struck out where possible. Current practice is simply to reduce the award.
Quinn Direct remains confident in the market and continues to support Irish business. We have achieved cost efficiency in our operation that leads to a positive operating profit position. Our fast claims response and the reduction in legal costs remain paramount in what we are attempting to do. We believe we are making progress in this regard.
We place strong emphasis on health and safety at work, particularly in commercial insurance. Since we entered the market, Quinn Direct has been a key driver of change. We previously did this by insuring young drivers when nobody else wanted to know. We did it again when companies in the commercial insurance sector could not get insurance when some of the larger international players moved out of the market. We have created competition and will continue to do so in order to drive prices down because of the way our organisation operates. We have remained consistent in our overall approach and will continue to support Government initiatives.
We congratulate the committee on the progress it has made to date by highlighting issues. We will continue to be controlled by a head office located in Ireland. We consider it an important aspect that we are not controlled from Paris, Munich, London or anywhere else. We will continue to operate and manage our business from an Irish market base. I thank members for their attention.
I thank Mr. Lunney. I welcome Mr. Philip Fitzsimons, chief executive, FBD Insurance, and Mr. Adrian Taheny, director of marketing and sales.
Mr. Philip Fitzsimons
We are pleased to attend the meeting and assist the committee in its work. We recognise its contribution to an improved environment for insureds and insurers and accept that there is more work to be done. I will respond directly to the specific questions posed.
The first question was: "Does your company plan reductions in premiums in the foreseeable future?" FBD policyholders will benefit from annualised premium savings in the order of €35 million to €40 million this year as a result of premium rate reductions implemented in the course of 2003 and already this year. These reductions have been implemented across a broad spectrum of policy types and cover classes, ranging from private cars to houses, shops, farms, businesses etc. Average reductions have varied from 10% to 20%.
The committee will recall the car policy listings detailing year on year reductions which we circulated to members following our visit last November. They showed reductions in the order of 12% for renewals and 19% for new business. We are currently undertaking loss ratio reviews which point to reductions in specific risk categories. As soon as this exercise is completed, we will be moving to implement them.
We are closely monitoring claim trends. If the current favourable trends are maintained, we plan on implementing further reductions. The point has been made by other contributors that in delivering further reductions there is an agenda that needs to be advanced. We encourage the committee to support this approach. To achieve fewer road and workplace accidents resources need to be made available as a priority.
The quantum for settlements in Ireland must equalise with that of competitor countries if premium costs are to equalise. To tackle unnecessary or excessive legal costs, early establishment of the PIAB is critical. Early enactment and implementation of the Civil Liability and Courts Bill is vital to the elimination of fraudulent or exaggerated claims. I draw the committee's attention to an article in today's newspapers. We fought an attempted fraud case to the end yesterday in connection with a slip in a pub. We brought the case to the High Court and succeeded. It has now been referred to the Director for Public Prosecutions. I was asked on a previous visit about our approach and attitude. There was a suggestion that perhaps we were not being tough enough and I gave a guarantee that we would not be found wanting in pursuing perceived fraud. I am glad to report that this is the position in at least one case. Others are not reported.
The next question was: "What has been your company's experience in relation to 2003 profit levels?" The year 2003 was a very good one profitwise for the insurance company. Both shareholders and customers benefited. This is a mutual game. It was the first year in the history of the company that we had made an underwriting profit; hitherto we had relied on investment returns to achieve profitability. Unlike our counterparts abroad, that was more or less the norm in Ireland. The chart I have set out giving our results history very much points to the fact that this is significant.
I draw the attention of the committee to the fact that the motor underwriting losses we bore for the years 1998 to 2002 amounted to €85 million. In 2003 we turned in an underwriting profit of €23.1 million. Total results for liabilities for the years 1998 to 2002 indicated losses of €53 million. This was reversed last year with a profit of €11 million. Overall underwriting losses amount to €77.6 million.While it is good to move into profit, we should not forget from where we have come. Risk-takers have to be rewarded as everyone around this table involved in business is aware.
The next question was: "To what does your company attribute its 2003 profit levels?" Two elements combined to deliver this. There was good growth in our premium income - largely volume growth in new business underwritten rather than premium hikes. The other critical element was that the number of claims fell by 12% reflecting a fall in the incidence of personal injury claims and also lower than anticipated settlement and award levels. A third element which I have not mentioned but which was referred to by Mr. Kevin Lunney would be that our cost-income ratio is at the lower end of the scale. Efficiencies and productivity have also contributed significantly to our results.
We agree with your statement to the extent that major elements of the Government's legislative programme in relation to the insurance market have yet to take effect. However, as has been pointed out by others, there has been a sea change in the claims environment in Ireland during the past 12 to 18 months. We know who prompted this and who has delivered but it has to be recognised. To borrow a phrase - a lot done but more to do.
That was quite successful too.
Mr. Fitzsimons
The next question was: "Does your company have any comment on the Competition Authority report into the market?" Yes, we do. First, the report dispelled totally a number of popular myths, namely, that there was a cartel and price fixing in the Irish market - it concluded that there was no evidence to support any such suggestions - and that entry to the Irish market was restricted - it alluded to the fact that there were 589 insurers authorised to sell insurance in Ireland under the heading "freedom of services" and so on. It is an open and free market, the ultimate guarantor that excessive profits will not be earned and also the ultimate protector of the consumer. The Competition Authority made some observations on the role of intermediaries in the insurance market and, in particular, the arrangements some brokers have entered into with insurers but these observations are not relevant to FBD as we are predominantly a direct sell insurer not reliant on the intermediary channel.
The next question was: "Has your company any comment on Ms Dorothea Dowling's finding in her examination of the 2002 Blue Book that it is difficult to justify the recent levels of top-ups? It is appropriate to comment on FBD's position only. An independent actuarial evaluation of our outstanding claims for all years as at December 2002 and 2003 was undertaken in accordance with regular requirements but it did not differ significantly from our own reserve figures. Essentially, it confirmed that they were at prudent levels.
The next question was: "Are Irish solvency requirements excessive when compared with requirements in other EU countries?" The basic solvency calculation is more or less in line with that in most other EU countries, although I have not studied it in detail. From a regulation point of view, the two critical elements are the level of comfort margin for which the Irish regulator looks above and beyond the actual solvency margin arrived at in accordance with the calculations. What is the level of this comfort margin compared to what other EU regulators would look for? It may well be that it is above and beyond what others require.
The other question on solvency was: "Are there any differences [I have not studied them] between the Irish regulator and the EU regulators regarding the nature and the admissibility of assets for solvency calculation purposes?" Again, we abide by the regulator's diktat but it may well be that the rules governing the assets which are admissible and the levels differ between this jurisdiction and elsewhere. Others around the table may know more about this than I do. Mr. Pat Healy has mentioned that a new EU directive on solvency is in the pipeline designed to apply new criteria and achieve consistency in solvency calculations across member states.
The next question was: "Has FBD's ability to compete being constrained by capacity over the last two or three years?" The answer is no.
The next question was: "What, in FBD's experience, is the current trend in reinsurance costs?" Our rates increased in 2002-03. For 2004 we saw further increases in motor and liability rates in the range of 5% to 10%. The trend, therefore, has continued upwards. Property reinsurance rates have remained more or less comparable to those in previous years. In response to the increased reinsurance costs we have upped our retention rates, of which the corollary is that we accept more risk.
The next question was: "Does your company believe that Irish personal injury award levels should be reduced?" There is a matter on which politicians may wish to deliberate. The baseline for injury settlement levels is ultimately determined by court award levels. In many respects, the courts also set the baseline in apportioning the level of negligence and liability as between plaintiffs and defendants. Society must form an opinion on whether it is prepared to support, through the payment of premiums, the levels of awards which our processes deliver. Should the Judiciary reflect society's wishes in this regard? Who interprets and conveys society's wishes to the Judiciary? Is it the Oireachtas, or is legislation the only way society-the Oireachtas can give direction to the Judiciary? Our view is that society could not have continued to support the award levels that obtained historically as the position had become unsustainable economically. FBD believes businesses and personal consumers desire to have the lower premium levels enjoyed in other EU member states but the only realistic way of achieving this is by reducing awards to the levels that apply in those countries. This also embraces less favourable apportionment of negligence for plaintiffs.
The next question was: "How does FBD believe that a reduction in award levels can be achieved?" The answer is the operation of an Irish book of quantum based on award levels that apply in other EU member states. That is the only realistic way of achieving parity, thereby reducing Irish award levels.
I thank Mr. Fitzsimons. The delegations took almost one hour to make their presentations. We have a lengthy submission from the Alliance for Insurance Reform, but we do not intend to call you because we do not have time. We want to afford you the opportunity to ask questions, which is more in your interest. I welcome Mr. John Power, chief executive of the Irish Hotels Federation, and Mr. Dick Burke, president of the Irish Hotels Federation. I must declare an interest as I am a hotelier. I ask Mr. Power to give us a short summary of his submission because we want to have a question and answer session.
Mr. John Power
I thank the committee for inviting us back to update it on what has happened since we were here last June. In our submission last year we placed emphasis on the absolute necessity to address the claims costs which have contributed to Ireland becoming an unattractive market for underwriters and businesses having to pay such a high level of insurance. We focused on the high level of awards being made in Irish courts. When we compared those awards with similar awards in other jurisdictions and the high level of costs, we realised we were operating in a most unattractive market. We must pay tribute to the profile given by the chairman and the committee to the difficulties in the insurance business and the impact they have had on the environment in which we now operate.
We are monitoring on an ongoing basis the insurance renewal premiums with which our members have been faced. There is a positive message in that regard about which I will comment later. It has taken 12 months to notice the effect of the change in this environment. In the period from last April to October premiums continued to increase, albeit at a lower level than in the previous three years. In our last submission we said that in the previous four years there had been a 351% increase on average in insurance premiums in the hotel sector. The increase during the period April to October was approximately 7% and that was taken across a large number of premises. As we moved forward into the period between November and February - I am highlighting this period for a reason - the average renewal premium in the sector showed a reduction of approximately 19%. Our survey showed the highest reduction was approximately 37% and the lowest was the same as the previous year. However, in March and over the past six weeks there have been substantial reductions in the market. Insurance premiums in this period have been reduced by an average of approximately 46%. That is a substantial improvement.
That was in March.
Mr. Power
Yes. Many hotels renew their insurance in the March, April and May period. In general we like to focus on the reasons for these reductions. New underwriters have come into the market. They are attracted by the change in the claims culture, the positive action taken by the Government, particularly the Tánaiste and the Minister for Justice, Equality and Law Reform, the profile given to the insurance environment by this committee, the establishment of the PIAB on a statutory basis and the publication by the Minister for Justice, Equality and Law Reform of the Civil Liability and Courts Bill. However, the current level of premiums must be viewed in the context of what is happening in our nearest competing countries. Even at this reduced level, we are still approximately 50% higher than the UK and about four times higher than countries such as the Netherlands.
There is much more to do. Excessively large awards are still being made by the courts. The brief to the Personal Injuries Assessment Board, which is due to come into effect on 1 May, should be immediately extended to the public liability sector and to employer liability claims. Approximately 75% of claims in hotels and guest houses are public liability claims. The book of quantum for the Personal Injuries Assessment Board, which will also be published, should take cognisance not just of the awards being made here by the courts but also the awards being made in the countries with which we must compete, as Mr. Fitzsimons said. If we do not do that, we will only do half the job. The Civil Liability and Courts Bill, which was introduced in February and has gone through the Seanad, should be enacted as soon as possible. We urge the committee to use its influence to ensure its speedy enactment.
In its interim report last August the committee recommended that the Competition Authority should publish its report, which has been done. There are two recommendations in that to which we refer. Some 70% of our members in the hotel and guest house sector own small family premises with fewer than 50 bedrooms. They do not have the same muscle as some of our larger members to deal with insurance brokers and companies. The present system of ad valorem fees or commissions payable to brokers gives them a perverse incentive in that the lower the price secured by the buyer of insurance, the less the broker earns. That practice must be terminated and a more appropriate system, which remunerates brokers based on their performance, should be introduced.
The second issue raised in the Competition Authority's report is the insufficiency of time given to the insured to seek alternative quotations of renewal time. I know it is now a regulation that motorists receive 15 days' notice of renewal with a certificate of no claims bonus. In view of the complexity of business insurance, particularly liability insurance, there should be a renewal notice period of approximately 60 days with appropriate claims also being made available. That would allow the insured to seek alternative quotes with his or her existing broker or with other brokers or to do it himself or herself.
Based on the discussions we have with our members, the most effective driver of the reduction in insurance premiums over the past year, particularly over the past few months, has been the entry into the market of new insurance companies. I refer in particular to Quinn Direct, which has made an impact in the hotel sector, St. Paul, Wellington and some of Lloyds' syndicates. In addition, the existing markets have reacted to this competition by reducing premiums.
In response to suggestions made in the first report of the joint Oireachtas committee and the recommendations of the tourism policy review group, which has reported on the tourism industry in the past six months, the federation is evaluating the possibility of setting up a self-insured fund. In evaluating this possibility, the preliminary response in the questionnaires issued by the consultants shows that the ratio of claims to insurance premiums over the past three years in the tourism sector is approximately 18%. That is a small sample which may be weighted towards people who may have been aggrieved by their experiences and who, therefore, have a greater propensity to reply to such questionnaires. However, it is a marker which we must address. There is a serious disparity.
We give an undertaking that over the next two years we will continuously monitor the level of premiums in our industry and we will report back to the committee at a suitable opportunity. A substantial amount has been done in the past 12 months, but an enormous amount must still be done. We must focus on this area.
I thank Mr. Power. Your organisation assisted the committee in carrying out research and it had the highest increase of any sector which came before us, namely, an increase of 350%. Mr. Power said that in the past month some members experienced a decrease in their premiums of 45%. That is based on the 2004 figure. However, the increase for the period 2000 to 2003 was 350%. Am I correct that the net increase from 2000 to 2004, including the 45% decrease, is still 150% to 200%?
Mr. Power
Yes.
It is still 50% higher than in the UK.
Mr. Power
Yes, on the new figures.
I welcome Mr. Barry English from the Alliance for Insurance Reform and Mr. Mark Whitaker. We have a lengthy submission from your organisation. I ask the delegation to make a short introductory statement and then members will ask questions. If you or the industry wish to ask questions, I will allow that under standing orders.
Mr. Mark Whitaker
I will be as brief as I can.
Your submission could take an hour, but I do not want that to happen because members want to ask questions.
Mr. Whitaker
The purpose of the Alliance for Insurance Reform is to achieve a significant reduction in the cost of liability insurance for our members. From our perspective, insurance companies have approached the area of premium reduction for business policies with all the enthusiasm of turkeys for Christmas. In our view, headline reductions such as we are hearing are being directly focused at consumer based products. There are only two words that appear to apply in insurance. One is greed and the other is panic. Greed has been hugely evident since 11 September 2001 and shows no sign of abating.
We are not saying that there is a conspiracy afoot, nor do we say that from an economic point of view there is a monopoly, duopoly or what other type of "-opoly" might apply. However, we are saying that this is not a competitive market. There are a number of reasons for this. First, the amount of underwriting available for a significant number of industries is not adequate to cover the level of demand. We have clear evidence from within insurance companies that they continue to blacklist significant areas of business despite repeated public claims not to do so. Second, the companies are using the brokerage system to ensure that clients do not have full access to the marketplace. In a recent survey of our members, some 20% had not received any formal renewal notice from the insurance company or broker concerned. These businesses simply received a telephone call from their broker, either on the day of renewal or in some cases a number of days after renewal, to advise them of the level of premium they were obliged to pay. Over 50% of those who responded indicated that they had failed to get a second quotation where they had set out to do so. Only 20% knew what fees they were paying and less than 7% were aware of the general structure of fees, loss ratio bonuses, capacity bonuses and soft commissions.
The role of brokers must be clarified. Do they represent the clients or the insurance companies? Most of our members believe that the broker's job is to provide them with the best value package. It is clear from our investigations that this is not the role brokers are delivering. Legislation requires that brokers are registered as multi-agency intermediaries. A list of the companies they represent will be displayed on some certificate or plaque in their offices. However, most clients are unaware of this and believe that their brokers have access to all insurance companies, which is clearly untrue, and that if they have tried one broker, they have tried all the options. My personal experience has indicated that the likelihood of getting a second quotation increases substantially if the client first submits the brokering to tender, that is, one first selects the broker on the basis of his or her ability to get a second quote. The lack of a legislative requirement on brokers to disclose commissions, fees and bonuses is unsatisfactory. Brokerages should be obliged by law to clearly state in correspondence what insurers they represent and what commission and bonus they are being paid.
We also believe that the market is uncompetitive because of the process of insurance renewal. It is clear that many of our members receive no renewal notice and none of them receive the back-up from the insurance company. We strongly recommend that insurers and brokers are required to give a minimum of eight weeks' notice of renewal terms in the case of business insurance, that the renewal notice is given in a statutory format so that it can be understood by the clients and that, by legal right, it should be accompanied by a client's claims experience for the previous five years.
One of the principle obstacles in moving underwriter is the need to get certified confirmation of claims experience. Delays, real or artificial, in this process ensure that the policyholder will not get an alternative quotation and this is evident in the results from our survey. The claims history of any of our members is the property of our members and they should receive a certificate as part of their renewal process.
Many of the insurance companies would say that it is too early to state with certainty whether general claims have fallen. As of today, our own company is carrying risk in excess of €12 million. Although I am not an expert, I immerse myself in our claims experience every day and it is clear to me that it has changed fundamentally in the past two years. Why will insurers not admit it? The reason is simply that they have never had it so good. The proof is in the results. Four significant underwriters in the market have reported total profitability in excess of €500 million.
We have taken FBD as an example and I apologise to FBD for doing so. The profits from FBD's insurance business have risen from €25 million to €94 million. FBD is now making a profit of 32% of net premiums, and that is after administrative expenses. The profits for the company's technical account do not agree with the figures given earlier - they have risen from €22 million to €88 million, a four-fold increase in underwriting profit - while its claims ratio has dropped from 92% to 67%. While shareholders could congratulate FBD, customers would not be happy. The investment income is back up and running, at €34 million.
Insurers can no longer find any more places to hide results, and the profits, and particularly the margins, are now staggering. Greed is alive and well and shows no sign of abating. The alliance believes that the level of profits currently being reported represents super profits and if urgent action is not taken to reduce premia for businesses, the Minister for Finance, Deputy McCreevy, should apply a windfall tax, as he has done with the banks, and put this revenue to some good social use. I thank the committee for the opportunity to make this short presentation and for the great interest it has taken in this area.
As FBD has been highlighted, I will allow Mr. Fitzsimons the opportunity to respond now or following members' questions.
Mr. Fitzsimons
To respond immediately, one figure that is ignored is what I have already stated we will give back to policyholders in terms of annualised costs. The reductions that were implemented on an annualised basis to date will deliver €35 million to €40 million back to our policyholders.
How will that impact on the figures Mr. Whitaker has just given?
Mr. Fitzsimons
It will reduce them and we are looking to increase our volume of new business to replace that. In other words, if our book was to remain static with our existing policyholder count, we anticipate a significant reduction in our top gross premium written level.
FBD's submission states clearly the experience from 1998 to 2002. We are coming to a new stage of this inquiry and our timing could not be better. We have taken on board the views in the statements. Mr. Fitzsimons, do you wish to continue?
Mr. Fitzsimons
I have also explained what has driven that profit. I stated there were two elements to it. There is premium growth of new business but our claims incurred charge reduced. The degree to which the latter is a one-off element going forward is up for debate. Any prudent insurer would wait a little to see how developments progress.
I have explained what drove it. There were three elements and I repeat them: first, the earned premium growth which was driven by big business volume counts going up; second, the reduction in claims costs which have been recognised by everyone; and, third, our productivity and cost deficiencies. They all combine.
Mr. Whitaker
One might say in response——
Members may ask questions now that everyone has made his submission. In fairness, FBD was mentioned by the Irish Hotels Federation as one of those playing a major part. I am not taking the FBD's case here, but I want to make sure everyone is given a fair overview because there is a strong presence from the press at this inquiry. The Competition Authority and many other interested parties are also represented at all these public hearings.
Where does one begin? I am impressed by the Chairman's sense of fair play. We have spent nearly two years focusing on insurance. We have looked at every sector and every player in the insurance market. The consensus is that, by and large, every participant is moving to take up some of the slack and to try to reach the objective of pushing down premia. I have yet to be convinced that a proportional response is coming from the insurance industry. This opinion is backed up by the comprehensive written submission from the Alliance for Insurance Reform. Four of the big players in the insurance industry made profits of €500 million last year. Those who came before us representing those companies last year described a dysfunctional market. This was before the legislative implications of this committee's recommendations had taken effect.
As a committee, we have contributed to the culture change that has reduced the volume of claims - a reduction of 20% in personal injury applications to the courts last year, if we are to believe the Law Society's announcement in January. Specific evidence was given to us by the Tánaiste yesterday that the value of awards in the courts has also decreased.
Nobody is against profit, but there is a fair question for us to address to the insurance industry representatives. Mr. O'Driscoll says there has been some improvement in claims and settlements. FBD had a 257% increase in profitability last year; AXA had a 100% increase; and Hibernian had an 83% increase. All these are wonderful figures for the companies, but if we are to continue to drive for further reforms there are questions that must be asked. Legislation in the legal area, which has been described as draconian, is coming before the Houses. To ensure that the premium payer gets a fair deal, we do not want the insurance companies simply to pocket the increased profit. That is in nobody's interest, including that of the insurance companies, in the long term.
Mr. O'Driscoll was the first person to comment on the improvement in claims settlements. Will he tell us whether the improvement in profitability was fairly passed on to the premium payer last year? Mr. O'Driscoll stated that claims provisions for existing claims are audited, while Mr. Healy says the companies must make provision for existing claims on that basis. However, the existing provision was made on the basis of awards that were considerably higher than they are currently. Is the provision still reasonable or is it excessive? It was put to us by others that this is simply a way of hiding away money that the companies do not want the public to see as profit.
It is always invidious to talk about individual companies, but many of the people buying insurance are telling us, as has Mr. Power from the Hotels Federation, that the involvement of Quinn Direct has brought about significant change in the insurance market. Mr. Lunney said that the most significant factor in his figures was operational efficiencies. I am interested in addressing this issue with the other companies. Are there operational efficiencies - a large phrase which covers a multitude - that can be engaged in? I am sure this is being considered all the time. This could make further reductions in premiums possible.
I could ask 40 questions, but I will confine myself to four. My last question is about brokers. We have debated with many groups the percentage rate of payment for brokers. Will that continue? Is it fair? What is the attitude of the insurance companies who avail of brokers to sell their products? I would be interested in the response of the insurance companies to the presentation of Alliance for Insurance Reform about brokers. Do brokers work in the interest of the company or their client?
Mr. O’Driscoll
I will begin by addressing the first question raised about the improvement in claims and claims frequency. We saw in the volume business class, which represents most of our business, a frequency reduction of 12% to 15%, depending on the class of business, in 2003.
What is Mr. O'Driscoll's experience in the first quarter of this year?
Mr. O’Driscoll
It is flat. We have seen a small increase in third party claims in the motor market but we do not yet see the sort of negative trends that the number of deaths and serious injuries on the roads would indicate. We are optimistic that if we can get to grips with what is going on in enforcement, we will not have a reversal of those trends. We all accept that this reduction resulted from an environment in which the frequency was completely out of line with that experienced in the rest of Europe. There is more to be gained through better risk management and better enforcement on the roads.
In the matter of passing on improved results to the customer, I explained that we had spent a lot of money in advance of those improved results in training people to participate in risk management. We have clearly said that if we can maintain these trends we will seek to pass on further reductions to the most responsible customers. We are finding this very positive. Not only has it contributed to our profit but, if one considers the inexperienced driver market as an example, it has had a material impact on the average premium paid by a 21 year old with a one year licence currently compared to two or three years ago. The insurance companies are a vested interest, as is AIR. I encourage the committee to use benchmark-independent numbers when comparing numbers.
We are constantly under pressure from our shareholders to demonstrate efficiency. We are about the lowest cost provider in this market. Relative to other markets, the Irish market is not in a bad place. There is significant further opportunity available in the Irish market if the various authorities, such as the Department of the Environment, Heritage and Local Government, co-operate with insurers to introduce more automation in the motor insurance and taxation renewal process.
We have also been through an integration process with a number of companies - General Accident, Friends First General, Hibernian and Norwich Union - to create our current company. That all happened in the period from 2000 to 2002. We took out about 30% of the operating costs of those companies in the amalgamation and we run a tight ship.
The Deputy asked a question about brokers. This ties into the presentation made by Mr. Whitaker about AIR and brokers. He cited a particular class of intermediary, MAIs. The majority of business in the commercial sector is done by AAs, authorised advisers, who are obliged under their licence to provide advice on the whole market, not those markets for which they have agencies. They must provide advice on the entire market.
The role brokers play varies enormously, depending on the company with which they are doing business and the type of risk involved. In a significant sized company where there is an internal resource, the finance director plays a key role in the appointment of a broker, the management of that broker and in demanding from the broker a service which the finance director believes is appropriate to the needs of the company. In balancing between commission and fee, IFSRA, as the regulator, will ultimately decide what is the appropriate approach and Hibernian will be happy to comply with whatever that approach is. However, it must be understood that one will get the advice one pays for. My main concern is that if one drives to a point where there is no margin in it for the adviser, one will get poor-quality advice.
However that is managed, we are comfortable with and will participate in whatever IFSRA decides is the correct way to service that market. I believe it requires further examination, as indicated by the Competition Authority. However, there is a clear cost to be paid for poor advice. One of the benefits brokers bring to the situation is that they have their own insurance available to customers if they fail to give correct advice and customers can have recourse to that insurance if they find themselves with poor cover.
What about claims provision?
Mr. O’Driscoll
I can only restate the position. Hibernian has a strong track record on appropriateness of claims provision. It is not in our interest to find ourselves seriously out of kilter on either side. It has been, perhaps, comfortable for people to assume that claims provisions are how people manage results. We have auditors and independently-certified actuaries. We appoint them but the regulator approves them. Is there a doubt about the ability of those people to do the job they are tasked to do? We do not doubt it and we are comfortable that we have a strong track record in that regard. If we are over provided, ultimately the State will benefit through profits paid when those over-rovisions emerge.
We are interested in the policyholders being able to avail of them in the future as well. That is the committee's priority - to see that the policy holders can get an affordable policy. We know that in the case of employer's liability, small industry, small business and family-run businesses have had their backs to the wall for the past three or four years and that cannot continue. I thank Mr. O'Driscoll for responding to Deputy Howlin. Did Mr. O'Neill wish to make a point?
Mr. O’Neill
I go back to what I have said on a number of occasions. There is a danger as we progress through these inquiries that we will try to boil the ocean. There are always new culprits for the unhappy situation in which we find ourselves. It might be lawyers or insurance companies and now it is brokers. We are losing the plot somewhat. The cost of insurance is related to the number and the cost of claims. If we apply ourselves to stopping claims occurring, this burden will be reduced and it can be made transparent.
The question is the profit margins. Accidents can be reduced to zero but if the premia are not reduced, the insurance profits increase. That is the question.
We have heard that statement previously and we are taking it into account.
We are dealing with those issues.
We are on phase 2 of the interim report and we are dealing with the profit margin in the context of the policyholders not receiving a fair deal. That is what the discussion is about today. We have a 2 p.m. deadline and I have no wish to adjourn and recommence in the morning. However, it is not looking good at present.
Mr. O’Neill
Let me address the specifics. We have already stated that we are reducing premia by €60 million. That is real money. The representative of the Irish Hotels Federation, Mr. John Power, has said that in March and April hotels are experiencing unprecedented reductions in premia. Dare I suggest it is because the news of the profitability of the insurers has leaked out of this market and, voilà, there is competition? This is no mystery. This is competition at work and account should be taken of that.
The other issue is operating expenses. We employ 800 people in Ireland. We could transfer those jobs to Bangalore tomorrow or next week and we could reduce premia by approximately 1% if that is the desire of the Irish public. AXA has the lowest expense ratio worldwide——
The parent company would make that decision if it believed it would make more profits. I doubt the view of the Irish people would matter.
Mr. O’Neill
If we had continued to make the type of losses we made in 1999 and 2000, I would not be sitting here. Hopefully, I might have secured a job with some of my competitors who seem to be doing such a wonderful job but I could not have guaranteed that. I will ask my colleague to deal with the issue of reserves.
Deputy Howlin asked about the award levels. There has been much confusion about the level of awards falling. Compensation awards in this country have a number of different components. They include wages, both in the past and in the future, medical costs, both past and future, and general damages, which is the award given for pain and suffering. Certainly, compensation for wages and medical costs has not reduced but increased over the last number of years. There is some evidence that compensation for general damages has levelled and reduced. It is extremely difficult to say by how much it has reduced because there are huge regional variations, there are variations from one court to another and from one judge to another. The absence of a book of quantum makes it extremely difficult to interpret this. However, we agree there has been some reduction in awards for general damages but there is a danger that this reduction in award levels might be overstated.
Our third party claims in our motor book this year, in the first quarter, are up between 12% and 13% on the same period last year.
The good news is that we have this room until 4 p.m. I have a question on commercial motor insurance. I clearly understand Quinn Direct's presentation on commercial motor insurance. Mr. O'Driscoll, what reduction, in percentage terms, did your company have last year on commercial motor insurance?
Mr. O’Driscoll
Commercial motor insurance is split between two components. There is fleet insurance and there are individual commercial vehicles, normally own goods only carrying vehicles. In 2003, we had a reduction of 7% on own goods only vehicles and a reduction of 12% on our fleet policies. Our experience with fleet insurance is that we are losing business significantly against the competition at those rates. Depending on who is participating in that market and in the individual commercial vehicle market, we have seen in the first quarter of this year one or two existing players in this market reducing prices significantly. They are not necessarily Hibernian. We have seen choices at much lower prices emerge in the last two months.
Mr. Fitzsimons
At present, we are a small player in the commercial motor market. People talk about reductions but it depends on where one is starting. If one's rates were already comparatively low, the reduction would be less. Reductions per se are often an indicator of higher levels to begin with.
Can you give me figures for a three-year period? Will you come back with them?
Mr. Fitzsimons
In our commercial farm account - Land Rovers, Range Rovers and so forth - we have implemented reductions in much the same order as for private motors. We do not do much fleet business or anything of that nature. We are not a player in the market.
Mr. O’Neill
The premium rate reductions are approximately 17%. The market in 2004 is becoming uneconomic, so we are stepping back from the fleet business. As regards our premium rate reductions, there are other players prepared to write the business at 30% to 40% lower. Our actuarial calculations do not give us confidence that our solvency can bear that. We are losing business, which is a function of this market.
I gather you, Mr. Whitaker, are an expert in fleet requirements.
Mr. Whitaker
As regards what Deputy Howlin said, there has been a triple benefit. There has been a decrease in the frequency of accidents on the roads, in the number of personal injury claims arising from those accidents and in the cost of settling each of those claims. We are seeing a dramatic and significant shift in the number of accidents, the number of times we get personal injury claims from each of those accidents and the cost of settling those claims. There has been a significant improvement in claims experience in the past two years.
Mr. Barry English
I cannot understand the point about competition. All the insurance companies welcomed the report of the Competition Authority which stated that there were no restrictions or price fixing. However, I always understood that to join and grow in a market one had to be competitive. Mr. Lunney from Quinn Direct said that his company grew 38% last year as a new entrant. From speaking to his chief executive, it was the company's lowest growth since it started. However, growing at a minimum of 38% a year, a company could make a profit of €72 million and €355 million, which is wonderful. There is no competition. FBD made a profit on underwriting, not investments, of €89 million and €350 million last year. These are the figures we can discuss because they are Irish-based companies. Unfortunately, we cannot examine the figures for Hibernian and AXA because of their overhead structure. Phenomenal profits are being made. How can anyone argue there is competition in the market? We are disappointed about the €50 million being given back. The figures we are quoting are from the published financial statements. Has a provision been made for that €50 million? Will the company revise the figure of €89 million for last year? Is that figure of €89 million incorrect in the financial statements?
Mr. English should address his remarks through the Chair.
Mr. Fitzsimons
All these figures are a bit dangerous. There is no dispute. We have disclosed our level of profits, which we submitted to committee members. I have already made the point that we are budgeting to return to existing policyholders on an annual basis premiums of approximately €40 million. That will impact on the profits we would otherwise have. We work in an open, free market. However, competition puts pressure on margins. That is what we talk about. If people are patient, there will be a margin which will be sufficient to reward the capital put into the business. That is the way the free market works. It is already beginning to work. Mr. John O'Neill said that AXA has stopped competing and is letting commercial business go because it does not make sense on its actuarial valuation to charge the premiums of other competitors. That is the free market in operation. One is talking about one year. One should look at the blue book figures and at the trend up to 2002, which showed continuous losses. Certain circumstances have delivered the spike, but it is a question of where that will level out. Capital and risk takers will move in if they see excessive margins. That is already happening in terms of segments which they perceive as being excessive.
We accept that.
Mr. Fitzsimons
That is the way it is working.
We are all here for the long haul and to be responsible. Certainty is part of the insurance industry. I am sure you appreciate that we must hear both sides of the story.
Mr. Fitzsimons
I accept that.
We appreciate you coming here today. We are trying to organise Allianz to come here before we publish our second interim report. You published your figures, which we can see. However, Allianz has not published its figures yet. We must consider that when it comes before the committee.
Mr. Fitzsimons
It is only two or three years ago since this market was in turmoil because of the demise of a player who undercut the market rates. The climate has changed but I am sure there are business people in this room who experienced the horror of being left without insurance and had to face claims. The issue of run-offs was mentioned earlier. They are published. The history of tracking the performance of companies and their record on provisioning is available for people to see. People should examine that to see where companies stand, their accuracy and to ascertain their history and track record.
As regards what Deputy Howlin said and what was in our interim report, the people here today came to us last year because we were your conduit to the Government. We asked you what we could do in terms of trying to make things better from everyone's point of view. The request was for four Bills. That is being organised and I hope they will be law by mid-summer. The penalty points system has been a great success. It may not have been monitored the way the committee would like, particularly in the past two to three months. We will include that fact in the interim report. The monitoring of the regulation will help to significantly reduce the number of accidents.
I welcome the delegation to the committee. At one of our first meetings it was stated that insurance costs were high and that new players would not come into the market because the cost of awards was too high, there were too many fraudulent claims, safety at work was an issue, too many people were speeding on our roads and legal fees were too high. The Chairman mentioned the four Ministers involved and the fact that the four Bills have almost sorted out those problems. We are glad there has been a small reduction of 7% to 10%. However, that is not sufficient. We want a reduction of 30%. The book of quantum will recognise the courts in future which should help in terms of costs. Penalty points have now been introduced for dangerous driving. More cameras will be installed to monitor such offences. That should help to alleviate the fears of insurance companies.
Brokers were mentioned. Perhaps it is unfair to ——
The Deputy should ask a question.
What way do insurance companies pay brokers? We have been told that if they do not have a certain amount of volume, they will not be kept by insurance companies. There is no point, therefore, looking for a second quote.
If people shop around, they will get reduced insurance prices. However, why should people have to shop around? Why are they not given reduced prices when they renew their policies? If people say they will shop around, insurance companies are immediately able to give them a reduction. Why can they not give people a reasonable quotation at the beginning?
I will not repeat what has been said already. I want to discuss brokers, which we have been dealing with for two years. The only seismic shift is the restoration of profits to the insurance companies. That might not be bad in the short term because it might encourage other players to get into the market, which might create the competition required in the industry. There have been premium reductions in the past 12 months, but they occurred after huge increases in the previous 18 months. The shift has not been great in that regard. People can get substantial reductions in their premiums if they shop around. I have heard you, Chairman, on numerous occasions exhorting the public to shop around and to ensure they get the best possible value.
The problem arises with the brokerage system. Brokers are part of the community in many parts of the country. They are family friends and that generates loyalty to the brokerage firm. Unless we deal with that issue, there will not be proper competition. A large percentage of people will continue to deal with brokers. If all insurance companies do not participate in the brokerage system, there will be a problem. The brokerage system must be carefully examined. Brokers must act solely for the benefit of the consumer. It must be clear to the consumer how much the broker charges for his or her services. Unless we deal with that issue, we will have serious problems in terms of competition. I would like Quinn Direct to comment on its reasons for opposing the brokerage system. Unless we deal with this issue, we will not generate the competition required.
Mr. Lunney
As regards brokerage, Quinn Direct is of the view that there is a place for brokers in the market. They have been the mainstay of certain elements of society for a long time. We do not have an issue with that and we work well with brokers. The fact that brokers are paid commission by insurance companies does not encourage the broker to act in the client's best interest. The simple basic rule of the business is that one should not be paid by the insurance company on both sides. The only right way is to introduce legislation which ensures that brokers can only be paid on a fee based structure and by the client for the service they offer. There is a place for brokers and we deal successfully with a large number of brokers. However, we must deal with the situation as we find it. We stated that during our last submission and we reaffirm it today. That was complimented by the Competition Authority.
Are you happy that all brokers carry your products?
Mr. Lunney
The situation has improved since the last time we were here. The products we offer are now more attractive. As we grow in scale, our presence and our marketing ensures that clients now ask for our products more than they would have done in the past. That situation has improved. We are not complaining about this. We are growing our market in the commercial arena significantly. This is not constraining us, but we made the point at the last committee meeting that in the long-term interests of consumers, this is the only right and proper way for the process to work.
Mr. O’Driscoll
I would like to make two points to the last two Deputies who spoke. The first concerns shopping around. You, Chairman, and the committee have rightly identified to the consumer that shopping around is important. There has been much surprise in the media about the range of prices for individual risks, particularly after the IFSRA motor price survey was issued. If one goes back to the days of the coffee shop and the original Lloyds' syndicates one will note that the business of insurance is about different people having different views about the cost or price of a risk. That is why it is important for the consumer to shop around, but it also explains why a premium may be €1,000 in one organisation and €500 in another. People must understand that is not surprising, but that it is the nature of views of risk.
The second issue I want to bring to the committee's attention is that there may be impatience about the fact that we as insurers factor in all the future benefits from the legislation which has been and will be enacted. It is not long ago that insurers lobbied for the abolition of juries and, unfortunately, our shareholders remember that. A number of companies factored into their pricing what they believed to be the future value of that abolition. That led to a difficult position in the motor market for a number of years. There is some natural caution, although I understand the frustration of Deputies.
Mr. O’Neill
I will address a couple of the points raised. I know other companies referred to price reductions of single digits, but our price reductions were 17%. I will give the committee an interesting number which might throw a little more light on this subject. We have approximately 400,000 private car policy holders. Our average premium in 2000 was €760. Our average renewing premium in 2004 is €800. That is a 5% increase between 2000 and 2004. I cannot explain what the committee or anyone else thinks about our business. I can only tell the committee the facts from our records. In 2002 our average renewing premium was €960. What happens in this business is that we react to the unfolding scenario. We are already giving those reductions. You, Chairman, and the committee tell me that we asked for certain things. However, they are not in place yet. The penalty points system is not working. We have only to look at the number of deaths on our roads. There is no enforcement.
The numbers decreased in the first 12 months.
Mr. O’Neill
There has been a 37% increase in the number of deaths on our roads this year.
Yes, but there was a decrease in the previous nine months.
Mr. O’Neill
When the penalty points system was enforced, there was a significant improvement. We are ad idem on this issue. We know it will work.
We addressed this issue with the Minister for Justice, Equality and Law Reform today.
Mr. O’Neill
A 5% increase over four years is not extortionate, Mr. Whitaker. What do your prices go up by in your business, Mr. Whitaker?
Mr. O'Neill should address his remarks through the Chair.
Mr. O’Neill
I apologise.
You said, Mr. O'Neill, that your prices went up in 2002, but they are decreasing substantially in 2004. However, it is a 5% increase over the four year period.
Mr. O’Neill
Yes.
The committee can report progress in that regard.
Over two years.
Mr. O’Neill
No. Taking the average premium between 2000 and 2004, there has been a 5% increase.
They went up and down substantially.
It is perverse that most of the discussion this morning revolved around the profits of insurance companies. There seems to be a view that insurance companies must make super profits or everything is not all right. They decreased for a short time, but they are increasing again. That seems to be the focus of insurance companies. That is difficult to accept, particularly when one considers that companies with which we deal on a daily basis must borrow to pay their insurance premiums. That is the type of environment in which companies, small businesses and individuals must operate. Can we move away from this idea of talking about those super profits and the view seemingly held by the insurance companies that they have a God-given right to them?
I would like a direct answer to a question about an issue raised previously. Mr. O'Driscoll referred to the matter but he did not answer this element of it. How can the insurance industry justify a situation where a customer can have his or her premium reduced by shopping around and can then end up with the original company reducing its quotation massively as a result? How can an insurance company massively reduce its quotation for a client based only on the fact that he or she has shopped around? That is a shadowy way of doing business.
A year ago this was probably the most prominent issue. It occupied the minds of many people and businesses and caused a great deal of worry. We have taken great steps to ensure that costs have reduced.
I noted with interested that Mr. O'Driscoll pointedly stated that we do not accept some of the facts laid before us. Last year we met these groups and we reported in August. It did not take the 31 December annual results to show that, collectively, the insurance companies had made over €500 million in profits. It was not something that happened on the last day of the last month of the year. They knew when they were talking to us last year that they were having a particularly good year, yet they never indicated this.
Even though it may go against the grain of the underwriting companies here, what evidence is there for major competition coming into the marketplace? What I want is a vigorous cut-throat market because my concern is the consumer. Is there major competition emerging in the marketplace?
I apologise that my attendance was delayed by another meeting. I am impressed by the attendance of so many distinguished leaders of industry. Through the work of this committee and the industry, we have made progress. Let us recognise that and look to the future.
I see a future with more players in the marketplace, although there can be no doubt it is a very small market by comparison with that in the rest of the European Union. I raised with the Tánaiste and Minister for Enterprise, Trade and Employment, Deputy Harney, the question of provision of insurance cover in Ireland by two major players in Europe via the Internet. There is a question of liability but it is a development I would support to the extent that it would reduce insurance premia.
There is great security within the companies involved in the marketplace at present. People were badly burnt by a recent player who came in, offered keen quotations and has exited, leaving people in dire straits. We are fortunate there are such strong players in the marketplace and long may that continue. The players will be faced with further competition from aboard, but I ask them to try to maintain the level of premium reduction if possible because there was a massive increase of 40% over the past number of years. I am also disappointed with the increase in the number of road fatalities, despite the introduction of penalty points and new controls.
The committee has worked with the industry. With the Government, we have brought forward the PIAB. Over the next 12 months when it is fully operational and bringing down the cost of settlements, will the PIAB ensure that there will be a continuous reduction of premiums to consumers? If it does not do so, it must be scrapped. If the PIAB proves to be as disastrous as the removal of juries from cases, then it will have been a complete waste of time and money.
However, I wish the PIAB well. We brought forward the legislation and the Tánaiste was courageous in getting it through the Government, but I would like the views of the industry on the following questions. How much co-operation will there be between the industry and the PIAB? Will it mean a reduction in premiums in the future?
We hope the PIAB and the Civil Liability and Courts Bill 2004 will make a big change.
Mr. O’Driscoll
I agree with Deputy McHugh that a customer, after shopping around, can find a reduced premium compared to that of his or her original supplier. Like most insurers, we send out what we believe to be our best terms. If a customer of long-standing comes back to us having got a different or better deal, we must look at the cost of losing that customer and finding a replacement customer. In excess of 20% of customers in the motor market change their insurer every year, which, to me, demonstrates competition in the market. Anybody doing business who finds that a customer can get a better deal somewhere else must decide either to hold onto the customer because he or she is valuable or to let the customer walk away. That is the balance that is struck every time a customer comes back to the insurer with a better deal, which is why people are encouraged to shop around. My own view is that one could operate on a fixed price basis. We do that on occasions, where we believe there is no opportunity to find a way of justifying the cost of holding onto the customer and we must let that customer go. The level of turnover in our business indicates to me that customers shop around and take opportunities as they exist in the market.
Is the turnover rate 25%?
Mr. O’Driscoll
It is over 20%. In reply to Senator Hanafin, I was before the committee on 1 July last. That was a closed reporting period for our company and I am sure the Senator would not have wished me to discuss the financial performance, but I did report here that we were seeing improving trends. Less than a week later our numbers for the half year were released. On 13 November I was back before the committee and I reported increased profit trends throughout all the major classes.
I do not know the answer to the question on the evidence of competition coming from major companies other than those existing in the market. There is more Lloyds market capacity in this market but that has been transitory in the past. It has been here for a couple of years and disappeared when conditions got difficult. I would have the same concern that Senator Leyden mentioned. One needs a firm background to the market where there is solid capacity that will weather the storm of the good times and the bad.
Senator Leyden asked how hopeful we are about the PIAB and the court reforms. My notes of caution are around experiences we have had in the past but we in Hibernian are very hopeful. We are reinforcing this hope through encouraging everybody to participate in the establishment, manning and resourcing of PIAB to ensure its success. We believe it is a major plank of future improvement in this market.
Would you agree with that, Mr. O'Neill?
Mr. O’Neill
Yes. We are active participants. Mr. Healy sits on the board of the PIAB. We are putting time, money and effort into making it work.
I commend Senator Leyden's balanced comments. They match the even-handed way in which you, Chairman, chair this committee. The committee is seeking a balance of truth and righteousness in an attempt to ensure a reduction in premiums and an improvement in the operating basis of this environment.
Turning to some of the other comments that were made, our experience is slightly different. That is one of the great things about this exercise - different points of view are being heard from different insurers. A total of 40% of our business comes through intermediaries, while 60% is dealt with through out network of branches on a direct basis. Of the business that is placed through brokers, 32% moves each year. There is a significant element of brokers shopping for their customers. For private car insurance, the average commission was restricted by the Insurance Act to 5% and has hovered around that level. The broker market for car insurance works quite well. This reflects the figure of a 5% real increase over four years when inflation has been running at 15%. The committee should be consoled by this.
Senator Hanafin asked about profits. I take grave exception to indications that we were in any way negligent in not advising this committee or the public about our profitability. I made it very clear in a letter to the Chairman, and it was commented on by Deputies, that we had declared a profit for 2002 and that the amount was in the public domain. In fact, on the day I attended a meeting of the committee, the figure was published in an article in The Irish Times. In addition, some days after the publication of the committee’s interim report, which we commended, our half-year figures of €52 million came out.
There is no mystery here. We are making profits and reducing premiums because we want to operate in this competitive market. To hold our share against new entrants such as Quinn Direct we must reduce our premiums. We do this in enlightened self-interest. The private car market here is one of the most dynamic in Europe. The pressure on premium rates is moving downwards. We hear about a convergence of premiums to a European norm. There is now probably a difference of only €200 between the average premium in Ireland and that of the UK. We know that. In our business in Northern Ireland the difference is only €100. That is against a background of significantly higher court awards. To take the point made by Mr. Lunney, we are squeezing our operating expenses. It is a very good market and it is good for the consumer.
Two years ago, when we started this inquiry, what was the difference between the average premium in the UK and Ireland?
Mr. O’Neill
It was very significant - twice the current amount. The number given by Mr. Lunney for young drivers was interesting. We must be concerned with young drivers. I reported to a previous committee, chaired by Deputy Callely, about young driver insurance. At that time the average premium for motor insurance was €5,000. I admire Mr. Lunney's heroic statements about being the only player in the market, but we have been a player for more years than we care to remember and this has contributed significantly to our losses.
Our premium rates for young drivers are half what they were three years ago. That is because of initiatives such as our young driver initiative, in which we invest heavily in satellite technology to monitor driving, although Deputy Howlin took exception to this because of the infringement of human rights. However, it has worked very well. Our experience in this area has enabled us to make real reductions and that has driven down the ambient premium for young drivers.
How many are participating in the scheme this year, compared to last year?
Mr. O’Neill
The numbers are dropping because of competition from Quinn Direct and Hibernian. They are taking the business with good premiums. That is good for those people because they can obtain insurance at a lower cost.
Employers' liability and public liability has not really been discussed. We have talked mostly about motor insurance.
I am sorry to interrupt, but my point was that we did not know the extent of the profits. This is proven by the profit figures from AXA. In the first half of the year profits were €50 million, while in the second half there was a 150% increase on first-half profits of €73 million. We did not realise the extent of profitability.
It was surprise good news.
Mr. O’Neill
It was not a surprise.
Was it expected?
Mr. O’Neill
We had indicated all along that the trend was improving. We had only made €52 million in the previous year, but we made €52 million in the first half of the following year. As Mr. Healy pointed out, we had reserved releases of a substantial amount from previous insulation of reserves and, as I mentioned, we made €15 million from benign weather in 2003. That is a substantial amount of money. We were open and direct all the way through the process.
Mr. Whitaker
The Alliance for Insurance Reform is concerned with the cost of business insurance. We do not concern ourselves with consumer products. It is our belief that the savings reported here are being directed at consumer-based products. We are not hearing feedback from our members that they are enjoying the reductions suggested here on an average payment basis.
When I renewed my liability insurance last October I received a renewal quote which indicated an increase of 20% in my premium. After I had received a second quote, my existing insurer revised its quote to a 20% reduction. That is a swing of 40%. I take on board the points made but they do not account for this. The renewal notices contain the highest premium the insurer believes the customer can afford and if competition comes along there is a response.
Mr. English
I wish to comment on the points made by Deputies McHugh and Callanan about the issue of brokers and shopping around, and the comments of Mr. O'Driscoll. I accept that when one shops around, a small drop in the original quote is acceptable. One of our members, who happens to be a close friend, shopped around for his commercial motor insurance last year. The original quote had risen from €60,000 fully comprehensive to €85,000 third party. This was the best deal his broker could obtain. He then went to one of the other insurers represented here and obtained a quote of €45,000. After one phone call to his broker, the quote of the first insurance company dropped from €85,000 to €65,000. That is not a fair calculation.
Is that a general comment to the committee and not specifically directed to Mr. O'Driscoll?
Mr. English
Yes. Mr. Lunney said he encouraged brokers. The experience of our members, including me, is that they are still being discouraged from using Quinn Direct. They are told they should not touch the company as it has no solvency.
Did a broker tell Mr. English that?
Mr. English
My own broker told me that. Many of our members have been told the same thing - not to go near Quinn Direct. That is the experience in the market. The players in the market do not want Quinn Direct to enter the market.
Mr. Lunney said today that his company had been concerned about this for the last two years, but that it is changing.
Mr. English
We had a meeting with a body that represents a substantial number of brokers, including the smaller brokers, at which we discussed the relationship between brokers and insurance companies. They said that although customers are upset, brokers are also upset because the large brokers, in conjunction with the insurance industry, are controlling the market. They were very frank. We have minutes of this meeting and we can pass them on to the committee. The chief executive and the chairman of the organisation stated that the large insurance brokers, in conjunction with the insurance companies, are controlling the market. This is not only to the detriment of the customer but also the other brokers.
Perhaps Mr. English could provide some documentary evidence of this.
Mr. English
Of course.
Mr. Lunney
I wish to comment on one point that was raised. It is true that in the past there were brokers who bad-mouthed the Quinn Direct operation, but this is now changing. As we grow in scale, more clients are asking for access to Quinn Direct products, which is good.
The matter of solvency level has been mentioned before. The excuse was made in the market that Quinn Direct's solvency was somehow suspect. However, the company enjoys one of the strongest solvency levels in the Irish market at the moment.
I thank Mr. Lunney. I wish to raise with Mr. Power and Mr. Bourke the hotels' point of view. I apologise that I have not come back to them for a while. Employer's and public liability insurance costs form a serious part of our inquiry because they have huge consequences for job creation and the difficulties being experienced by small family-run businesses, in particular, and small and medium businesses in general. Does the delegation wish to put any questions to the insurance companies?
Mr. Power
By and large, movement in premiums has mainly taken place in the area of employer's land public liability insurance. Comments regularly made in our ongoing surveys indicate that in recent months existing insurers have made a virtue out of reducing premiums by 10% or 12%. As has been openly stated here, the arrival of new players has changed the scene. Brokers are particularly important to small family businesses which do not have the expertise or financial directors to analyse all of the options. It is a very worrying issue. They rely on organisations such as the Irish Hotels Federation and their own representative bodies to give them guidance. We are now doing so in a much more aggressive manner because insurance costs have been highlighted as the single greatest threat facing us.
There have been substantial improvements due to the matters to which I have referred. I reiterate that it is our strongly held view that the book of quantum exercise in which the PIAB is engaged will not have the desired effect and only amount to a job half done if it does not take into account the experience in other jurisdictions. The Irish insurance market will be competitive if the environment is correct. With other similar organisations, we are trying to educate our members to seek that competitiveness within it. On that issue alone, a virtue has been made of the PIAB and the book of quantum but it does not go far enough. There may be reasons for the fact that going too hard on one sector is not socially acceptable or upsets certain sectors of social partnership but the matter should be addressed and the committee should consider making a recommendation in its next report. The insurance companies are reacting to the hustle and tussle in a normal market in the way they always did.
Does Mr. Power think they will take as much as they can get?
Mr. Power
The evidence is that they will. They will do so more when they are in a strong position in the market than when there is competition. The key is to have competition, the environment which attracts competition. In that way we will all benefit. It is like what Aer Lingus and Ryanair did in the transport business. With the advent of competition, air fares came down and existing organisations had to look at their operations. Aer Lingus has done this effectively and now competes with Ryanair. The business model is in place. The same could happen easily in the insurance market with the proper environment.
I am pleased that Mr. Richard Bourke, president of the Irish Hotels Federation, is present. His industry has been good when it comes to safety and taking precautions. All of the various requirements are met in the keeping of daily books of events and happenings. It is vital that people such as Mr. Bourke are associated with this inquiry. Since they started to give evidence, the insurance companies have been advocating various measures which the sector in which Mr. Bourke is involved has been implementing.
Mr. Richard Bourke
The industry has improved enormously during the past ten years in its approach to risk management as is apparent from the claims experience. I reiterate the point Mr. Power made about premia coming down. This is a direct result of new players entering the market. There is no question that if they were not in the market, we would still be paying high premiums.
Mr. Fitzsimons
I agree with the substance of what Mr. Bourke said.
Is Mr. Fitzsimons's company not involved in this sector?
Mr. Fitzsimons
In a small way. We deal with family-run hotels from which we would be glad to accept inquiries. On a book of quantum, there is a balance to be struck and a trick - "trick" may be the wrong word - in establishing the confidence of the general public in the PIAB to ensure they will not be afraid the quantum will be lower than what they would receive through the courts. There appears to be a political decision that it should be parked at current award levels or to err on the generous side in order that people will use it. In regard to our competitiveness, unless we look at award levels in other jurisdictions, people cannot expect the same level of premiums to apply but that is a call for society. I mentioned at an earlier stage - somebody else alluded to it here - that we need to examine how we can get this message across.
As legislators, we are doing everything we possibly can to assist the industry to create a climate in which premiums can be held at the level at which we hope they will be in the next two years. There is a move in the right direction which I welcome. I also welcome the investment by companies in safety precautions, whether it be road safety advertisements on television and radio or in the newspapers. As a committee, we appreciate this. It is exercising the minds of all concerned but particularly the young. Television has a 70% penetration rate in advertising to young people.
Mr. English
On the motor insurance issue, Mr. O'Neill has said the cumulative increase over the last four years amounts to 5% which is welcome. In the case of the Irish hotels federation the cumulative increase amounts to 175%. For most of our members the figure is approximately the same or more. How is it that the figures are so different in the case of public liability, employer's liability and motor insurance? Given that the same courts are used and the awards are the same, what is the reason for the 5% cumulative increase in motor insurance and over 175% in public and employer's liability insurance?
Mr. O’Driscoll
Both public liability and employer's liability insurance accounts were in much poorer shape when the market started to reform. I acknowledge that the decreases have not been as evident as in the area of motor insurance. I do not agree, however, that the decreases have been specifically and directly consumer product focused. There is a bigger book of longer tail claims. There is, therefore, more potential benefit to be gained if the reforms can continue to be pushed through. There are now more insurers playing in the sector who have marketed abroad rather than here. Perhaps the expertise was not available.
I thank members and all of our guests for attending. It has been a long and useful meeting. The committee is determined to continue its work and its review of the insurance market to ensure the consumer gets the best possible deal. We will adjourn until Wednesday, 7 April when we will hear from the IFSRA. After Easter the Minister for Transport, Deputy Brennan, will appear before us, as will representatives of Alliance. We hope to publish our second interim report by the third or fourth week of May. I sincerely thank the delegations for coming, preparing presentations and assisting Myles O'Reilly, consultant, and his assistant, Aoife, in all their hard word on behalf of the committee. I assure them we will maintain the greatest pressure on Government regarding the necessary reforms and the penalty points system which has been such a great success. The committee is seriously concerned about the level of monitoring that has been in place during the past two or three months. It is in everyone's interest that such monitoring is speeded up and returns to the level that prevailed in the pre-Christmas period.
I thank the representatives for their time and look forward to inviting them back here many times before the next general election. In this regard, this issue is the committee's number one priority. I thank the representatives for attending.
The joint committee adjourned at 2.30 p.m. sine die.