JOINT COMMITTEE ON ENTERPRISE AND SMALL BUSINESS díospóireacht -
Wednesday, 17 May 2006

Reform of Irish Insurance Market: Presentation.

Chairman

I welcome the representatives of AXA Insurance, Hibernian General Insurance and Quinn Direct Insurance who are here to assist us in our examination of the reform of the Irish insurance market. I also invite our consultant, Mr. Myles O'Reilly, and Ms Linda Morris to assist us.

I welcome Mr. Dick O'Driscoll, managing director, and Ms Laura Booth, executive manager, of Hibernian General Insurance. Before inviting Mr. O'Driscoll to commence his opening statement, I draw the attention of witnesses to the fact that while Members of this committee have absolute privilege, this privilege, unfortunately, does not extend to them. Members are also reminded of 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.

Mr. Dick O’Driscoll

I thank the committee for the opportunity to return to update it on insurance matters. I will stick as rigidly as I can to the agenda provided in the document inviting us to this meeting. I will be happy to take any questions Members might have arising from the presentation or from wider issues.

Chairman

We will hear the three submissions first and then we will have a questions and answers session.

Mr. O’Driscoll

I hope Members have our presentation in front of them. I will start on the agenda page which details the topics I intend to cover, namely, level of profits and income in 2005; changes in premium prices since April 2005 when we last appeared before the committee; our experience of the Personal Injuries Assessment Board and the Civil Liability and Courts Act; reform of the market; and the recommendations of the joint committee on speed control. I draw Members' attention to the chronology of previous submissions and presentations we have made since we first appeared before the committee approximately three years ago.

I move on to the first topic, namely, level of profits and income in 2005. Our 2005 gross written premium was €755 million with an operating profit of €250.6 million. The profits were slightly higher and the premiums were 8% or 9% lower than in 2004. If Members would like specific figures, they are in last year's presentation.

I refer to our motor premium changes which are displayed in a graph. Members might remember we had difficulty acknowledging the fact reductions in premiums were coming through. I was asked by the committee to try to find some way to demonstrate that. We have continued on the graph we introduced in the past to show the position at the end of April 2006. Members will see that since 2002, when motor premiums peaked at around €750, they have now fallen year on year to a point at the end of April 2006 of just above €500. The committee might remember that when we made our first presentation in July 2003, along with other insurers, a point raised on that occasion was that an analysis had been done of the recommendations of the Motor Insurance Advisory Board which set out to suggest that a one third target premium reduction could be generated — in other words, one third of premiums could be obliterated by the implementation of the recommendations of the MIAB and of reform in the market.

I draw Members' attention to the graph to show what has been achieved by reforms in the market, by changes of structure in that market and by the work of the committee and others. I also draw Members' attention to the fact that the profits being generated today very much relate to the premiums charged two and three years ago. Since this is a cyclical business and claims will not be settled for a period, the profits which will emanate in two and three years' time from this industry will be significantly lower than today. We have had that debate before but I draw Members' attention to it again.

Moving on to the wider classes of premium, in the past 12 months up to the end of March, we have seen a 12.6% reduction in the motor private class; a 10.3% reduction in the commercial motor class, including fleets; a 9.3% reduction in general liability classes, such as employers' and public liability; and a 4.2% reduction in the property class.

I turn to the experience we have had, as an insurer, with the Personal Injuries Assessment Board and the Civil Liability and Courts Act. Members will know from previous presentations that Hibernian has been a very consistent supporter of the PIAB. We have believed from the start that the concept offered an opportunity to take significant cost out of claims settlement in Ireland and that still stands in principle. The system is working on two levels, the first of which is the process that was introduced. We were perhaps rightly accused as an industry of being too soft on spurious claims in the past. The difficulty we had was the process that brought claimants, lawyers and insurers together in these cases was complex and costs escalated very quickly. There were behaviours that often suggested it was easier to settle claims on a nuisance value basis rather than allowing the costs train to leave the station and build quickly. One of the positive effects of the PIAB is that the screening system that exists when people want to make a claim is effective. Potential claimants know what information will be required of them, with whom it will be shared and the effect that process will have on their claims. That has materially reduced the number of spurious claims in the system. That is perhaps a benefit of PIAB that was not signalled when it was established.

The second major issue is significant control over costs. PIAB claims are processed in a fixed cost environment and insurers have an opportunity to engage in cases early and settle. A much stronger early settlement culture, particularly for minor claims, is emerging, which has been highly beneficial. There is also more control over awards. Before we had a book of quantum in Ireland, the same award in different courts could generate extraordinarily different results. We might not like the level of awards set by the book of quantum but we must acknowledge there is consistency, which we did not experience in the past, and it provides an opportunity for significant consistency into the future.

I refer to developing case law. There is a great danger we could reach a point where exceptions emerging from the PIAB process are appealed because people have that entitlement and legal costs are attached to the claims settlement, which was never intended to happen with the board's involvement. Unless we dedicate ourselves to those exceptional cases and make sure the legislation supporting PIAB is kept up to date and does not permit such unintended exceptions to gain momentum, we are in danger of allowing cost to creep back into the system. We have been very supportive of the Civil Liability and Courts Act 2004. In contrast with PIAB, while the legislation is in place, we do not have experience. There have been no prosecutions under that legislation but I am interested in its development and it is an important plank in the reform agenda.

Hibernian has been highly supportive of all efforts made by the Government and various agencies on the issue of road safety. It is three years since we appeared before the committee and highlighted three deliverables in the area of road safety — random breath testing and enforcement of drink driving laws, effective use of the penalty points system and preventing provisional licence holders to dive unaccompanied. Ireland is the only country where this is possible. Unfortunately, the Government had not moved one iota on these deliverables. A great deal is happening in the background but vehicle numbers are increasing while people continue to drive unlicensed during the most dangerous hours in the early evening and at night. I encourage the committee to focus on these issues as a significant prize remains.

With regard to insurance regulation, we are highly supportive of a good regulatory framework because we believe if we run our business in a proper fashion, an appropriate framework will support us as well as consumers. However, it should not add complexity or cost for the consumer beyond what is necessary. For example, the CP10 consumer protection recommendation will go live in July and we have been supportive of the changes introduced to the notice period for insurance renewals. It is a given in our business that we should support a good regulatory framework. Many IFSRA consultation papers are coming down the track and, as long as they are supportive of the consumer and do not add significant complexity or cost, we will continue to support them.

With regard to reforms of the market, insurance premiums are perfectly reasonable in the context of the risks being carried. I ask the committee to examine trends in other markets as well as the domestic market. During the period there were significant rate reductions in Irish premiums, motor insurance premiums increased significantly in the UK, perhaps from a different base, but the effectiveness of reform in this market is not necessarily felt in other markets. Random breath testing, graduated driving licences and major investment in enforcement through, for example, the implementation of speed cameras will deliver a further prize. The focus should be on this area going forward.

I refer to devices for controlling the speed of young and inexperienced drivers. Hibernian has focused heavily on education and assessment over the past three years. We have put more than 50,000 people through our Ignition programme, which invests more than €200 per individual in a training, education and assessment platform that enables them to quickly learn the greatest dangers they face as inexperienced drivers. As part of the Aviva group, we also have access to technologies emerging in other markets that perhaps on the basis of premiums paid in Ireland are uneconomic to implement but, because our parent company is implementing them in larger economies, we will be able to introduce them if and when it is practicable for us to do so. However, our investment is very much focused on education and assessment. We concentrate on a number of areas other than motoring. We have supported the roll-out of health and safety legislation by introducing specific products such as Risk Assist, which enable companies to manage their health and safety environment and benefit financially from implementing best practice. We are very focussed on the implementation of appropriate technologies. The technologies that could help young and inexperienced drivers to control and manage speed are expensive relative to the education and assessment route we have taken.

Mr. John O’Neill

We in AXA Insurance are delighted to be invited back and commend the work the committee has done and the additional focus it has put on the cost of insurance generally and the effect this has on the economy. The Chairman is to be congratulated on moving this. When this matter was first discussed he said he would like to see premium levels for motor insurance reduced to 1999 levels. What he will hear this morning will show we have achieved that position. We addressed the specific issues in the letter sent to us.

Members will see on page 2 of the presentation, where we set out the gross premiums of AXA Insurance Ireland in 2003, 2004 and 2005, that the figure has reduced each year. It can also be seen that profit after tax in 2005 came to €119 million. It would be useful to clarify this. Mr. O'Driscoll mentioned the delays in settling claims and the length of the tail on this type of business. Some 85% of AXA Insurance Ireland's premium income is from motor insurance and in the main the claims we pay are motor accident claims. In looking at our reserves, each year an assessment is made of claims made in prior years and a fair view is taken of our liabilities and assets. After the 2005 review, when those amounts were taken from the figures, we were able to release €81 million out of the excess of €1.5 billion we had set aside for claims. We released that into profit. Therefore, out of the €119 million related to the 2005 year, €81 million related to prior years. In addition, the capital gains we made on our investments came to €35 million. Therefore, it can be seen that our actual trading result was just above break even in that year.

What has happened in the market is that the competitive forces in the Irish motor insurance market have driven premiums down to such a level that we are approaching a situation where there is not much further we can go in terms of return on shareholder capital. It is important to bring this to the committee's attention.

With regard to the changes in prices asked for by this committee, from December 2002 to December 2005 private motor premiums were reduced by 32% on our portfolio. Since April 2005, our private motorist average premium has reduced by 8% and premiums for young drivers — those under 30 — have reduced by 20%. Commercial motor insurance is down by 10%.

We could spend much time discussing the PIAB, but it is too early to make a final judgment. Much work has been done, but there is more to do so let us see the results before we make a judgment. The PIAB system has played a part in tightening up the principles and practices involved in making claims. It has helped us to reduce premium levels because there is more proactivity at the beginning of the claim. Therefore, we know a little sooner how bad the case will be, because of the investigation taking place. More cases need to go to the PIAB and it needs to sharpen its act in terms of the length of time spent sorting out a case.

Despite the fact the PIAB process was designed to take lawyers out of the system, the practice and experience has been that people who have accidents tend to want legal advice so that they feel they get the best result. Therefore, there is a greater involvement of lawyers in the system than was expected. Also, as people get more used to the workings of the PIAB, more awards are rejected by claimants. They decide they are not prepared to take what they are offered by the PIAB and want another bite of the cherry. They decide then to go the legal route to see if they can get more. This is happening more frequently as the PIAB beds in.

The big question is whether the awards the courts give will be higher than those awarded by the PIAB. If they are higher, the lawyers will win again and the cost of settling claims will go up rather than reduce. We must wait and see the effect of the PIAB, which is a good system. Some improvements are needed and we have yet to see how it turns out. We support the concept of the PIAB.

The committee does not need to hear from me that the road safety strategy 2004-06 has not achieved its main goals, as can be seen from the numbers dead and the rising number of accidents. We need significant deployment of Garda resources to enforce road safety standards and maximise the effectiveness of the penalty points system. We do not advocate any further changes in the law, but would like the existing rules and laws to be enforced. Some members of the committee may have been to Australia and have seen the level of advertising and enforcement there. We must create an environment where people are ashamed to drive with drink on them, to exceed speed limits and not to wear seat belts. Australians see the graphic consequences of such accidents and drivers face what we would consider draconian enforcement. If there is not more visible enforcement here, we will see 500 people killed by the end of this year as against the 365 killed last year. Unless we have enforcement more people will be killed or seriously injured.

We know there are many demands on Government funding. Some €34 million is raised from motorists under the insurance levy introduced at the time of the collapse of the PMPA and ICI. That levy is taken into normal Government coffers. It should be set aside and deployed to fund the road safety initiative of enforcement. AXA Insurance remains strongly committed to road safety and continues to sponsor graphic advertisements on television. We have signed up again with the National Safety Council, the forerunner of the RSA, for a three-year campaign including its most recent graphic road safety advertising campaign.

As far as insurance regulation is concerned, we need to be careful. The Irish market has historically been a well-regulated market. The introduction of IFSRA and its reincarnation to Financial Regulator status has been accompanied by words like "principle-based regulation" as distinct from rules-based regulation. Unfortunately, we see many rules as part of this principle-based regulation. The pace and scale of regulatory reform that affects our day-to-day operating basis continues to increase. The committee should be aware that this is not free. It costs money for insurance companies to comply with regulations such as the distant marketing directive, consumer protection code and minimum competency requirements. If we must put 500 staff through a five-part examination programme to ensure they have minimum competency requirements, as currently proposed, we will probably have to recruit 100 extra people. That is a cost that ultimately will go to the insuring public.

In terms of the amount of information we must give to every person who contacts us for a quotation for new motor insurance, the length of a call has increased by 50% because of all of the information we must give to the customer. I am not sure this additional information adds value to the customer's thinking process or to the value he or she gets from his or her insurance premium. We must ensure that extra costs are justified in each case by the benefits that will accrue to consumers. We are pro regulation where it benefits the consumer but not for regulation's sake.

On speed control, AXA was the first in this market to introduce the satellite tracking system in 2001. This committee was aware of the need to get young drivers on to the road so that they could take up the jobs that were becoming available in the economy. The insurance industry was accused of not doing enough to allow young people get on the road. In my response to questions from Deputy Callely at a committee meeting on the price of insurance for young drivers, I said that if the price of motor insurance for young drivers was reduced, there would be more young drivers on the road and we agreed that this would happen. I also said there would be more young driver fatalities because of the lack of a system of training for young drivers. More young drivers are on the roads and all members will be aware of the list of deaths over any weekend which show they all involve young drivers in single vehicle accidents. Not enough is being done to train young drivers.

AXA introduced Tracksure in 2001. At that time we were probably the major insurer of young drivers and the only company consistently insuring young drivers through our previous incarnation as PMPA. The premiums for young drivers were in the region of £7,500 at that time. When we introduced Tracksure at a cost of approximately £1,000, we were prepared to reward young drivers who agreed to have their speed monitored by satellite. They were offered a reduction in premium of 40%. This system was introduced over the following few years. As Mr. O'Driscoll said, the ambient premium in the market is now such that it is too low for the customer to justify the expenditure of €1,300 to get a reduction in the premium as the commensurate premium has fallen to around €2,500. This is 25% of what it was and there is no capacity to offer a further reduction. As my presentation shows, we have already reduced premiums for that category of driver by 20% in the past 12 months. On the question of whether this will help road safety, I believe it will. Our experience of using it on vehicles driven by young drivers does not show a material improvement in their accident ratio. There are as many as ten factors which can impact on the poor driving of the category of young male drivers. Many of these factors are a result of a lack of training and the effects of having inexperienced drivers driving lethal weapons while unsupervised by trained drivers, which is currently allowed by the licensing system.

The committee will have seen the documentation on claims frequency which shows the rise. We recommend and underline that enforcement is critical.

Chairman

I thank Mr. O'Neill for a very comprehensive submission. I welcome Mr. Morgan and Ms Goldrick from Quinn Direct.

Mr. Colin Morgan

Quinn Direct welcomes the opportunity to make a further submission to this committee and we thank the committee for the invitation to attend.

This is our fifth submission to the committee in the past three years. Our presentation will cover the areas requested by the committee, namely, an update on our most recent financial results for 2005, an update on the premium reductions since the last submission last year, our views on the recent reform of the market, our comments on certain recommendations made by the Competition Authority and this committee. We will also give an assessment of our future business plans.

Quinn Direct achieved 30% annual turnover growth in 2005. As premiums have been decreasing in cost, we have experienced an increase in customer numbers. Most of this growth occurred in the Republic of Ireland and it was driven by consistently offering competitively priced products. Our growth continues to be strong in Ireland in 2006 and we also continue to grow our business overseas. This growth over the past number of years demonstrates that Quinn Direct continues to lead the way in premium cost reductions in the Irish market. Since April last year we have offered a reduction of 7.5% in private motor rates, just under 9% in commercial motor rates, about 15% in commercial liability and 13% in commercial property. In summary, rates have fallen between 7% and 15% over the past 12 months, which are continuous significant reductions in premiums. We continue to grow our business in Ireland by being competitive and we will continue to support any Government reform programmes that reduce claims costs and improve road safety.

I will give the committee an outline of our financial results for 2005 with some comparative results for 2003 and 2004. Our gross written premium increased to €621 million and our profit after tax increased to €205 million. This includes a strong increase in our investment income as a result of the globally strong equity and investment markets in 2005. Most of our increase in profit arose as a result of this factor.

I will outline to the committee how our market share in this market has increased over recent years. This has been achieved by remaining the most competitive operator in the market. The first part of the table shows the motor premium and our market share in each of the past four years. Our market share was 9.4% in 2002 and this has been increased to 16.7% in 2005 and we have almost doubled the market share in motor insurance. Our market share in liability insurance in 2002 was just under 6% and we increased it to just under 16% last year. This is a very competitive market as can be seen from the premium reductions.

The next pages of the presentation give the committee more detail on certain categories of motor and business insurance and on the reduction in premiums since we made our initial submissions to the committee. I do not propose to read these details but the committee will see that the order of reductions since December 2002 has been between 47% and 58% and this has continued over the past 12 months across all categories of drivers.

We are consistently the most competitive insurer in the market and this is backed up by the surveys conducted by the Financial Regulator. The most recent survey showed Quinn Direct to be cheapest in 20 out of 24 survey profiles.

Our presentation gives an update on commercial insurance. Employers' and public liability insurance show significant premium reductions since 2002 and very significant reductions in the past 12 months. Since December 2002 rates have fallen by 23% in the case of a factory and there are continuing strong reductions in liability insurance. Rates for property insurance have halved since December 2002 with significant reductions in the past 12 months.

As requested by the committee, page eight of the presentation states our views on recent reforms in the insurance market. The most significant reform has been the establishment of PIAB, the Personal Injuries Assessment Board. This was a worthwhile initiative and we encourage any initiative taken to reduce legal costs. The elimination of legal costs from the system is an issue that has underpinned our business model for the past number of years. I will detail a number of concerns we have as a result of initial results from PIAB. We have some concerns about the length it takes PIAB to process claims and make awards. Our business model is aimed at making settlements without undue delay whereas PIAB can cause them to be delayed in some circumstances. To echo what Mr. O'Neill said, the rejection of awards by plaintiffs is much higher than we expected. It is early days but the initial indications show a high level of rejection of awards. Mr. O'Neill also referred to the fact that the majority of claimants still have legal representation, albeit in an informal way. People are not going directly to PIAB but normally engage a solicitor to do so. This is an important fact that needs to be watched.

The Civil Liability and Courts Act has resulted in many positive developments and over time this Act will help to reduce fraud and exaggerated claims, albeit the evidence to date is minimal. We are still concerned about the level of personal injury awards in Ireland. There is still major inconsistency in awards made in different jurisdictions, making it difficult for insurance companies. The overall level of awards is still much higher than the European average.

On road safety, we echo what the other insurers have stated in that the implementation of the road safety programme remains a serious concern. The frequency of accidents here has increased in the past two years, which is borne out most clearly in the increase in road deaths in recent years. We feel there is no real evidence that driver behaviour has changed, which is what is needed in reducing accidents and road deaths.

The committee asked for our views on how premiums could be further reduced. The key issue is the enforcement of driving offences. If that happens premiums can reduce further. Education is important and needs to continue. However, enforcement is the key. A number of other areas could lead to a more competitive market, including increased transparency in intermediary charges. We feel that more could be done to make it clear to customers as to how much they are paying to the intermediary and how much to the insurer. We believe this is in consumers' best interest. As intermediaries have a duty to provide the best advice to their clients they should avail of all products available on the market irrespective of the relationship the adviser or intermediary has with the insurer concerned.

We were asked to comment on some specific recommendations from the Competition Authority and from this committee on the monitoring of speed. We have examined and will continue to examine this matter in detail. However, given that premiums have reduced in recent years we find it difficult to find a practicable solution that does not result in cost increases. As I have said, our philosophy is to keep costs as low as possible and we do not want to introduce a change that would lead to premium increases. However, we will continue to review the matter. One of the difficulties we have with giving discounts and making this measure practicable is that under road traffic legislation even if we give a discount for somebody to use such equipment, if they breach that we would still be liable for the third party aspect of the claim.

Enforcement of speed limits needs to be achieved. We have consistently shown that we will provide the lowest prices to young drivers. We continue to offer competitive pricing and we will give generous no-claims discounts to people who are claim free, which is the way to drive the matter forward.

I will give a brief assessment of how we feel our business is developing and how the market will develop. We plan to continue to increase market share and our business by continuing to focus on being as low a cost provider as we can, to which end efficiency is key. We feel we have provided leadership to the industry by eliminating unnecessary legal costs in claims processes and passing these savings on to our customers. As a new entrant to the market ten years ago and having grown particularly strong in the past five or six, we feel that that competition has helped to drive prices down. We will continue to expand our business in Ireland and other markets. Our headquarters is in Ireland and we have created more than 1,500 jobs on the island in recent years.

Chairman

Are all brokers now offering Quinn Direct Insurance products? Three years ago Mr. Morgan's predecessor told the committee that some of the major brokers were not offering the company's products.

Mr. Morgan

No, not considerably. The three large international brokers still do not offer our business insurance products.

Chairman

The 15% reduction in commercial liability insurance premiums is very much welcomed. The committee took a very active role in this area in particular by convincing the Government to introduce the Safety, Health and Welfare at Work Act. Does Quinn Direct envisage further reductions this year?

Mr. Morgan

Prices have reduced considerably and, like other insurers present today, we feel further savings are required on the claims side to reduce premiums further. However, we are happy with that business and we will continue to grow our book which may well lead to reduced premiums.

Chairman

The committee believes that the level of profits as a proportion of premiums is still very high. In 2002 industry was on its knees and the committee was happy to be the conduit from the industry to Government to convince it to introduce the four Bills that have resulted in major changes. However, profits are said to be in excess of €1 billion, although we have heard to the contrary in submissions this morning.

The Minister for Education and Science already gave an indication of her view on this matter. Recommendation No. 55 of our third interim report proposed that the National Council for Curriculum Assessment should make early provision for the inclusion of the driver theory test for secondary school students as part of their transition year studies. In addition, secondary schools should be required to provide simulated driving instruction for all students on reaching 17 years of age. We intend to actively pursue this matter in our fourth and final report to Government. We feel that education must be the key. Mr. O'Neill referred to the rules of the road — I believe he called them "the rules of the game". Some 80% of accidents are attributable to speed. The attitude must change. I assure the three groups attending that we will do all we can to have recommendation No. 55 implemented if possible in the coming year.

Mr. O'Neill mentioned Australia. A delegation from the Oireachtas Joint Committee on Transport visited Australia, not members of this committee. Mr. Eddie Shaw worked very hard to do his utmost and we have taken on board a considerable amount of what he has said. We wish Gay Byrne well in his new position. I met Mr. Byrne for an hour and updated him on the committee's work. I hope he will come to assist the committee in our deliberations prior to publishing our fourth and final report on the motor insurance industry.

On penalty points, I understand that the master computer — for want of a better term — is located in New Zealand. Can any of the witnesses assist the committee in that regard? If they do not have the information this morning, perhaps they could come back to the clerk on this matter. For four or five months after the then Minister for Transport, Deputy Brennan, introduced penalty points fatalities and serious injuries dropped substantially. However, because the general public believed that monitoring was not taking place, those figures have increased again. We intend to address that matter. Our fourth and final report, which I hope will be concluded by the end of the summer, will go into minute detail in recommendations on how to enforce penalty points. The fear is in the law regarding penalty points. The implementation of the law on penalty points is lacking at the moment. We need the support of the insurers in this regard.

I compliment the insurance companies on the advertising campaigns they are carrying out in the media, in particular on television, reminding the public what can happen because of the abuse of speed.

Deputy Lynch

I welcome the delegation. We appreciate that they always come when invited and give us the detail of their business, which may at times be off-putting. After three years they must realise that our intention at the outset was honourable and has been justified in what we have done. This committee really only considers the reductions consumers can get in their insurance premiums. However, on the other hand there is the awful side of the business where 300 people are killed every year. We cannot deal with that matter as it is on the transport and safety side. However, we can apply the mechanisms to the insurance industry and therefore deal with it on that basis.

We will have to consider one other element of this matter during the next review we undertake. Just as we do not have enough enforcement in respect of speed cameras, penalty points, etc., we do not know how many drivers are uninsured. We are unable to establish that information. I believe this will become a major problem and people are very worried about it. Do the representatives of the delegations have any experience of that issue? How do they think it can be dealt with?

Deputy Nolan

I welcome the various insurance companies represented at this meeting. I would like to ask about the inordinate number of serious road accidents involving left-hand drive cars in recent months. Do the insurance companies load their premiums to take account of such cars? Do they have a view on the manner in which people from outside this State drive in this country while insured by companies in their own countries? Do they share my strong opinion that there should be a substantial loading on the insurance of all left-hand drive cars to reduce or curtail the number of such cars being brought into this country?

The difficulty with left-hand drive cars is that the drivers have to move across the road before an overtaking manoeuvre can be attempted. I have seen the results of some horrendous accidents involving such cars. If drivers of left-hand drive cars do not have front seat passengers to tell them whether there is oncoming traffic, they have to move out to see for themselves, thereby putting all road users in danger. Do the insurance companies have a policy on left-hand drive cars? Would they support the idea of increasing the loading, if there is a loading, on left-hand drive cars?

Mr. O'Neill and Mr. Morgan spoke about the effectiveness of the Personal Injuries Assessment Board, of which I am a great supporter. This committee and the Oireachtas in general are pleased with the work of the board. I am concerned by the delegation's comments about the number of claimants who are once more resorting to the courts. The Oireachtas spent approximately three and a half years on the tortuous process of enacting legislation in this regard. I commend the Tánaiste for pursuing the legislation in question, in the face of a great deal of opposition from vested interests, while she was Minister for Enterprise, Trade and Employment. I am concerned that the increasing use of the courts in this respect could be an example of the operation of the old boys' club. Judges who sit on such cases are aware that there was a great deal of hostility among the legal profession to the establishment of the board, which was a wonderful idea and has been a great success. If there are two or three cases of claimants succeeding in increasing their levels of compensation in the courts, however, we might as well write off the future of the board. Do the representatives of the companies have any views on this issue? I feel strongly that there is a huge onus on the judges to protect the legislation we have enacted.

Deputy Quinn

I am new to this committee but not to this issue. I recall the vociferous opposition of the legal profession to the changes which were suggested in the mid-1990s. I underline the validity of the question asked by Deputy Nolan. Lawyers aspire to be judges and judges never forget they were once poor lawyers. Every Attorney General is a lawyer and hopes to become a judge. I had close experience of that unholy triangle when we were setting rates of pay for tribunal legal presentations. To borrow a phrase from another political colleague, "They have not gone away, you know."

It is clear that there have been losers in this process because premiums have come down. As Deputy Nolan stated, what can we do from an insurance point of view to ensure that the hallowed halls of the Four Courts do not accidentally or conspiratorially produce a set of benchmark judgments which will initiate a stampede back to the courts and away from the Personal Injuries Assessment Board?

Chairman

I call Mr. O'Driscoll, although he can ask his colleagues to respond to certain questions if he wishes.

Mr. O’Driscoll

That is fine. I will try to deal with the lack of insurance cover, a problem raised by Deputy Lynch. I will also speak specifically about the case of left-hand drive cars mentioned by Deputy Nolan. He highlighted the use of host country insurance by many drivers of such cars. Deficiencies in this country's laws have hindered the ability of the Garda to seize certain imported vehicles which they could seize if they were registered in Ireland and there was a lack of evidence of insurance. I understand that some of our new residents from eastern European countries have developed a clear understanding of certain rights on which they can call when they are stopped by the Garda. They resist the seizure of their cars on that basis. I understand that this phenomenon is being dealt with in a different manner that is perhaps more hopeful.

The tiny cohort of left-hand drive cars in this country is growing quickly. The insurance industry does provide for a loading of approximately 25% for them, although they are dealt with on a case-by-case basis. The statistical evidence for taking such action is quite weak because we are basing our information on accidents on a tiny historical base. We know that left-hand drive cars are more likely to be involved in accidents because, as Deputy Nolan said, overtaking on single-carriageway roads is extremely dangerous if there is nobody in the passenger seat.

There is a need to educate drivers who are moving to Ireland from other countries about local practices and legislation here. It is sad and unfortunate that the immigrant community has been represented in a disproportionately high way in some of the catastrophic accidents we have seen over the last 12 months. It is a problem that will increase rapidly if we do not tackle it. I am not sure that the industry should come together to discuss the various practices in this regard as there can be a danger of collusion in such circumstances. Perhaps it would be better to establish a committee under the guidance of somebody outside the industry to speak to the various interests about how a reasonable standard for people arriving in this country with left-hand drive vehicles can be implemented.

We need to acknowledge there are problems with people arriving in this country with cars which are insured in their countries of origin, but that insurance turns out not to be worth the paper it is written on in the event of an accident. It is a phenomenon that is best addressed or understood through the Motor Insurance Bureau of Ireland because the claims in question ultimately make their way to the bureau. That is where we can get the information about the effect of this phenomenon that needs to be made available to this committee and the industry.

I would like to speak again about the Personal Injuries Assessment Board. I may have been somewhat oblique when I was trying to say we need to be very careful about emerging case law. If an adjudication from the board is rejected and the matter goes to court, the court may accept the same level of award but also award costs. The industry is concerned that such cases open an avenue to refeeding the whole expense layer. If that becomes a practice, we will see a further layer of cost in addition to all the costs which existed before the establishment of the board. We need to be on our toes in this regard. We need to publish and bring to the attention of the public every single one of these cases. As the legislation is generally seen to be effective, and the process changes which I identified are enabling the speedier settlement of claims, there is a danger that the public will sit back and believe we now have a system that works. I think we need to be alert and to educate people about exactly what is happening with these exceptional cases, so that we do not end up going back to square one.

Deputy T. Dempsey

: I welcome the decline in the cost of premiums. Rural areas are blighted by boy racers speeding around at 3 a.m. and 4 a.m. Constituents tell me gardaí should be more active at these times than in the middle of the day. Does the delegation have any statistics to indicate whether these boy racers make a significant contribution to accident figures or are they so skilled they can avoid accidents? Three weeks ago four young lads took over a field in Wexford at 3 a.m. and engaged in Mondello Park type racing.

I am interested in the relationship between insurance companies' profits and the cost of premiums. Perhaps I misread Hibernian's profit levels but if it recorded a profit of €250 million, it appears to have increased by 33%. As premiums decline, have profit levels increased or decreased? Will the delegation provide comparable figures for 2002?

Three years ago, while still employed as a teacher, I noted that the theory section of the driving test could be done in transition year or as part of the civic, social and political education programme, CSPE. Such an initiative would introduce a level of responsibility among youngsters, which was not afforded to my generation.

In my time as a teacher insurance was dealt with in a subject called business organisation, which only covered the philosophy of insurance and did not address its practical application. People thought it was healthy to lodge claims against insurance companies without realising that to do so increased premiums for all of us. Given that business organisation is not studied by the leaving certificate applied students, a large cohort of young people does not hear about insurance and how it works. Would the delegation consider plans to introduce insurance as a general subject in the second level education system?

Deputy P. Breen

: Are the insurance companies' profits in Ireland much higher than those of their counterparts in the United Kingdom and, if so, why is this the case? Regarding the liberalisation of the insurance market, all the witnesses indicated that rates are competitive here. Without mentioning company names, I will cite the experience of my son who received an insurance quote from the company with which he was insured of approximately €1,400. When he telephoned another company he was given a quote of €790. Clearly, therefore, there are major differences in quotes in this small market. Incidentally, my son who is 23 years old did not telephone any other companies, choosing instead to accept the second quote.

Recently, when the Bank of Scotland entered the Irish market, the established banks suddenly started to offer better interest rates, more favourable terms and so forth. Would greater liberalisation of the insurance market not create more competition and benefit the consumer?

While I welcome the reduction in the cost of insurance premiums, the profits of Irish insurance companies compared to British companies suggests there is scope for further reductions. Young drivers should be rewarded for good behaviour. Has the fraud hotline been successful?

Deputy Callanan

I thank the three groups for their presentations. It is clear from their remarks that existing laws on speeding and other traffic offences must be enforced. The representatives of AXA indicated that the satellite system it introduced, known as "Traksure", is no longer viable due to the reduction in the cost of premiums. This is a pity because it seemed to be a good system.

Deputy Tony Dempsey raised the issue of young drivers racing cars. I am informed that they display their mobile telephone numbers on their cars to enable others to contact them. This matter should be examined with a view to prohibiting anyone other than a business from displaying a telephone number on a car. Have any of the insurance companies considered sponsoring driver training courses for young people in schools?

Chairman

On Deputy Callanan's point, Mr. O'Neill indicated that those who used his company's satellite monitoring system, known as the black box, received a 40% reduction in the price of premiums. Such a reduction in premiums is an extremely attractive proposition. Did this result in improved driver behaviour? If such technology was implemented across the board by the insurance companies, this committee would consider issuing a recommendation that premiums be reduced by 40%. We intend to visit companies manufacturing this type of technology to ascertain how we can encourage motorists to avail of it. All public transport vehicles, for example, should use black box technology, particularly as it would have allowed a definitive determination to be made as to the cause of two recent school bus crashes. With black box technology, one would have been able to determine within 20 minutes the sequence of events leading up to a recent unfortunate accident when a bus mounted the footpath outside the Clarence Hotel.

The German experience with this technology, which I understand will also be introduced in New York soon, has been good. The joint committee will engage with the issue to determine how we can assist the industry by making recommendations to Government in this regard. I am anxious to hear about the experience and progress being made by AXA which has been working with this technology.

Mr. O’Neill

I recommend that the joint committee continue with caution its valuable investigations into this issue. To take three of the points raised by the Chairman, from what we know of the bus accident which took place on Dublin's quays, tracking would not have been of assistance because the bus lurched forward from a standing position. When it ran over the unfortunate victims of the accident it was allegedly travelling at less than 4 mph. In the Clara incident early investigation demonstrates that the rear axle parted from the back of the bus when it went over a badly engineered bridge. There is no evidence at this time to show that the speed of the bus at the time of the accident was in excess of 25 mph. Having a tracker installed in the bus in question would have been of limited use in this case.

Chairman

A tracker would confirm the speed at which a vehicle involved in an accident was travelling.

Mr. O’Neill

: That is correct. I am sure the Chairman, like me, has been passed by large passenger-carrying, commercial vehicles of that type while travelling a major route, even while observing the speed limit. There may be a methodology of using this technology but I urge caution in this regard because it does not provide all the answers. The 40% reduction was offered when premiums of £7,500 were being charged. As Deputy Pat Breen noted, his 23 year old son, who is clearly in the young driver category, was able to secure cover for €790. This premium is probably lower than that available for a person in Manchester in the same risk category.

Deputy Tony Dempsey asked why young drivers are tearing around the country. The reason is that premiums are as low as we have just demonstrated. This relates to a point I made to the former Minister of State at the Department of Transport, Deputy Callely, that if one lowers the cost of premiums for young drivers and reduces the barrier of entry without enforcing adequate training, one will have boy racers in every field in every county at every weekend. It is a two-edged sword.

Deputy P. Breen

Young drivers should be rewarded for their good behaviour if they have made no claims after four or five years of driving.

Mr. O’Neill

Our no-claims discount is up to 70% for young and old drivers — we do not discriminate between the two and operate a no-discrimination policy.

We are members of the European Community, which allows for the free movement of people, and we do not discriminate against left-hand drive vehicles because they are legal in the countries in which they are registered. As long as their drivers comply with the law, we are bound to treat them the same as right-hand drives. We treat people fairly and as we find them. If gardaí stop cars coming out of the field in Wexford, they will find that they are insured. If they check them out, they will find that many of the drivers have no-claims bonuses, and correctly so. That is the situation we live with.

Chairman

AXA is making a profit in excess of €1 billion, which is engaging the public very much at present. Given this profit, why can premiums not be reduced by 15% across the board?

Mr. O’Neill

The bad news is that it is unlikely we will see a profit of €1 billion at the end of 2006, and we will not see it at the end of 2007. This is because we are beginning the cycle again. I anticipate that we will appear before the committee again in two years and, as the first insurer to have told it we were making profits in the current cycle, we will be pointing out that we are at break-even point on current business, as stated in our document. At the end of this year, we will be losing money on underwriting because premiums have decreased below the economic cost.

We have had our period of profits and are now heading into a period of unprofitability — it is a cyclical business. Given the way we write our business and slice and dice our dates, we are probably the first in the market to see these trends. Just as we were the first to tell the committee we were making money out of motor insurance, unfortunately we will be the first to tell it the game is over and that prices will have to be increased because of falling profits.

Mr. O’Driscoll

A number of members raised the profit issue. I have gone to considerable lengths to supply data over the past three years to explain how profit calculations work in a cyclical business. I have obviously not made great progress in this regard because I do not remember being asked about the losses when they were being incurred.

Chairman

Mr. O'Driscoll was asked and supported by me. I understand that the company must make a profit.

Mr. O’Driscoll

I acknowledge that. I suggested three years ago that we should start talking about the profitability of the industry over a cycle, be it a five-year or ten-year cycle. If the committee members focus their attention on the highs and we concentrate on the lows, we will not talk sense to each other. We must talk about the attractiveness of the market to external companies so they can invest capital to enable us to increase competition. It is not our job to do this. Our job is to comply with the regulations as they stand.

On the profitability of the Irish market over others, one will find, in light of the point of the cycle we have reached and the 2005 profits, that profits from general insurance in Ireland on an operating profit basis were higher than those in the United Kingdom in relative terms. If one determines them over a cycle of five years or ten years, one will find they are lower. The reason for the lack of competition in the market four years ago, which represented a crisis, was the locally accumulated losses.

We need a competitive marketplace. The decrease from a premium of €1,400 to €790 means there is competition in the market. Some insurers have the appetite to write business at lower prices than others because they are taking a different view of the performance of the market. I firmly believe the market is now highly competitive and that the profits are not excessive. However, I believe it is very difficult to explain the profits of the business at a given point to the consumer.

Chairman

Does Quinn Direct find it could reduce its profit of €205 million by 15% to make it more attractive?

Mr. Morgan

I believe 2005 was probably the peak of the profitability cycle, both in terms of underwriting and investment return, which is cyclical. This was probably positive for everybody in the market.

The market has probably never been more competitive. The example Deputy Pat Breen gave shows that companies are very aggressive in seeking new customers and offering quite significant discounts as a consequence.

From a consumer perspective, profits are healthy. They point to strong companies and the existence of capital and more competition. To focus on one particular year and use a big figure such as €1 billion is probably a little unfair on insurance companies. We need to make profits to continue to reduce premiums. If we have cycles such as those that existed in the past, prices will increase, which is not what anybody wants. Everyone would prefer them to continue to fall on foot of reform in the market, but not too quickly such that they would increase quickly thereafter.

Some comments were made on boy racers and young drivers. We insure quite a few people in that market. Some very unsavoury incidents are happening on the roads, but we have no statistics to indicate the problem is getting worse. One can pick out individual cases but overall we are still happy to operate in the market.

We entered the UK market some years ago and regard it as very attractive to a low-cost operator whose costs are right. We do not feel there will be a very significant difference between the markets in the United Kingdom and Ireland.

Chairman

Does Quinn Direct increase premiums for those with left-hand drives?

Mr. Morgan

We rate everything according to risk and feel left-hand drives represent an increased risk, although there are not many of them. However, the number in the country is increasing. We currently have a loading of 25% to 30% on premiums for left-hand drives.

Senator O’Toole

I declare an interest because I am vice-chairman of the Personal Injuries Assessment Board. I apologise for not having said so at the beginning. The committee has dealt with the board on a number of occasions and it is therefore important to consider the issues raised by the insurance companies.

I became aware only recently that it is possible to tax one's car on-line without its being properly insured. When one enters one's vehicle details on-line, including the number of one's insurance policy and its date of expiry, they are not checked. Consequently one can enter any kind of gobbledegook after the name of an insurance company. This is appalling as rectifying the problem would simply involve cross-checking the details with those on a mainframe database. This should not be allowed to continue and the committee should take a clear line to the effect that local authorities should have a system whereby the number of an insurance policy and the name of the insurer, when given by an individual, should be entered on a database for cross-checking. This would be no different from the system we use every day in respect of credit cards, whereby the card is checked after one enters one's number. This is not rocket science but involves very simple, basic computerisation. Are the insurance companies aware of this problem and will they co-operate to ensure that local authorities have a very simple system for checking insurance details? The committee should bring this to the notice of the appropriate Minister to intervene immediately.

While it is good that there is generally a positive vibe coming from the companies involved in the Personal Injuries Assessment Board, all three groups raised the fact that there is a higher rate of legal representation than was expected. That was never intended. It was intended instead that this would be a sort of in-house process but this has been challenged. We have spent the past two years in court dealing with case after case challenging the way the PIAB does its business. The Supreme Court has ruled that people are entitled to use their solicitors. This is not an initiative of the PIAB.

The rejection rate is not necessarily increasing. It has steadied but all the cases must now come through the PIAB. This is the first full year of operation and everything has not yet been sorted out, but of the 20,000 cases that have come through, 3,000 have been assessed and dealt with, 7,000 or 8,000 have been sent back to the courts because the PIAB cannot deal with them, and 8,000 or 9,000 are within the process. The speed of the awards was determined in consultation with all the partners and included in legislation. Are the insurance companies suggesting that it is taking more time than was envisaged by the legislation?

The PIAB has done an impressive job over the past two or three years, effectively doing the impossible in dealing with these cases against every vested interest. Every possible group has stood in its way. All cases from certain quarters and legal representatives are rejected. Neither the insurance companies nor the PIAB has any authority over that. It may be that we must simply live with it. It should not be impossible to deal with. A difficulty has arisen, however, in regard to medical information. This has always been made available to the courts, and to the various interested parties, in assessing cases. A couple of legal challenges have been mounted on the issue of whether the medical information of the claimant should be sent to the representatives of the insurance companies, for understandable reasons.

This emphasises the point that somebody or other has challenged every step taken by the PIAB. Everything has been checked and we are constantly in the courts. We are working our way through these claims. The board has been far more successful than we envisaged in our first business plan and constitutes a significant reform but the support of the companies is crucial to this.

Chairman

Surely when precedent has been established this will stop. These challenges reflect the teasing out of the issues.

Senator O’Toole

That is precisely the point. It appears that four or five more possible legal challenges will be mounted in the next two or three years. Only then will we see the impact of the PIAB on the industry.

Deputy Quinn

I am grateful for Senator O'Toole's intervention and his expertise in this area. While understandably we focus on the human carnage and loss to families, as a small open economy that is rapidly losing competitiveness we at least can control insurance. Many of the costs, as the Chairman demonstrated, are under our control, and there are dark forces which are losing. As the market becomes more competitive someone loses out.

Mr. O'Driscoll referred elliptically to monitoring case law and how it is emerging. We must be rigorous about this. He may recall the numerous challenges mounted against the tribunals when people went to the Supreme Court at the drop of a hat to defend their constitutional rights, and lawyers were willing to do so. At stake is much more than reducing carnage on the the roads. From my point of view, what is at stake is the viability of small business on this island. We depend on small business to sustain employment levels because the big businesses will decamp in the morning when the price factors are right and China becomes more attractive than west Cork.

I address the next question to Mr. Morgan and Mr. O'Neill because Mr. O'Driscoll has already answered it. What can we do together to monitor court cases? I take Mr. O'Driscoll's point that the industry cannot be seen to collude in defending its own position. There is, however, a wider position to defend. A good interventionist Government can provide a degree of certainty and security in the marketplace. A cyclical risk industry, such as insurance, is more exposed to arbitrary factors and judgments than many other sectors of the economy. We need the industry's help to do our job better.

One reason foreign companies would not come into the Irish market was that the Irish courts were a lottery with no consistency, for example, between Wexford and Westport, in the legal outcome of virtually identical cases, under the same set of rules. If that remains the case, it is up to the Oireachtas to deal with it in so far as it can, while defending citizens' rights. The PIAB has run for one full year, after a ten-year discussion starting with a proposal for a book of quantum in 1992, but we are not out of the woods yet because the patterns have not settled and headline cases are being taken in the courts which will establish precedent.

I am new to this brief but this issue seems to have wider implications for the competitiveness of our society and economy than the human tragedy of those affected by deaths on the roads.

Mr. Morgan

: We do not see the rejection rate at the PIAB increasing but it has been higher than expected. We have limited experience and will see over time how that pans out but it is a matter of concern.

Senator O’Toole

The way to increase the acceptance rate is probably to increase the awards.

Mr. Morgan

Possibly, but that is not the right answer. A fundamental issue is the legal costs. People have been accustomed to using solicitors for personal injury claims. While the PIAB makes it easier for people to get an award without hiring a solicitor, people feel more comfortable when they have professional advice. Over time that may change but it is important that the PIAB process is as easy as possible for people to use without resorting to legal advice. When plaintiffs or their solicitors sitting in the background, which is more likely to be the case, reject awards, they incur costs by going to litigation.

If the award is wrong, as happens occasionally, costs should be awarded but if people reject awards simply to enable the solicitor to get costs, legislation is important. That is where the question of precedent, and the resulting case law, will determine how successful the PIAB is in keeping legal costs out of the system.

Mr. O’Driscoll

I concur with Mr. Morgan's comments about keeping costs out of the system. We need to be on high alert. Senator O'Toole mentioned certain law firms rejecting all adjudications. That is not acceptable. The intention in establishing the Personal Injuries Assessment Board was to ensure people had the right to appeal if they felt their individual award was inappropriate. The intention was not to allow a law firm reject every case that came along. If we accept that, we will have a scenario similar to that before the establishment of the board where the legal profession can revert to type and generate income from claims. I am conscious that it is difficult to prevent that during this initial phase. However, we cannot sit back and allow a practice to emerge that we will have to fight tooth and nail to unwind in four years' time.

Deputy P. Breen

Insurance companies obviously plan for the future. Do the representatives from Hibernian Insurance and Quinn Direct agree with Mr. O'Neill's comments that insurance companies are facing an uncertain future in the next four years? Every company must make profits to re-invest in the industry. Is it the end of the road for cheaper insurance for young drivers?

Mr. O’Driscoll

I believe the rates that are charged are reasonable for the risks that prevail in the economy. If there are to be any future reductions, they must be based on the implementation of promises made several years ago, namely enforcement, the clearance of unlicensed drivers and the introduction of random breath-testing. Unless substantial developments happen in this regard, in our opinion, there is no fat left in the prices we are charging to justify a further reduction in premia. The great danger we face is that we will allow what happened in the past to contribute to that difficulty. We will arrive at a point where the return is so unattractive to the external shareholder that it decides to do business elsewhere. We have reduced premia by over one third in a short period, against the trend in some other European economies. We must be careful that we do not shoot ourselves in the foot at this stage.

Senator O’Toole

The delegation did not respond to my comments on on-line taxation.

Mr. O’Driscoll

That lack of data exchange is symptomatic of the absence of data exchange in many other areas. We are fully supportive of the information being validated on-line. When it was proposed to introduce the on-line system, we made representations to various Departments, pointing out that all it did was facilitate uninsured driving. There is no communication regarding vehicle, driver, conviction, tax and insurance files, which is ludicrous. There are huge possibilities for the automatic enforcement of many of the rules of the road if we share the data. Our company will support any initiative to resolve this.

Chairman

The New Zealand authorities have a master computer, tried and tested, that carries this data, including the implementation of penalty points. The committee is determined to investigate this. The committee would welcome any assistance that can be given by the three insurance companies on this matter. The committee already has made a recommendation to the Government on random breath-testing and it has responded to that. The penalty points issue is down to monitoring its implementation and how successful the traffic corps will be. When we visited New York, we noted how the introduction of a traffic corps for monitoring traffic flow and speed also saw crime rates fall by 30%. That shows how a traffic corps can be successful if it is properly established.

I thank Mr. John O'Neill, Mr. Paul Moloney, Mr. Dick O'Driscoll, Mr. Brian Huston, Ms Laura Booth, Mr. Colin Morgan and Ms Sylvia Goldrick for attending. This is the beginning of the committee's fourth phase of its investigation into the insurance industry. At one stage this morning I thought about when we will monitor the insurance industry's profits for early of next year. It is hard not to respond when the industry is making an excess profit of €1 billion. We take what the industry tells us as bona fide but we will be keeping an eye on the industry next year, particularly in the lead-up to May.

The joint committee adjourned at 11.15 a.m. until 2.30 p.m. on Tuesday, 23 May 2006.