Insurance Reform: Presentation.

The draft minutes of yesterday's meeting will be held over until the next meeting. Is that agreed? Agreed. There is no correspondence relevant to today's meeting.

I welcome Mr. Conor Faughnan from AA Ireland and invite him to make his presentation. I remind visitors that while the comments of members are protected by parliamentary privilege, those of visitors are not so protected. Members are also reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House, or an official, by name or in such a way as to make him or her identifiable. After Mr. Faughnan's presentation, which should take 15 to 20 minutes, we will take questions.

Mr. Conor Faughnan

I will be duly circumspect in my comments given that I am not covered by parliamentary privilege. Had I known that I am not so covered, I could probably have shortened the presentation by 18 or 19 minutes. I have a brief paper on what the AA believes has been happening in the insurance market in the past couple of years and the variables that are affecting it. I will also say a few words on the issue of road safety, which is a passion of the AA and which has a fundamental impact on insurance matters.

The AA is a representative body for motorists. It has some 400,000 customers and there are approximately 250,000 members of its rescue service. The representation of motorists has been one of the AA's principal activities since its foundation almost 100 years ago. We continue to do this. In that context, the AA regularly commissions independent market research to assess average motor insurance premia in the Irish market. The results of those surveys are then placed in the public domain and used to encourage motorists to shop around. We also carry out that exercise in other spheres. For example, we have an ongoing index of petrol prices that allows the consumer to shop around and bring pressure to bear on the petrol retailing sector so the consumer will get better value. We correlate and publish the premium comparisons for motor insurance.

It is evident that motor insurance premia are falling. The results of our comparisons show that the average premium for the mainstream market was €785 in April 2003. The cost has fallen steadily since that time and by October of 2004, the last time the survey was carried out, it was €584. This is a drop of 26%. That trend is continuing into 2005 and our expectation is that premia will fall by a further 7% to 10% this year. This is very encouraging. The high cost of insurance has been and continues to be a major consumer concern.

There are a number of different reasons why premium costs are falling. The most important of these is improving road safety. Notwithstanding that the number of road deaths increased in 2004, the overall trend in road accidents over the past five years has been moving steadily downward. Penalty points, road improvements, vehicle improvements and a growing acceptance of the seriousness of the road safety issue have all contributed to this trend.

The consumer should be sceptical about insurance companies offering "discounts" to people with no penalty points. It is often the case that these discounts are not truly genuine but merely reflect the fact that premia are falling across the board. What is described as a discount is merely a market-typical price. Even given the downward trend, the Irish consumer still pays too much for motor insurance. Irish people have more accidents, litigate more frequently, compensate more generously and pay higher legal costs than almost all of our colleague countries in the EU. These are the underlying drivers of high insurance costs.

The period 1998 to 2000 was the worst for high insurance claims and court awards. Road deaths reached a latter-day peak of 478 in 1997. More telling is the fact that, from an actuarial perspective, injuries totalled 13,587 that year, and stayed above 12,000 injuries per year for six years from 1995 to 2000, inclusive. The lead time associated with settling insurance claims at that time was such that the full effects of those insurance costs were not reflected in premium rises until 2000, 2001 and 2002. The costs incurred in 1998, 1999 and 2000 were reflected in premia in 2000, 2001 and 2002. Only since then did claims and, consequently, costs begin to fall.

The difficulties and costs associated with motor insurance are similar to those which face liability insurance generally. The rise in commercial insurance costs has presented a serious threat to Irish competitiveness and this gave added impetus to efforts to address the issue. At the time, a number of high-profile compensation issues, including Army deafness, blood contamination and clerical child abuse, heightened public awareness of litigation and its costs. The AA has no view on the merits of any of these issues but it brought into focus the issue of reducing ancillary claims costs as opposed to compensation.

Dorothea Dowling's seminal MIAB report was published in April 2002 and is a weighty and superb volume of work, as members will know. However, it is still recommended reading for those who are interested in getting to grips with the insurance situation. The document made 67 separate recommendations to address the issue of motor insurance, many of which have now been implemented. For example, insurance companies are now required to send customers their renewal notice a full 15 working days before the policy renewal falls due. Companies are also now required to issue a letter of no claims to customers automatically on renewal. These reforms reduce switching costs and remove obstacles for the consumer, which has enhanced competition.

Among the more striking findings of Ms Dowling's work was the conclusion that an enormous 39.5% of the cost of settling motor insurance claims related to legal expenses. This is utterly wasteful and has to be properly addressed. The MIAB's principal recommendation for addressing this was the establishment of the Personal Injuries Assessment Board, designed to remove the legal costs component from the settlement of claims where liability was not disputed. This was achieved with the PIAB Act of 2003. However, Tuesday's High Court ruling held that the PIAB could not refuse to deal with claimantsvia their solicitors, which has implications for its work. It would be a serious disappointment for the consumer if we cannot successfully address the legal costs issue. There are a number of areas, such as the fair setting of solicitor’s fees, in which I would encourage the committee to take an interest. Many other fees which the consumer encounters are quite rightly regulated but solicitors are an exception to the rule.

One area in which there has been progress is on what is loosely termed "compo culture". As a result of reforms laid out in the MIAB report, plaintiffs are finding it less easy to approach courts with spurious or exaggerated claims. This is very welcome as the cost of those claims has always been borne by the law-abiding motorist. The insurance industry operates a hotline to encourage whistleblowers to bring information about fraudulent claims to light and again this is proving useful in dampening the enthusiasm of those who might otherwise feel tempted to make false claims.

We also continue to have a problem with uninsured driving. The Garda has estimated the level of uninsured driving at about 5% and some industry estimates are even higher. The damage done by uninsured drivers is disproportionate to their number and is estimated at 8% or 9% of total claims costs. This is a criminal offence for which the financial cost is borne by ordinary motorists. An IIF calculation three years ago put the cost of uninsured driving at £57 per insurance policy, which is approximately €80. In other words, every motorist's premium would be some €80 cheaper than it is if we did not have the cost of claims by uninsured drivers.

From my perspective almost all of these issues are peripheral. They pale completely beside the enormous ongoing disaster which is our road safety situation. This is the key driver of high insurance costs but it is also a social disaster on a far broader scale. Last year some 379 people were killed on our roads. This appalling total was 43 worse than the same figure for 2003. The reasons we went backwards have been the subject of much public debate but I believe there is now general acceptance that one of the major areas in which we are failing is enforcement.

The introduction of penalty points in November 2002 was a genuine step forward. There are now 175,000 drivers with penalty points and, as time goes by, the system will serve to make drivers generally and offenders particularly more cautious. However, for the system to be truly effective motorists must believe in the likelihood of being caught. Sadly, the current low level of traffic policing means that is not the case.

In 2004 we did not police our roads adequately. This is not meant as a criticism of the Garda. Within our police force there is no lack of willingness to address road safety. However, we lost most of the traffic function in the first six months of last year to the requirements associated with the EU Presidency. There has also been an ongoing problem, flagged many times by the AA, of Garda resources notionally directed towards traffic being continually lost to other functions. For example, if a burglar alarm goes off in Walkinstown in the middle of the night, the traffic function will disappear off the M50 to attend to it.

I am not sure that could be guaranteed.

Mr. Faughnan

Wherever it comes from, traffic policing is a resource which is continually dipped into. We have anecdotal evidence from throughout the country. For example, if a Securicor van is held up, the imperative is to guard against that type of crime, the consequence of which is that fewer resources are available for traffic policing. I facetiously remarked that one does not hear there will be no fraud squad at the weekend because of the match in Croke Park but that is almost literally what happens to the life-saving traffic function — it is continually dipped into as a Garda reserve. Operation Freeflow resources allocated to Dublin have suffered the same fate in the past. They have almost literally been plundered by individual superintendents and even sergeants who have a need for additional resources and can take them from traffic.

The announcement last November of the establishment of a Garda traffic corps was very welcome for this reason. The AA has been campaigning for this for many years. Initially, the AA was the only voice doing so although others quickly came to the same view. The work of the National Safety Council under the guidance of its chairman, Eddie Shaw, was particularly useful in pushing the need for this initiative up the list of political priorities.

Now that the traffic corps is being set up, the AA believes there is a chance to look again at road traffic policing and get it right. There are many aspects to this issue and I will not have time to go into them all today. For example, the AA wants to see enforcement focused on black spots and at the times when we know collisions are occurring. We would like to see checkpoints in pub car parks at closing time and not on dual carriageways at lunchtime. We would like to see speed cameras in dangerous villages, not on safe roads with absurdly low limits. We will be engaging with the Garda on an ongoing basis to press our views on this issue. I am given to understand from recent conversations with the Garda that it will shortly announce the appointment of a new assistant commissioner to head up the new Garda traffic division and we will engage with that new entity to press our views on this matter in the strongest possible terms. If we get road traffic policing right, it can make a dramatic impact on road safety, which in turn will make an impact on insurance costs.

The other requirement is the full development of the penalty points system. At present the system of applying and administering penalty points is strained to breaking point. The delay between the offence and the issue of notification is often over six months, which is unfair to motorists. We have innumerable examples of motorists who contacted the AA to tell us they received notice in the post today about a traffic offence committed last April or May, which is manifestly unfair to drivers because the penalty points end up on their recordde facto for nearly four years rather than three.

I draw the committee's attention to the completion of the Garda database project which is many years overdue and now extremely urgent. When this system is in place it will be possible to apply penalty points for more offences and to deal better with existing offences. Why that has taken so long is beyond me.

There is a vote in the Dáil and we must suspend the meeting.

Sitting suspended at 12.40 p.m. and resumed at 1 p.m.

Mr. Faughnan

Conceptually, the penalty points system is terrific and has virtues we argued for long before it was implemented, such as the fact that points are cumulative and that the system in a sense discriminates against people who are likely to be reckless and can therefore affect behaviour, particularly as people accumulate penalty points. I have had conversations with individuals whom one would suspect, just from knowing their personalities, would tend to be risk takers and who have told stories of outrage at having had four or six penalty points applied. Something in the back of my mind tells me that this is the sign of a system working because the more one is inclined to risk, the greater the need to be careful as one's points rack up.

However, the system does not currently work properly. The main element holding it back is the creaking pace of its administration and the fact that the long-awaited Garda database project, which was supposed to be completed on many different occasions over the past number of years, remains incomplete. I again draw the committee's attention to that fact because pressure must be applied from somewhere to get that job done. When it is done we will begin to see the full virtues of the penalty points system.

My final point relates to driver training and testing. The current situation regarding provisional driving licences is appalling. Almost one in every five drivers technically has learner status. The waiting list for the driving test has worsened again and is now back up to 12 months. At the same time there is no registration or monitoring of driving instructors. In theory, one does not even need a driving licence to set oneself up as a driving instructor. The test failure rate is a dismally disappointing 45% because learner drivers turn up at test centres — if they turn up at all — completely unprepared, fail the test and return to the end of the queue, which is a waste of everyone's time and money. A failure rate of 45% overall is disappointing but even more scandalous is the extent to which failure rates vary from one test centre to the next. A test centre in one part of the country could be passing 45% of applicants with another one somewhere else passing 70% of applicants, although notionally the same test is being administered. The whole area is crying out for reform. It is a shambles and needs to be taken in hand. The AA has a number of suggestions and proposals in that regard and we are willing to discuss them with the Department of Transport. The issue must be taken in hand and treated with the urgency it deserves.

The third "E" of road safety is engineering. Ireland's road network has improved significantly in recent years but still has a long way to go to match the quality of roads in other European countries. Ireland is also learning from improvements in road design, notably in Sweden. The AA is closely involved in the development of better road designs by virtue of its membership of the European road assessment programme, a good exercise looking at identifying road design across Europe.

The ongoing commitment to the roads programme is fully supported by the AA. If Ireland had first class road and public transport infrastructure, an acceptable standard of driver training and monitoring and especially proper traffic policing, there would be every reason to expect that our road safety standards would be as good as those in the UK which is a world leader in road safety and our neighbour culturally as well as geographically. If we had these elements in place, then going by the statistics, as many as 150 lives, 5,000 injuries and anything up to €1 billion in insurance-funded compensation would be saved every year. We would not have a road safety crisis and we would not be discussing insurance prices here today.

Thank you. I have an insurance-related question. Since Christmas, particularly on the north side of Dublin, where I live, there are a great many young people driving scooters with 50 cc engines. People have asked if one must have tax and insurance for them. Some of the children driving them are only five or six years old. I have asked the Garda but nobody seems to know the situation regarding insurance or drivers' licences and so on for these scooters. Have there been any complaints in this area?

Mr. Faughnan

We have heard complaints and witnessed the same phenomenon. My understanding is that the scooter is a mechanically-propelled vehicle as defined under the Road Traffic Act. If such a vehicle is on a public road, it is governed by all the provisions of that Act. If it is used on private land, that is different, so the Road Traffic Act does not apply to kids tearing around farms on quad bikes or youngsters tearing around on privately owned land on miniature motor bikes. However, one frequently sees them on pedestrian footpaths and even on the roads. My understanding is that the Road Traffic Act and its provisions apply fully to them and that they should never be driven by anyone under the age of 16. I do not know why there is no enforcement in this area because, as I understand it, the existing laws apply to those vehicles.

I thank the Chairman and welcome him and the clerk to their new positions. Mr. Faughnan's AA presentations are always interesting and I thank him too.

I am interested in the AA's view regarding the High Court decision on the Personal Injuries Assessment Board. We are clearly a little constrained because an appeal may be made to the Supreme Court.

We are so fixated on the notion of premia that we have lost sight of what insurance is about. It is meant to ensure that if an accident occurs and someone is hurt, adequate compensation will be made. We can sometimes be so fixated on the cost of the premia that we almost see it as a tax. We keep it as low as we can regardless of the consequences for those who are insured. At the time of the passing of the Personal Injuries Assessment Board Act, when I tabled an amendment to allow for the involvement in this lawyer-free zone, as categorised by the Tánaiste, I said that if I were involved in an accident and were making a claim — even an uncontested claim — to the PIAB, I would take independent legal advice. This is not a financial matter because the costs have never been involved in this. However, if the average citizen wants independent legal advice, and I am fairly good at reading legislation, he or she should have that right. I am glad that the High Court made the decision it did. I would like to hear the AA's observations.

Many of the AA recommendations are probably not germane to the Joint Committee on Enterprise and Small Business but rather to the Joint Committee on Transport. I encounter a great deal of frustration regarding the new school speed limits, especially on very good regional roads which now have an 80 km/h speed limit, formerly 60 mph. Many people will rack up points while driving at what I would deem a safe speed on a safe road and I would be interested to hear the motorist protection perspective on that issue.

Mr. Faughnan said that the seminal Motor Insurance Advisory Bureau report is required reading. I suggest that the two reports of this committee on the same issue might also be acknowledged sometimes. I know that Dorothea Dowling will be delighted with Mr. Faughnan's recommendations. Occasionally however, politicians also deal with the same issues and this is worthy of mention. Similarly, when Mr. Faughnan says that the AA was the only voice — although joined in due course by the National Safety Council — regarding the establishment of a traffic corps, that has been an item on the political agenda item for a number of parties and a manifesto item for quite some time.

I am interested in the AA's role with regard to insurance. Perhaps Mr. Faughnan might clarify this for me. AA Insurance obviously does not provide it, since it is not an insurance company. How does it broker insurance? Does it deal with all insurance companies? How does one get the relatively good quotations that I see in the attached document? How does that operate?

Some of my points are related. I would like to deal with speed limits on regional roads, an issue which ties into the effectiveness of the points system. Drivers will not take the system seriously if there are ludicrous restrictions on driving. In large parts of rural Ireland, one cannot drive for 160 or 170 miles beyond 80 km/h. The situation is intolerable and discredits the entire points system. A decision will have to be arrived at through the county councils and local authorities to reclassify regional roads. It cannot be done with the stroke of a pen here in Dublin by looking at differently coloured lines on maps; that is simply not acceptable. I would also be interested in Mr. Faughnan's opinion — if he has one at this stage — on what impact the recent High Court decision will have on the workings of the PIAB. Has the company tried to place insurance outside the country? If so, what difficulties and success has it experienced?

Mr. Faughnan

I have banked those questions and will work my way through them. The first question concerned what AA Insurance is and how it works. Technically, we are not a brokerage either but what is termed an "intermediary", and are regulated as such by IFSRA. In simple terms, the AA has approximately 70,000 or 80,000 customers. It buys policiesen bloc from underwriters, which we are then able to “retail”. We can do that very effectively because we are very good at administering schemes and have lower office costs than most of the insurers. In that way, we are able to deliver them a quality bloc of business, which from their point of view entails low to zero maintenance. In some cases we also manage the administration of the claims side too.

We are very good in the back office and able to bring some administrative capabilities to the matter, almost "retailing" — though that term is not entirely accurate — insurance policies on behalf of underwriters, which is not quite what a broker does. A broker takes an individual person's risk and shops around for the best deal, while an intermediary buys the product in advance and is then able to "retail" it. It is a category of insurance regulated in its own right by IFSRA. From the consumer's point of view, we are another face in the crowd. As far as the individual consumer is concerned, the difference between a broker, an intermediary and an underwriter is an exercise in semantics, since he or she really cares only about the price and quality of the product. The AA is an insurance intermediary.

On the PIAB High Court decision, like the members, I often have to be circumspect in response to what the courts say. This is a broader debate. Sometimes we approach a road safety issue bald-headed, fixated on the road safety attributes of a debate. One can then lose sight of the fact that the points that one is making in a road safety context will have broader social implications. A classic example is random breath-testing by the Garda. If one is thinking only of road safety, it is unreservedly a good thing, but one must consider more than that if one is a legislator giving one's police force substantial additional powers. There are civil liberties and other concerns about the consequences, but they are outside my focus, which is road safety. Something similar applies to the PIAB situation. In an abstract debate, one can always agree with the principle that an individual is entitled to representation and that in any such forum the individual should have the right to legal advice and assistance. In a stand-alone debate, it is very difficult to counter that legitimate perspective. However, where the rubber meets the road, the consequence in the insurance, litigation and compensation areas is that it hoovers money out of the insurance pool.

Perhaps I might return to a comment made by Deputy Howlin. The purpose of insurance is to pool risk. We all contribute a little so that the small percentage of us who need to draw on the fund are able to do so. What happens with the insurance fund in the motor area is that we all contribute our motor insurance premia, and a substantial portion of that fund that should be used to compensate people is hoovered out of it through legal costs of various kinds. Ms Dowling's document put that figure at 39.5% of all the compensation paid by insurance companies to victims of motor collisions. In a sense, one has the abstract, incontestable, logical point about one's right to legal representation having dramatically detrimental effects on society when it plays out and lawyers are inserted into the equation, even in a context where liability is not disputed and where the claim is essentially very simple. The legal industry gets involved and hoovers money out of the compensation pool. That adds no value, and whatever way we——

The net issue is the confusion which I heard people trying to clear up. The implication of the High Court decision has no impact on cost, since it was never proposed by anyone here that a legal fee should be payable by the PIAB. It will be borne by the individual if he or she wishes legal advice. It is not hoovering anything out of any pool.

Mr. Faughnan

I take the point.

It is an important point, about which one should not be confused.

Mr. Faughnan

In one sense, people simplistically said that we must get the lawyers out, since they are vacuuming money out of the system. That was the thrust of what the PIAB wanted to establish. However, we must have such a circumstance, particularly in cases where liability is not disputed, the only ones that the PIAB was examining, and an insurance company agrees regarding issues for which there may not be a book of quantum but there is a substantial database of what courts are awarding for injuries of a given severity. In simple terms, we know that a broken leg is worth €15,000 or whatever the sum happens to be.

Not if one is Cristiano Ronaldo.

Mr. Faughnan

Indeed, just as the loss of a hand is different for a pianist from how it is for a footballer. In all such things, though it may not be possible to write a full book of quantum, one must be able to act without having lawyers in the equation. I defer to the wisdom of our legislators and courts. We may ultimately need a decision from superior courts on the matter, but one way or another, the situation that the Dowling report identified cannot obtain in perpetuity, namely, that, of all the funds that we contribute into an insurance pool, substantial amounts disappear to pay lawyers' fees. That is what has been happening. The PIAB was designed to bring an end to it but may not be able to do so. The issues are complicated and do not lend themselves to glib answers. It is quite easy to point out the problem and substantially more difficult to produce a decent solution. I have great faith in our legislators to be able to dig us out of this hole, but someone must do so, since one cannot have that amount of money disappearing to the legal industry rather than going to the victims of road collisions. The issue is unresolved.

Regarding speed limits on regional roads, the old situation was worse than the current one. Before the Road Traffic Act 2004 came into effect on 20 January 2005, the default speed limit on minor roads up and down the country was 60 mph. However, no one knew that, since there was no signpost telling one. Now the default speed limit is lower, which is entirely correct, but it must also be signposted, with the result that people are now seeing ridiculous speed limits in certain locations, such as the country bóithrín in County Mayo with an 80 km/h speed limit. The local authority has the power to specify a higher speed limit where appropriate, a good example being what was previously the N6 to Sligo. The roads through Mullingar ceased to be part of the national primary network when the bypass was built because the designation went to the Mullingar bypass. The old route which had been the main Sligo road became a regional road. Theoretically that means the speed limit on that regional road has to be 80 kph. However, it spent most of its life as a main road and is fully capable of carrying speeds of up to 100 kph. The local authority has the power to intervene and make the speed limit on that road 100 kph.

There are roads all around the country, particularly in rural areas, which are categorised as regional and which therefore carry an 80 kph speed limit. In all of these cases, the local authority can intervene and change the speed limit to 100 kph.

I will give the committee some background on this. We knew that metrication was coming. It was mooted as far back as Deputy Howlin's time as Minister for the Environment. Everyone knew it was coming for a long time. There were half a dozen moving deadlines, but it was certainly well known for the last couple of years that metrication was coming. Local authorities throughout the country were told that metrication was coming and to prepare their by-laws and reassess speed limits so stupidly signed imperial limits were not perpetuated when translated into metric.

It came to the AA's attention early last year that many local authorities were not doing it. They were not carrying out the exercise, as requested by the Department of Transport. I pushed for a meeting with the then Minister for Transport where I stated the whole exercise was being dragged into disrepute because individual local authorities were just not doing it. I said we were going to have a situation whereby ridiculous speed limits would be in place by the deadline, which turned out to be 20 January this year, expressed in metric and peppering the network. I am sad to say that this is exactly what has happened.

Some local authorities have behaved extremely well. I am reluctant to mention any, but Limerick was exceptional. A number of others were too, but some did not do it. The current position is that some speed limits up and down the country are bringing the whole system into disrepute. I believe we are in the process of getting speed limits right and the change to metric units was a point along the journey, but is by no means the end of the process. We shall have to arrive at a point where every single road in the country has a speed limit correctly set in accordance with safety criteria. These road safety criteria should not differ from one county to the next. The speed limit should be signposted and if there has to be a low limit which is counter-intuitive and which does not look logical to the motorist, then there must be additional signs to indicate this.

A good example of this is to be found in my area, Templeogue in Dublin, where there is a dual carriageway with a wide hard shoulder. It is a safe-looking road, with a 50 kph speed, which makes no sense to people, but there is a good reason for it nonetheless. There is a pedestrian crossing there and a special needs educational facility. There has been a fatality there in the past involving a pedestrian. In this case the low speed limit is absolutely appropriate, but it should be signposted properly so that honest motorists are not going to be caught out. However, the challenge for local authorities throughout the county is to agree and operate the correct speed limits. Once they are set correctly they are much easier to enforce.

On the last question I was asked about sourcing insurance outside the country, some work has been done on this. The Tánaiste has recently visited a number of insurance firms in London. However, most of the major insurers in Europe are represented in Ireland in some shape or other. AXA and Hibernian between them have nearly 70% of the Irish motor insurance market and both have international parent companies. Most of the major insurers that one finds on the Continent are represented in Ireland. Trade barriers no longer exist to prevent an insurer operating in the EU from establishing an operation in Ireland.

There appear to be practical barriers to do with market knowledge, however, which have made them reluctant to dip their toes into the Irish market. Over a long number of years the returns on investment for insurers in Ireland have been characterised by their volatility. They will make a fortune in a particular year and people get outraged while in other years they will not make any money. The lack of predictability and volatility reflects the insurers' level of market knowledge rather than acting as a regulatory barrier against them coming in. However, international insurers are already represented in Ireland and it would not surprise me if more were to arrive. Without wishing to go excessively public on some matters which may be commercially sensitive for some people not the AA, in particular, I am broadly aware that talks are taking place between British and other European insurers with a view to them offering motor insurance in the Irish market, which is becoming more competitive. The prospects for the consumer are probably better now than they have been, although imperfections still exist in the market. I would certainly not say that perfect competition applies in the Irish motor insurance market where the consumer gets a fair shake of the stick. That is not true as yet, but matters are better than they were and I have some grounds for optimism.

I thank Mr. Faughnan for his presentation. A drop of 26% in premium costs is very welcome. Is this trend across the board or for a select group of drivers? In other words, does the decrease include young drivers? I would like Mr. Faughnan to comment on that. I would also welcome his comments on driver training. In this regard he said the AA had a number of suggestions. Will he outline those suggestions? It seems unfair that elderly people have to go through a computer test. That might produce problems in some cases because elderly people might know the rules of the road but not be able to input them to a computer. I do not believe this has much of a bearing on driving ability.

I have two questions for Mr. Faughnan. What is his opinion on the prospect of a major insurance company setting up a retail as distinct from a wholesale operation in the Republic? Is AA Roadwatch keeping an eye on all areas of the country where an anomaly may exist, for example, an 80 kph limit on a road with grass growing up the middle of it? I am exaggerating for effect. As he knows, people tend to look at the speed limit as a target rather than an absolute indicator. If that could be included in the AA's brief, it would provide a good service to the country.

Mr. Faughnan may already have answered this question, as I could not be here earlier, for other reasons. As regards the High Court ruling the other day which determined that someone is entitled to use legal representation in making a case to the PIAB, he mentioned in his submission that there could be implications from that, but did not indicate what these might be. Will he indicate what the more serious implications might be?

I believe road safety to be an educational process. At my first Fianna Fáil parliamentary party meeting a long time ago, I suggested that the theory section of the driving test might be part of the civic, social and political education programme and we have taken steps in that direction. What are his observations as regards education playing a part in road safety?

Mr. Faughnan

Reductions in premia are not across the board. It might be deemed to be a limitation in our survey, or a deficiency. We deliberately look at the mainstream market. In a sense the survey document I gave members of the committee looks at the typical Paddy and Mary, people with no special risks attached to their motor insurance. It does not include young male drivers, for example, which is a particular category in its own right. Neither does it include people with multiple penalty points or those with a higher claims history. It attempts to look only at the mainstream insurance market, which 80% to 85% of us inhabit.

In that sense it is valid, but there are problems to do with demographics and categories which are outside the scope of this exercise. One of the problems is young male drivers, a category that has not seen the same percentage drop as the mainstream market, although I do not have the statistics to show this. They have seen some drops, but we still have the typical situation where a young male driver in rural Ireland who needs a car to take up a job offer 20 miles from home buys a car and pays an insurance premium equal to or above the value of his car. That phenomenon still exists and the problem has not been solved. The main driver of all this is accident risk. The accident risk attached to young male drivers is significantly higher than that which applies to any other category. That is the reason insurance is expensive. Sometimes people get very passionate on this subject and pick the wrong bad guy by criticising the insurance industry collectively. Some of the criticisms are valid, but one is barking up the wrong tree if one wants to solve the problem of motor insurance costs for young male drivers. The way to do that is through solving the road safety problem. That survey is only for the mainstream market.

The difficulty for elderly people in doing the computer test was mentioned. The computer test is only for people obtaining a provisional driving licence for the first time. There is no reason that should not be an elderly person, and it would not be so in 95% of cases. Where an elderly person has to do the theory test, I do not know why they should find it more difficult than doing the test in other ways. Sometimes, there is a tendency to be a bit patronising about elderly people. The test itself is quite easy to do and a driver in his or her early 70s who is competent to drive a car should be competent to do that test.

Is there a possibility of a major insurer establishing a retail operation in Ireland? It depends on what one means by a retail operation. AXA contends that it has a retail operation. It is a major multinational insurance company. Its home country is in France, but it also exists in Ireland with a retail operation. Major international insurers are already represented in the Irish market and there may be more.

AA Roadwatch is tracking anomalies for 80 km/h speed limits and other eccentric speed limits. They tend to come to the attention of AA public affairs, which is my direct role. Early last year, we had a meeting with the then Minister for Transport, Deputy Brennan. We told him that local authorities were not identifying and correcting areas where the speed limit was incorrectly set. We were challenged on that and were asked to produce a list of those areas. We produced a list with 66 locations on it. These locations had come to our attention through complaints from motorists. In most cases, the motorists made the complaint that they had got penalty points in locations where they had been doing their best to behave themselves, but had been caught out by a poorly set speed limit. The locations were mainly in areas where the suggestion was that the speed limit should go up.

There are also plenty of locations where the speed limit should come down and that is every bit as valid. It tends not to come to our attention as much, as it tends not be a place where a motorist gets caught out and gets penalty points. There is no shortage of locations where the speed limit in the country is too high and should be reduced. However, we are less likely to be made aware of that than when the situation is the other way around. We have a growing list of locations around the country where the speed limit is inappropriate and should be either re-assessed and changed or re-assessed and better signposts put in.

AA Roadwatch will be tracking this on an ongoing basis, but a vast amount of the network has poor speed limits and it is the responsibility of the local authorities to do something about it. As a motoring representative body, we might end up talking to each individual local authority in turn. We will try to persuade them that we do not need a 60 km/h speed limit on the triple carriageway on the Lucan road outside the Foxhunter pub. On the other hand, we will talk to gardaí and ask them why they locate a speed trap in the very location where the speed limit is incorrectly set. They should be at an accident blackspot and not at a spot where the speed limit is incorrect.

We had made a number of suggestions for the reform of the whole area of driver training and driver testing. I am willing to engage with the committee members about that in as much detail as they wish. If one wants to get a driving licence in Ireland, one should have to get a provisional licence, which means doing the theory test. Some of that could be incorporated into transition year modules in schools. We suggest that before one does a driving test, one should attend a set number of lessons with an instructor whose standards have been monitored and whose efficiency we can validate through a measuring system. One should have to go through a set period of lessons with a properly registered instructor. We can design a curriculum so that those lessons include things like motorway driving, night time driving and hazard awareness. At the moment, people only go to driving lessons to prepare for a driving test. They should be preparing for a driving life. We could achieve that if the instructors were registered and if we laid down a curriculum through which learner drivers had to pass before they could apply for the driving test. At the moment, learner drivers apply for the test and wait for a year before the test comes up. They then arrive at the test centre unprepared and 45% of them fail, which is a waste of everyone's time and money.

We also made a suggestion to bring in a graduated licence system. At the moment, everyone has got a 12 point driving licence. One could have a situation where a driver with a provisional licence has a licence that counts as three points. In his case, he would be off the road after two mistakes. Once he passes his test and gets a full licence, it becomes six points. Following a year's clean driving, it could be raised to nine and to 12 after a further year's clean driving. Such a graduated system would have a number of virtues. One of the key virtues is that there is a correlation between provisional licence status and the age of the driver. Males under 25 years of age, who are overwhelmingly the most dangerous demographic on the road, could be in a situation where they have fewer points to lose than fully licensed drivers. That would concentrate their minds because it would make them more susceptible to enforcement. There would be great virtue in having a system that is designed so that if a driver with a provisional licence makes two mistakes, he could be off the road, unlike a fully licensed driver who can make six mistakes before he is off the road.

We also made other suggestions, such as how to monitor the standards of driving test centres which vary from one to another. There is much detail in that and we will happily discuss our ideas with anyone. We do not claim that our ideas are absolutely valid. However, this is clearly an area which is not being managed well enough at the moment. It needs to be taken in hand and we think that this can be done. The quality of driver training and driver testing can be dramatically improved.

I asked the question on retail and wholesale insurance and I would like to explain why I asked it in that fashion. As Hibernian, AXA and FBD have branches in the provinces as well as in Dublin, it shows a commitment to the Irish market. That is why I differentiated with the question. If we attract other international players and they establish a retail network, they will be there for the long haul. It would represent a commitment to the nation.

Mr. Faughnan

I take the point. An international insurer may be more interested in things like Internet-based shopfronts, such as clicks and mortar rather than bricks and mortar. Whatever business model they apply, they will only be in the business to make a return on their investment. They want to make a return which represents a better use of theirtranche of money than returns they might get elsewhere. It will take a fair bit to attract them in. Heretofore, they have been attracted in by taking over existing Irish insurers. In such cases, they are buying a network and growing it from there. As the Irish market settles down, in the sense that those engaged in strategic planning for insurance companies can predict risk quantifiably in the Irish market and have some reasonable certainty as to what will happen in a five or ten year time window, I would be optimistic they can devise business models and get their money in. However, ten years ago — less so now — a jump into the Irish market was the strategic business analyst’s equivalent of Russian roulette in that, depending on the spin of the wheel, one might make or lose a fortune. This is unattractive as a proposition to strategic analysts in major companies trying to make returns. The greater the stability in road safety, compensation awards, legal costs and the compo culture, the more predictability there is. As the trend in accidents moves downwards, the market will become more attractive to foreign players which may come in.

I thank Mr. Faughnan for an informative presentation. I also thank members for their contributions to an interesting meeting. I apologise for the unavoidable interruption.

Mr. Faughnan

I thank the Chairman for giving me the opportunity to speak to the committee. This is much appreciated by the AA.

The joint committee adjourned at 1.40 p.m. until 9.30 a.m. on Wednesday, 2 February 2005.