Today we will discuss the rising costs of motor insurance and we are joined by the Minister of State, Deputy Eoghan Murphy and his officials. I ask the Minister of State to make his opening statement.
Rising Cost of Motor Insurance: Minister of State
I thank the committee for the invitation to discuss the issue of the rising costs of motor insurance. Dealing with this issue is important and I welcome the initiative of this Oireachtas committee to hold public meetings over the coming weeks. I agree with the committee that this area requires urgent attention. I look forward to hearing what all the stakeholders attending the committee hearings have to contribute and to what the committee members have to add.
I will update the committee today on my work in the Department of Finance with the cost of insurance working group which brings together all the relevant Departments and offices involved with the process. The committee can rest assured that I will incorporate the outcome of the committee hearings into the analysis of the cost of insurance working group.
The cost of insurance working group was established in July and has representation from the Departments of Finance, Jobs, Enterprise and Innovation, Justice and Equality, and Transport, Tourism and Sport, the Central Bank of Ireland and the Injuries Board. The objective of the working group, as set out in our agreed terms of reference, is to identify and examine the drivers of the cost of insurance, with particular focus on motor insurance, and to recommend short, medium and longer term measures to address the issue of increasing insurance costs, taking account of the requirement for an economically vibrant and financially stable insurance sector.
The core areas to be examined by the working group in this first phase are the motor insurance sector generally, at present and in recent years; the effects of legal costs and litigation processes on insurance costs; the current claims compensation arrangements and the cost of claims; insurance data and information; the impact of accident rates; the impact of unlawful activity on the insurance sector; and other market issues.
Given that the issue of the cost of insurance is complex and in order to get to the heart of these issues as soon as possible, I established four subgroups to review them in detail. Chairs have been appointed to these subgroups and work has already commenced. The outputs of these subgroups will feed into the regular meetings of the working group. I am determined to ensure that this important work progresses at pace, meeting deadlines and achieving results. I am taking a hands-on approach as chair, working closely with Department of Finance officials and liaising closely with the four subgroups that are now established. I have also personally met a number of stakeholders to help me develop a greater understanding of their perspective on this complex issue.
The working group has held two meetings to date, on 20 July and 1 September. We have scheduled meetings for every two to three weeks to the end of 2016. By the end of October, I want to have identified the priority actions required and this will form the basis for an update report to the Minister for Finance. From November to December, my aim is to put in place an action plan to enable the relevant Departments and offices to commence the implementation of these priority actions. In this regard, I will be consulting regularly with my Government colleagues.
A number of specific issues are reported to be contributing to the increasing cost of car insurance in Ireland. Industry, for example, argues that excessive award levels, increased number of claims, and excessive legal costs are significant contributory factors. However, because of a lack of transparency in the final settlements, it is difficult to corroborate these industry arguments. All one can definitely say is that motor insurance costs have increased significantly in the year to July 2016.
In developing solutions, we have to be conscious of the need for a stable insurance sector and ensure risks to policyholders and the wider financial system are minimised. Consequently, the importance of insurance companies meeting regulatory requirements and maintaining adequate reserves cannot be understated in examining the pricing of insurance products.
I believe we need to build consensus around the causes of the problem and to identify appropriate actions which then need to be implemented as soon as possible in order to restore some stability to the motor insurance market, as well as hopefully making it more attractive for new entrants. It is likely that some of our actions may take time to implement, particularly if legislation is required, but with the co-operation of all political parties, these measures can be prioritised.
As mentioned earlier, one of the major shortcomings with existing settlement arrangements is the lack of transparency around the cost of settling claims or awards in personal injuries cases that do not go through the courts or the injuries board. There is an absence of information from the industry on the number of personal injury claims settled, average injury settlement amount, average fees and average time taken to settle.
This is crucial information if we want to get to the root cause of the problem of increasing insurance costs. This will be a key issue for the working group to address. Ultimately, such information is important if we wish to try to ensure consistency of awards, whether they be made by the industry, the Injuries Board, or the courts.
In addition to ensuring access to data on the insurance claims, the cost of insurance working group will carry out analysis of the personal injury claims environment and the various claims resolution channels such as through the Injuries Board, the insurance industry and the courts. It will examine the effects of legal costs and litigation processes on insurance costs and will review how improvements in these areas in other jurisdictions have influenced the cost of insurance on the ground. A number of additional issues have been raised that can contribute to access to insurance at a reasonable cost. They span the work of several Departments and offices and will be addressed by the working group. These include the lack of a link between the national car test and the availability of insurance, insurance costs for the young and those over 65, the case for rural dwellers with no public transport to have car insurance at a reasonable cost, the issue of returning emigrants having difficulty obtaining car insurance and the cost of insurance to taxi drivers, hackneys and hauliers. The joint review of the motor insurance compensation framework was carried out by the Departments of Finance and Transport, Tourism and Sport during the first half of 2016. The Departments are now working to implement these recommendations. The report includes a recommendation for additional data to be provided by insurers to the Minister for Transport, Tourism and Sport. This recommendation, when implemented, has the potential to result in significant annual savings to the Motor Insurers Bureau of Ireland, as it should provide for a more robust enforcement of penalties by An Garda Síochána in respect of uninsured driving.
In conclusion, I am keen to come up with credible solutions to address the problem of the increasing costs of motor insurance with a view to implementing them as soon as possible. The Government and other actors are not coming at this from a standing start. Discussions on legislative changes to support the Injuries Board already are under way and members will hear directly from the Injuries Board regarding changes to the new book of quantum, for example. Measures to tackle fraud are in the pipeline and the industry and other interested parties already have brought potentially worthy actions to the table. It must be remembered, however, that the ability of the Government to influence insurance pricing is limited, as insurance companies are required by European law to price in accordance with risk. The provision of insurance cover and the price at which it is offered is thus a commercial matter based on an assessment of these risks. While the Government cannot direct insurance companies on pricing of insurance products, with members' help it can identify measures that may, in the short, medium and longer term, lead to a better operating environment and a reduction in claims costs. The working group which I chair will do all it can to identify such measures and to recommend changes to reduce costs. I will be happy to accept whatever assistance the joint committee can provide in helping this objective to be achieved. I am happy to now take any questions or provide clarifications to assist the committee.
Before calling on members, can the Minister of State outline to the joint committee the make-up of the different groups he has established, as well as the identity of the chair and the individuals who form each group?
Four subgroups have been established. The first subgroup will consider the motor insurance sector and will be chaired by the Department of Finance. It will consider an analysis of the insurance market in Ireland and how it has evolved, the regulatory environment and how insurance premiums are set. The Central Bank will assist in this regard as well. The second subgroup pertains to improved data availability.
Chairman
Who will be the members of that subgroup?
The subgroups will have their first meeting next week and the various members of the working group will divide into the subgroups depending on whether they think it is relevant to their Department or the work that they do. They then will go about engaging themselves with different stakeholders in the industry and the plenary of the working group also will engage with stakeholders.
It is made up of officials who will engage with the-----
Exactly. They will be departmental officials but the chairs have been asked to invite others into the subgroups if they think it could be of use to the work they are doing.
The second subgroup will consider improved data availability, will be chaired by officials from the State Claims Agency and the Central Bank will assist in chairing that subgroup. This subgroup will give consideration to identifying the data requirements to develop an understanding of the reasons for the increase in insurance premiums, identifying what data are and are not available and making recommendations on data transparency and information sharing. The second subgroup will work quite closely with the third subgroup, which will examine the cost of claims. That subgroup will be chaired by officials from the Department of Jobs, Enterprise and Innovation and will be vice-chaired by officials from the Department of Justice and Equality. This subgroup will give consideration to analysis of the personal injuries claims environment and the various claims resolution channels such as court awards, the Injuries Board and settlements made by insurers, including how this has evolved. It also will consider the effects of legal costs and litigation processes on insurance costs and will identify and review other jurisdictions that offer possible solutions to reduce premiums in the Irish market and will make recommendations regarding the cost of claims.
The final subgroup will consider other policy issues and will be chaired by officials from the Department of Finance. Officials from the Departments of Transport, Tourism and Sport and Justice and Equality will assist in vice-chairing that subgroup. Its work will include an analysis of the levels of fraudulent and exaggerated claims, uninsured drivers, breaches of road traffic legislation and fatalities and injuries relating to motor accidents, including the impact of these on premiums and claims.
It also will make recommendations to reduce the impact of these factors on claims, the cost of claims and the cost of premiums, as well as recommendations on the use of new technologies. The subgroups have been mandated to expand their work as they require and I am working in close liaison with the chairs and vice chairs of the subgroups in order to be aware of exactly what they are doing and how they believe their work is progressing to ensure that when we meet as a plenary every two to three weeks, I know exactly what is coming from the subgroups, the plenary meetings can be managed effectively and progress can be continued on the work to the timeline I identified earlier.
I thank the Chairman for prioritising the issue of rising motor insurance premiums within the finance committee and thank the Minister of State, Deputy Eoghan Murphy, for his attendance. While I do not question the Minister of State's personal or political bona fides on this issue, as he is aware it has been highlighted for nearly two years. It was highlighted by my colleague, Deputy Michael McGrath, and in the media by the journalist, Charlie Weston. Consequently, in one sense it is disheartening that the committee and subgroups are only now being set up and have only met once or twice, with a second meeting only four or five days ago and that the subgroups have not begun to meet.
I refer to the reality on the ground, and with the permission of the Chair, I believe it is important to introduce one or two brief case studies, if that is all right. I am thinking of two constituents, the first of whom was responded to by his insurer to the effect that he did not meet its insurance criteria as he had had an accident within the past five years. The insurer stated that once a claim had been made within a five-year period, it was unable to offer cover. That person is faced with being put off the road and one point he highlighted was that, to use his own words, he barely scraped a car and the insurance company settled for €1,600 without his knowledge. This is a point Fianna Fáil has highlighted in its policy document. His car has passed the national car test, NCT, is five or six years old and has a value of approximately €10,000. He had a no-claims bonus until that accident, as well as step-back cover etc.
That case involved a middle-aged man, while the other case involved an older man, who is well into his 70s with a 14 or 15 year old car, whose premium has increased from just over €400 to more than €1,300. He is a pensioner in receipt of €230 per week who simply has been put off the road. Again, the car in question had passed the NCT and this driver's mileage is approximately 2,000 km per year and such modest driving had prevented him from being obliged to use public transport. One issue, which the Minister of State mentioned in his statement, is the relationship between the NCT to the cost of insurance. What is the point of having one's car tested if it has no bearing on the cost of one's insurance?
While I wish to introduce a couple of points, the Minister of State by and large has outlined a fair amount of the analysis. All those present who have an interest in this issue are familiar with the analysis and have a fair idea as to what are approximately 90% of the issues. People who are stakeholders in this regard, such as motoring and environmental journalists, spokespeople for different parties and players in the car and insurance industries, have a fair idea of what it is and my major question is where the Government's sense of urgency is in dealing with the issue. In a response to one of my colleagues in the Dáil, the Minister, Deputy Noonan, stated it would be early next year before any particular meaningful or tangible changes would take place, but meanwhile, people will face pretty significant increases in their premiums that they can ill afford.
While I do not intend to go through it, my party has produced an action plan to tackle rising motor insurance premiums and I wish to inform the joint committee of its existence as it may be a resource on which the committee can count. I will highlight some of the points raised therein, which include the re-establishment of the Motor Insurance Advisory Board on a time-limited basis. This worked successfully in the 1990s and helped to reduce insurance costs by up to 40% at that time.
As the Minister of State mentioned the transparency of the insurance industry, I do not wish to labour these issues but again, it is an issue I wish to highlight. I refer in particular to how consumers, people who hold motor insurance premiums, often feel frustrated that a claim is settled against them without any consultation.
One should compare this with health insurance where one gets a fully itemised bill and account of what each practitioner was paid. That needs to be introduced. One of the things we would like to see is enhanced disclosure around renewal notifications. In the UK they have done a study which seems to indicate that when consumers are buying motor insurance they are most engaged in the first purchase of insurance and then stick with the insurer and drift after that. The Financial Conduct Authority in the UK describes this as a loyalty premium. One stays with the same insurer but it actually costs on average €110 per policy to do so. There needs to be some way to address this. The insurance provider might be obliged to say that a person has been with it for four or five years but that if he or she shops around, there is greater value to be had. Perhaps the Chairman or Minister of State can comment on the legality of this. My car insurance renews in November. My insurance provider has taken to providing the insurance disk in November as opposed to sending out the letter of renewal. If I accept the renewal, I then get the insurance disk in the run up to it. While the onus is on me to shop around, there should be some obligation on the insurer to say to me that I have been with it for four or five years but that it is costing me to be with it and it would be cheaper for me to insure with others.
The book of quantum will be dealt with but I want to raise it. It tends to be a reflection of the prevailing awards as opposed to what might be a suitable or appropriate award. That needs to be tackled.
I have spoken about the care-not-cash model, particularly for minor injuries. We have to be careful about that. There is genuine whiplash and there is fake whiplash. Who discerns the difference between the two? It is difficult to identify that.
I will go through the headings of the issues. The consistency in court awards in personal injury cases needs to be raised. The reform of the role of the PIAB is another issue. A big hit can be made in the legal costs in personal injury claims. False and exaggerated claims are another issue. One of the things that my party feels very strongly about is that there is legislation in place which allows that if any material aspect in a case in a sworn affidavit is false or misleading, the person is guilty of an offence for which the penalties are up to ten years in jail and a fine of up to €100,000. In practice, few cases ever reach the DPP. There was a very noteworthy case in the last six or eight months that hit the newspapers and about which the journalist, Peter Murtagh, wrote. It was taken to court and it was seen to be a completely fraudulent case. I wonder if there were prosecutions after that. A very strong message needs to be sent out.
I want to raise a couple of specific points. We have talked about strengthening road safety enforcement. There are a lot of things we can do about that. If we look at the UK for example, driver behaviour grows over time. In London, in particular, they have safety enforcement cameras, particularly at busy junctions and locations where there have been fatalities. They have installed speed and red light cameras at sites where people have been killed or seriously injured due to a driver going too fast or running a red light. That happens a lot particularly in the cities in Ireland. It reflects a behaviour that begins to be developed and taken for granted and which causes accidents. One of the points Fianna Fáil raises is about strengthening road safety enforcement. In the UK on roads where they have introduced it, the number of people killed or seriously injured fell by a dramatic 50%. That can only have a positive impact down the road for insurance.
I would like the committee, the Chairman and the Minister of State look at innovative insurance models. I am sure the committee is familiar with BoxyMo insurance. I would be hugely surprised if it was not familiar with it. It is an insurance company and is Ireland's first telematics dedicated insurance company. It fits a telematics device to the car, particularly for young people. That device tells the insurer how one drives and how far.
Each month the insurer sends out a report to the young driver on how their driving has been for that month and how they can improve it. Anecdotally, I understand that if a driver on the BoxyMo model hits 140 km/h at any stage they get a letter the following day saying their insurance is cancelled. The better one drives, the more one is rewarded. One is rewarded with additional kilometres at the end of each month. It is full tracking and it monitors younger drivers' behaviour and speed. It does not only monitor younger drivers. Each month they get a driving report.
Can I ask the Deputy to conclude?
I will wrap up. There are just some final points on this. The relationship between the insurance industry and body repair centres has not been mentioned. That is the motor aspect of this. I would like if the committee could investigate it. I am told that traditionally if one's car had got a bang, one went to the panel repair shop, they assessed it, called one's insurance company and it was approved or whatever. I am reliably informed that it is invariably centralised now. There is no wriggle room for the body repair shop in terms of increased or reduced prices. There are approved body repair shops and body repair shops that are not approved. There may be a cartel operating there. It may be a little too cosy for comfort. One cannot go to one's local garage like one used to. In many ways the damage is banded because the body repair shop says that it will take half a day or a full day but there is some work that could take an hour or two hours. It seems to be banded and I would like the committee to investigate it. Perhaps the Chairman could call someone in here. I do not know under whose remit it falls. It is at that level that a huge amount of costs arises. I suspect that in the case of the constituent whose claim was settled for €1,600, the body repair shop decided it was either a half a day's work or a day's work. That can be regulated.
I ask Deputy Lahart to finish up.
My final point is on the insurance industry, its staff, their employees and knowledge base. I am told that insurance officials used to have to have a six-exam qualification. It is now a three-exam qualification. The knowledge base is not there anymore within car insurance companies. That is mixed with the banding of work over a half day or a day. These are things I would like the Minister of State to investigate and add to the work of the committee.
Those watching the proceedings of the committee are looking for some comfort that the Government is intervening in a manner that will seek to reduce the cost of motor insurance premiums and other premiums as well. For the purposes of today we are talking about motor insurance premiums. I am a little bit worried by the Minister of State's response. If I interpret his intervention correctly, he is telling us that "the ability of the Government to influence insurance pricing is limited, as insurance companies are required by European law to price in accordance with risk". If a person received a letter from the insurance company saying that the premium had increased by 30% or 50% or whatever and that person been driving for quite a number of years with a clean record, he or she would be shocked at having to pay upwards of 50% of an increase in his or her insurance premium because there is not such an increased risk overnight. One has to conclude from the point of view of ordinary motorists that the provisioning arrangements by insurance companies was too low, that there is the lack of transparency and that perhaps the insurance houses, most of which are global corporates, are readjusting the price setting for the Irish market in order that they can engage in super-normal profit sharing.
What we really need to hear in this committee is whether the Government has the power to legislate effectively to compel the insurance companies to meet their obligations to ensure that people pay a fair premium for a fair risk on their driving. I am worried about the Minister of State's intervention and that the working groups are predominantly constituted by Departments of State, which is fair enough and is appropriate. There is the Department of Justice and Equality, the Department of Transport, Tourism and Sport, the Central Bank of Ireland and the Injuries Board.
I have not heard from the Minister of State what the level of engagement has been so far with the insurance companies based in Ireland and those underwriting that risk, be they operating in the Irish market or externally. I have a funny feeling that they are readjusting their business model to extract a lot more profit from the Irish market overnight with a short sharp shock. That is what many people are experiencing this year with the massive increases in their premiums. If the purpose of the insurance companies is, under European law, to price in accordance with risk, it has to be said, with some degree of fairness and balance, that the behaviour of most drivers has not changed and they are still driving competently, so why should they pay extra for their premiums? Can the Minister of State give a clear idea of whether we can legislate to change the behaviour in the insurance sector? That is a simple yes or no question. It is incumbent on us to be very clear with motorists experiencing these difficulties.
Is there a proper level of co-operation with the insurance companies, if they have been engaged in this process, and the working group? If they wanted to, they could ignore this process and continue to do whatever it is they want to do. If they do not buy into this process we could argue that we are at nothing here. There could be some legislation around what the Injuries Board does, or transparency in respect of settling claims. Can we legislate to ensure there is transparency around settling claims out of court, through the PIAB, and within the courts? We need much more transparency and we must be clear with motorists about whether we can legislate to reduce premiums. We also need to have some degree of compellability in respect of how the insurance industry engages with the working group and politically, to give motorists some comfort about reducing the cost of premiums.
Young and old people are paying prohibitive rates of insurance. That cannot continue. How many insurance companies providing motor insurance are not regulated by the Central Bank, like Setanta? Setanta has given rise to a ruling of €90 million that the insurance industry says will probably result in further premium increases for ordinary people. When will the report be ready? What type of forensic due diligence analysis is the working group doing of what companies are charging? A total of 80% of all awards are agreed outside the courts - in other words, the 20% that happen in the courts dictate the fact that many settle outside the courts. Is the working group considering the level of awards made by various insurance companies and tracking those back to the increase in premiums with those companies? The problem is that we are hearing a lot of abstract talk from the insurance industry, and I would like to see the detail on that.
If the insurance industry is using this smoke screen, based on worldwide activities, to rip off young Irish people who are trying to get motor insurance, we cannot allow that happen. We need forensic details to point that out. I note that the Governor of the Central Bank is looking for regulation and I am worried that there are companies in the market which are not regulated by the Central Bank. They are beyond the pale. What exactly is the basis for that? We need to know the reason. Abstract reasons for pushing up motor premiums do not wash with me. I want to see the detail. I want to see it across all the companies and the level of claims for individual companies. Therein probably lies the answer.
The review group cannot just be a discussion group, it must drill down into the market to see why these premiums are being charged. A couple of years ago premiums were reasonable value but suddenly they went up in a very short period of time. The figures quoted make for alarming reading: they went up by 36% in the past 12 months and by 70% in the past three years. That means some young person was paying €600 for insurance but may now be quoted €2,000 or €3,000, which is astronomical. What practical measures is this review group taking? When will the report be published and be made public? Then we can get down to the detail of why this is happening rather than have an abstract discussion which the insurance industry appears to be dictating.
I thank the Minister of State for his presentation. People want the cost of their insurance to come down. They feel they are being exploited by insurance companies and our job is to find out why. Transparency is the key word because people remember when they were told that the fundamentals of the economy were sound and the banks were stable and they have the same concerns now about the insurance industry. We have to get to the crux of the stability of the insurance market in Ireland and of those companies operating in that market which are based abroad. We have seen the impact on people of two big companies going to the wall.
It worries me when the Minister of State says that we cannot direct insurance companies on the pricing of insurance. While that may be true, it may indicate that there will be some hand washing. There needs to be regulation. Will the Minister of State direct us on the legislation that needs to be put in place in order to reassure us about the insurance industry? People do not buy the suggestion that the number of accidents has increased and that there is an extra cost on the insurance companies. There is a worry that bad investments have been made by insurance companies and people on the ground are paying the price. They want to be reassured about the companies' stability. We need to be able to compare final figures before the report is published. Can interim reports be provided to help this committee do its work effectively? Different people will appear before us who have concerns about the insurance industry and we need to be able to get to the crux of the matter so if figures could be released before the final report, that would be useful.
I am not filled with confidence about the compartmentalisation of the legal costs. That was one of the stipulations of the International Monetary Fund, IMF, to tackle high legal costs. Nothing has been done about that. It will be interesting to see figures with integrity being isolated to give us information on that.
I come from a rural constituency and public transport is not an option. People are unable to access the employment market because they have no chance of getting employment in their own area and must travel to find it. Whatever we do needs to be rural-proofed as well in terms of how the extortionate costs of insurance impact on rural communities. Every week, returning emigrants tell us that one of the biggest barriers to them returning is the cost of insurance and the fact their no-claims bonuses from other countries are not recognised. I thank the Minister of State for his report but we really need to get to the crux of this, which is transparency and the insurance industry owning up to exactly what is happening within the industry.
I apologise for being delayed, which was because of unfortunate scheduling of the budgetary oversight and finance committees. I hope that can be resolved as time goes on. Can we put questions directly to the Minister of State or is it just statements?
We are following the agreed format. After the Deputy concludes, the Minister of State will address the questions.
That format does not allow us to tease out questions and answers.
Chairman
That is the way it has been so far. The Deputy should use his time wisely.
I will. Who is on the four sub-committees? The Minister of State said that he wanted to make sure they stuck to deadlines. What deadlines has he set?
The Minister of State has not spoken about the business model of the insurance companies despite the fact that the motion was agreed by all parties in the Dáil. An amendment of mine discussed the fact that the business model was one of the main reasons insurance premiums were increasing. It is a view shared by the Central Bank, which has provided the Department and me with figures relating to the fact that the investments made by insurance companies with the premiums they receive have decreased substantially in the past number of years. If one looks at the investment income attributable to the loss, one can see that in 2012 it was €278 million, but two years later it had dropped by €100 million. This is one of the reasons premiums are increasing. It is because they are not getting the return on safe investment - the likes of German bonds - that they were getting at 4% a few years ago. They are now zero rated. Could the Minister of State address that issue and why he has ignored the issue on the motion that asked him to look into this? Does he share the Central Bank's view in respect of this?
I find this very awkward and, for the record, it is not a good format. This is not the way to deal with questions and answers of this type.
I am more than happy to come back to individual questions if they are asked. It is just that some of the questions have been already asked by others and I do not want to pre-empt answering them in the context of how I have taken note of it and how I would like to respond. If there is a different model the Deputy would like to use in the next engagement, that would not be a problem.
In future, active engagement would be a better format for us.
I am chairing the meeting and members have decided on this format. When Deputy Doherty finishes, we can proceed.
I have spoken on the record for a long time in respect of this issue. There has been a dragging of heels on this. On 2 July 2015, a letter was sent to the Central Bank under section 6(a) in respect of the insurance sector, yet the committee is only beginning to get its work together. The second meeting was held only on 1 September. In the meantime, every person in the State has received an increase in his or her insurance premium. The Minister of State has not given us any clear deadlines in terms of when he expects work to begin. I believe this should have been the priority work of the committee.
My next question concerns regulation. One of the major issues discussed in respect of the motion that was agreed by the Minister of State and others was that we would look at the regulation of the sector.
The Minister of State did not mention the regulation of the insurance sector at all despite the fact that in the past number of years, we have seen three insurance companies that were operating here go into liquidation, receivership or administration. Enterprise Insurance, which is one of the most recent examples, ceased trading a number of weeks ago. Although it was regulated in Gibraltar, one of the other companies was regulated here. The Central Bank has a role here. What is the Minister of State's response to Patrick Honohan's very clear request on 18 August 2015 when he asked the Minister for Finance to give the bank the power to regulate the insurance holding companies? Has the Government given the bank the power over the past year because in the meantime, we have lost another insurance company? People who were insured are basically up the creek without a paddle. They have lost their investment. In the same letter, the then Governor said that he wanted to strengthen the supervision of the non-life insurance sector, which includes the motor insurance sector, and asked for the consolidation of disparate insurance regulation in a coherent whole. Has this happened or when will it begin to happen? The Solvency II Directive was the other issue that was raised but that has been dealt with. I would like clear answers relating to all of these issues in terms of progress.
I spoke about the role of the committee. Could the Minister of State send the terms of reference of the working group to the committee, including the terms of reference of the four subgroups and the actual membership instead of the Departments that are represented on it? Will any of the subgroups look at how the regulator allowed an unusual market failure?
I received a letter dated 18 August 2015 from Patrick Honohan to the Minister through a freedom of information request. The letter said that a number of non-life insurance companies took a very optimistic view of the future economic outlook, built up an unsustainable overhead and followed an imprudent pricing and underwriting approach across most business lines which resulted in companies' business plans becoming less resilient to downside risk such as an increase in the frequency and severity of claims. This was the former Governor of the Central Bank telling us that companies which the bank regulated were following an imprudent pricing and underwriting approach. I want to know how the Central Bank allowed this to happen. The Central Bank has a responsibility. If this happens with a financial institution, it has a responsibility to step in and make sure that there is no imprudent pricing. The definition of imprudent is "without due regard to the consequences". The then Governor was telling us that these firms, and I am sure he was not just talking about ones regulated in Gibraltar, were following an imprudent pricing and underwriting approach. The Central Bank has a responsibility to step in there and make sure they are not doing this. In fairness, the Central Bank has made very strong statements. At a major meeting earlier this year, Philip Lane asked the insurance sector not to chase risky investments because of the effects of quantitative easing. Why did it allow it to happen at that time?
Transparency is key to all of this in terms of the payout of claims and all of the different types of data. In light of the CSO review of strategy, where it wrote to this committee asking us to input into its strategy in the next few years, I have written to it asking it whether it would consider taking on a role in terms of publishing data relating to the insurance sector. I draw the Minister of State's attention to the fact that the Institute and Faculty of Actuaries in the UK regularly compiles and publishes this type of data. This role should be taken on by the CSO, which has carried out excellent work in respect of collating and publishing data in other sectors, aside from the GDP figures, which were not its fault. Again, Apple was to blame for that one.
There is a need for this because, even in his speech, the Minister of State referred to the difficulties with claims and so forth. If one looks at what is available in Britain, one can break it down. One can go into different regions where one can see the claims that were paid out, the number of uninsured drivers, the frequency of accidents and so forth. That is a role I would like to see.
Young drivers being refused a quote and a system being in place to ensure they will be afforded a quote when all others refuse to quote them was mentioned earlier. While the system is in place, usually the quote they get is unfair. There is a serious issue where legislatively all drivers are required to be insured but we do not force the industry to provide a fair quote. I understand the difficulty is with EU rules and we cannot impact on pricing. There is an issue, however, that needs to be dealt with. What are the Minister of State’s views on other models of insurance? Are we going to examine other models such as those in other parts of Europe and New Zealand which are different from the one here that requires every driver to have insurance?
As the committee engages with other stakeholders, it will get a chance to tease out several issues. This is an urgent issue. We have to be responsible in how we manage public expectation because there is much work that has to be done and can be done. I want to ensure we can see what those early priority actions are so we can get moving on this. If we can do that with consensus, it will pre-empt any potential increases in premiums in the coming months. I know the Chairman, Deputy John McGuinness, Deputies Michael McGrath and Pearse Doherty and others have been raising this issue. It is an important issue up and down the country. The Minister for Finance, Deputy Michael Noonan, has been taking it seriously for the past year. That is why he established the task force. Its first port of call was to look at compensation in the industry itself. That is the work it began with to ensure there was a proper structure in place. The second piece of work that had to be done by the task force was in respect of flood insurance. A report is with the Office of Public Works, OPW, which will be published soon.
The next task was to move to the increasing cost of motor insurance. The real spike happened in the past 12 months to July and was approximately 40%. An important thing the Minister did was to give political direction to this by making it one of my delegated responsibilities as Minister of State in the Department of Finance. This has allowed a working group emerge and get work done. It highlights the importance the Government places on this.
The impression that work is not going on behind the scenes and between meetings would be a false one. We all know, as people who work on various issues and as part of our job to attend meetings, that we work hard in between meetings. We needed to ensure we had all the relevant stakeholders in the room. The next point was to ensure we had robust terms of reference that would get the job done quickly. We then had to ensure we would be engaging with the right elements of the industry and different stakeholders so we would have a clear picture and be able to build consensus.
We have not been coming at this from a standing start either. Of course, several streams, such as legislative measures, uses of new technology or tackling particular issues, have been examined in the past 12 months or more. Part of the work I have to do with the working group is to see what the priorities are, bring them from the centre and get them done.
There is a real problem with transparency with easy and early settlements in the industry which have been raised. Up to 20% of cases are settled through the Injuries Board and 10% through the courts. That means there are 70% of cases where we are not sure what is happening. Are they being settled before they go into the Injuries Board or afterwards? What quantum is involved? How long is the settlement taking? What other costs are incurred? What level of claims are being given out? We definitely need more transparency in that area.
While we need respect for privacy and data protection laws, the sharing of data between the NCT, insurance and tax agencies with the Garda Síochána and other relevant bodies should be happening and should be easier. I hope we can build consensus, through the committee’s engagement with the various stakeholders and my working group’s engagement, so that easy measures can be introduced quickly. From some of my informal engagements so far with different elements of the industry, matters in database development are not proceeding as quickly as they should be.
There needs to be a big push politically. That is a big push I am willing to give but I need support in that regard to ensure the industry is on board and working with us.
From the informal engagements I have had to date, there is not necessarily consensus on what is driving up premiums. The committee will hear that as well from the different people who appear before it, who will be making different claims as to what is driving up costs. We are going to have to decide which is correct and which is not. We need to take the standard insurance premium, if there is such a thing anymore, and break down its constituent costs. For example, is €50 is being added on to premiums for fraud or €35 for uninsured drivers? How much is because of early settlements or fear of litigation? How is that affecting premiums and what levers do we pull to address that?
My intention is to have a detailed understanding and roadmap by October for the Minister for Finance, Deputy Michael Noonan, showing exactly where we need to go. Between October and the beginning of December, I intend to put in place an agreed action plan that has buy-in from everyone. If we want to get this done in a meaningful way for consumers, we are going to need to ensure there is a consensus and buy-in at the very beginning. Much of that work is already progressing. We had a second plenary meeting recently but much work was done between the two plenaries. There is a busy schedule of meetings between now and the middle of October and then through to December, when we hope to have a formal report and action plan ready. Some things will happen sooner, such as the book of quantum. I will let the Injuries Board speak more on that because it is more appropriate. It will explain the changes with the new book of quantum, which will help with the information that is being provided to the Judiciary. Measures such as an enhanced renewal notification process need to be examined and will be on our side. Reform of the Injuries Board is also being examined. That work has already begun. It is about deciding the medium and long-term actions that can be taken. For example, if we want to give a greater legal weight to the documentation that appears before the Injuries Board, then that might be a longer-term issue. However, we could look at statutory timelines with medical appointments. For example, if one does not attend a medical appointment within nine months, then one automatically falls out of the Injuries Board and the case can go to court. Can we look at ways of pausing that timeline so that it cannot be the case that people who just miss a medical appointment are out of the Injuries Board? It is alleged to me that people sometimes intentionally fall out of the process because they believe they can get a better settlement in the courts or after the Injuries Board.
The industry will have much to say about costs. Different companies in the industry will have varying perspectives on that too. On increases in safety, the AA will explain improvements in technology and telematics. My understanding is that more work is needed in this area. Some good work has been done but it is not there yet in terms of having standard telematics built into every car which cannot be tampered with easily. It may become an opt-in for the driver to get a lower premium. The AA has conducted surveys among its own members on this. I believe it was surprised by the results but I will allow the committee to ask it in more detail. I thought telematics technology might be a quicker route but my understanding is that it will take a little bit longer to actually put it to good use. It is a solution. We must bear in mind that the motor industry will change dramatically over the next five years. We have already seen this with self-driving cars and in enforcement areas.
The relationship between insurance companies and body repair shops is an interesting question.
I will ensure that we look at it and I would like the committee to put it to the industry groups publicly - I will be putting it to them privately.
The issue relating to insurance staff has been highlighted to me by some industry players. I hope the committee will be talking to those players because, although I cannot speak for them, I believe they would also have some interesting observations on the points raised.
Deputy Sherlock referred to a number of issues. In order to be clear, I reiterate that I was asked to examine the areas of non-life insurance but I very much wanted to focus on motor insurance because so many colleagues have been raising the matter with me, as have my own constituents. People who have done nothing wrong this year compared to last year - no penalty points, no accidents and no changes to their vehicles, which might only be one year older and have passed the NCT - were hit with hikes of 40% and more in their insurance premiums in the 12 months to July. This situation is not acceptable and it is the reason something must be done. The price cannot be set and regard must be had for the stability of the sector. In addition, there should be no unintended consequences to our actions. While we must move quickly and together, we need to be conscious of them impact of anything we might do. I give as an example the suggestion by one industry player that if a move was immediately made to engage in a data dump in respect of all claims settlements made outside of the PIAB and the courts system, the unintended consequence might be to drive premiums up if people became aware of the awards being made in respect of certain injuries. We absolutely need transparency but we must plan our work carefully in order that it will not have any negative effect in the context of what we are trying to do, which is to try to maintain some sort of control over the rising costs of motor insurance and to work to bring the cost of premiums down.
Provisioning was too low and I believe the representatives from Central Bank will speak to that when they come before the committee. Evidence seen by the committee shows that profits have not been made in recent years by any of the main players operating in the market. They are now moving to correct that position but there is risk of an overcorrection. If more market participants could be brought in from abroad, then a better idea of the actual state of the market might become evident. However, there is a reluctance for foreign competitors to become involved due to a lack of transparency in the market as a result of data not being shared on foot of concerns regarding fraud and uninsured drivers and, if we are to be honest about it, market failure.
The price of insurance cannot be set but we can examine the factors that make up premiums and tackle those various levers. For example, a breakdown of what makes up a premium would be helpful. The insurance industry is saying that €50 of each premium relates to the costs of fraud. Therefore, if it were possible to come up with a national claims database - I believe it would be possible to do so - I would hope that this would immediately reduce the need to provision for €50 on the price of a premium because of fraud. Greater levels of technology could be introduced to allow sharing of information between An Garda Síochána, the Motor Insurers Bureau of Ireland, the NCT provider and the motor tax office. We should be able to use cameras - as is the case in other jurisdictions - to record number plates and give the Garda all the relevant information it requires. This would mean it would be almost impossible to drive an uninsured vehicle on the road. If that was the case, then another €35 might come off the cost of premiums. These are small amounts compared to the significant sums people are paying for premiums and I reiterate that we cannot set the price. However, we can identify the component parts that would seem to be increasing premiums and we could start to use policy levers to tackle them. Much of that work has already been identified but one will find that there is no consensus about what needs to be done first or how quickly things can be done. That is what the committee needs to establish.
I have met industry players. I have also representatives from the brokers' associations on an informal basis. We will also engage with the latter formally in the context of the sub-groups. There is no evidence that has been brought to my attention - although it might be raised with the committee - of players entering the Irish market and making money off the back of Irish citizens and the premium rates that apply in order to make a quick profit. We have not seen evidence of that. If there is evidence, however, then it is important that it be made public. Legislation can be introduced in respect of fraud, data sharing, transparency, the injuries board and claims. If we are going to be bold, we can legislate in respect of new areas if radical ideas are put forward. There is an idea floating around regarding the concept of "care instead of cash". I understand the downsides of moving towards a care-instead-of-cash model. One negative would be the moving of costs incurred by the legal profession to the medical profession. However, under a care-instead-of-cash model, one could drive down what might be seen as excessive costs - in comparison with those which obtain in other jurisdictions - for injuries such as whiplash. One would certainly move fraud out from that part of the insurance system. If radical change is needed, it will require work and it would not be a short-term solution. We need to understand that we can still build around it as a longer-term solution if there is consensus on it. We need buy-in and we need consensus.
Senator O'Donnell highlighted some good examples of prohibitive rates. The Senator is correct when he says this cannot continue and that is why we treat the issue with such urgency.
The Senator asked questions on Setanta Insurance and Enterprise Insurance. I have some details noted with which to update the Senator on the current position with Enterprise Insurance. It is a developing situation. As Deputy Doherty has said, Enterprise Insurance is a Gibraltar-incorporated company under supervision in Gibraltar by the Financial Services Commission there. Enterprise Insurance sold motor insurance in a number of European countries, including Ireland, on a freedom of service basis. Wrightway Underwriting Limited - a retail intermediary regulated in Ireland - acted as the managing general agent and sold private motor insurance policies on behalf of Enterprise Insurance via the Irish broker network. The Gibraltar regulator notified the Central Bank of Ireland on Friday 22 July 2016 that it was taking steps, with the co-operation of Enterprise Insurance, to petition for the winding up of Enterprise Insurance. Enterprise Insurance had told them that the company was insolvent and had been unable to secure additional funding. At the time the provisional liquidator was appointed to Enterprise Insurance - Monday, 25 July 2016 - there were approximately 14,200 Irish private motor policyholders. In response to the appointment of the provisional liquidator Wrightway Underwriting agreed to refund unexpired premiums to next renewal for policyholders and started actively working with its brokers to find alternative cover for Enterprise's Irish policyholders. Since then the original figure of 14,200 policies has decreased to approximately 2,200, and this remains a work in progress for Wrightway Underwriting and its broker network. I realise that the committee would like to have a clearer picture of the position in relation to claims but I would be hesitant to provide figures that are not yet confirmed. The full picture of the financial position of Enterprise Insurance will remain unclear until the liquidator is appointed on a permanent basis, which is due to happen this month. The Central Bank is in close contact with Wrightway Underwriting on this matter. Other EU and EEA member states affected are the UK, with some 500,000 policies, Greece, with some 100,000 policies, and France, Italy and Norway, with a smaller number of policies.
With regard to the up-to-date position of Setanta Insurance, the situation with regard to payment of the first Setanta compensation payments is not yet clear. The Setanta case is awaiting the outcome of an appeal to the Supreme Court in the case of the Law Society of Ireland v. the Motor Insurance Bureau of Ireland. This will be heard on 24 October 2016. It may well be 2017 before the Supreme Court decision is delivered. On 4 September 2015 the High Court held that MIBI was liable in respect of claims against the Setanta policyholders. This decision was subsequently appealed by the MIBI, as the committee knows, and the Court of Appeal upheld the High Court decision in this case. MIBI was granted leave to appeal the decision to the Supreme Court, which is now happening. These potential MIBI payments relate to third-party motor insurance claims only, and the insurance compensation fund is liable for a further small number of additional claims. These are currently being processed by the Office of the Accountant at the Courts of Justice. These claims are not as significant, as the bulk of the claims are third party motor insurance. The liquidation of an insurance company is a legally complex process. As Setanta Insurance was incorporated in Malta, the liquidation is being carried out under Maltese law. The Setanta liquidator has informed me that the number of open claims stands at approximately 1,700. The claims-reserved position stands at between €87.7 million and €95.2 million. Setanta policies were cancelled in May 2014, so the two years allowable under the statute of limitations within which to lodge claims has expired. This means that claims' figures will not increase further. However, final settlements can only be paid out by the liquidator after all the company's liabilities are quantified, including claims. Since the liquidator will not be in a position to pay out more than 30% of the claims, if the Supreme Court rules in favour MIBI, an insurance compensation fund may begin paying out 65% of eligible claims. The Law Society v. the Motor Insurance Bureau of Ireland court case has significantly delayed the process and the liquidator has reported that it is proving very difficult to settle claims in advance of the outcome of the MIBI appeal. I would expect to be in a better position to inform the House after the legal proceedings are concluded and the implications of the outcome have been assessed. That is the up-to-date position on both of those companies.
With regard to when I hope our report will be ready, as I have said, there will be an interim update to the Minister for Finance in October. At that point, if this committee has concluded its work and provided some sort of consensus on what the actual problems are and how to move on them, that will feed in to our own work and we will have a clearer idea for the Minister for Finance. We can then spend the remainder of October and November building a road map and an action plan to agree in December in order to put it to work. In the interim, certain things will happen; I understand the book of quantum will be published quite soon. There may have been a couple of weeks' delay, but it will have happened in the interim. We are already looking at the use of technology for detecting fraud or uninsured drivers, or the use of legislation to give more powers to the Injuries Board. These will continue to be progressed.
They will not wait for our action plans which will, I hope, affirm that we will move to do that in any case.
The Central Bank holds a large amount of data. One of the subgroups will do a gap analysis and the Central Bank is working on that subgroup to help identify what data we are missing, what data it has and how these date could be released in a way that would be useful and would not undermine the bank's role as the regulator of the industry or the confidentiality of different agreements. The Central Bank is involved in work in that regard.
Senator Kieran O'Donnell also referred to awards made outside of court. I noted that 70% of the awards are being processed outside of court, with a further 20% processed through the Injuries Board. The board will probably make the case that the whole purpose of establishing it under a previous process concluded in the early 2000s was to avoid litigation. If litigation is avoided in 90% of cases, the board is doing its job in one sense. However, the Injuries Board will also note the lack of transparency in respect of the 70% of cases that are being settled outside of court and issues such as the point at which they are being settled in the system, the way in which they are being settled, the length of time it is taking to settle them and other costs arising in such cases. It will call for transparency, as I and others have done. However, this is not a discussion we are having because there is no point in having the joint committee hold a series of robust and vigorous meetings and produce a report and having a working group holding similar meetings, albeit in private. We are trying to ensure that, as the work progresses on both fronts, the levers of government are used to identify what precisely can be done and what actions can be taken. This is not about producing a report that will sit on a shelf but about drawing up an action plan and getting something done. Members of the public will not stand for what is happening and we must be responsible in responding to the issue collectively.
Senator Conway-Walsh raised a number of issues and spoke extensively about transparency. She is absolutely right that we will meet resistance. The joint committee will meet resistance from the various stakeholders when they appear before it because I have met such resistance in private, although it may not be so evident in public. A hell of a lot of information is available and it is being used in other jurisdictions. Companies operating in this jurisdiction share data in all sorts of ways publicly in other jurisdictions. It is unacceptable that such data sharing is not taking place here. We must ensure we plan our work with the industry to ensure this issue progresses. The joint committee will have another opportunity to discuss this issue with AA Ireland and other organisations which have been talking about it a great deal.
The stability of the insurance market is key. We must protect ourselves from further market failures, ensure consumers are protected and prevent further unforeseen and unmanageable spikes in insurance premiums. As I stated, this is not about washing our hands of our ability to set prices. However, we must make clear to members of the public that we cannot set prices. We must manage expectations because we cannot require insurance providers to charge X amount for premiums. Insurance companies must take into account provisioning requirements and Solvency II compliance. They set prices based on risk. The work everyone has been doing on this issue in recent months has been informed by people setting out their perceptions of what they are encountering and the engagements they have had. Deputy Pearse Doherty, for example, spoke about his experience of trying to elicit more information. We know from this work that different steps can be taken to influence how premiums are set. We must then try to drive proper structural reforms because there will be no point revisiting this issue five years from now. Proper structural reforms are needed to ensure we have a properly functioning motor insurance sector. That is the outcome we must achieve and if we structure the process in a short, medium and long term, we will achieve it. The joint committee has an important role in helping to set the agenda and build consensus by discussing the various issues that are coming to the table and I do not want to pre-empt any of that work.
I will consider the possibility of providing our interim report to the committee. While I do not envisage any problem with doing so, I would first like to discuss the matter with the Minister for Finance. If we are to address this issue, everyone must be on board. As such, there is no point in me producing something for the Minister which both he and I believe is great and subsequently getting other Departments, elements of government and State actors involved in an action plan if we then return to the joint committee to be told the plan is no good because we would not get buy-in when the legislation starts to come down the tracks. I mean it when I say I want to work with committee. Before I give a firm commitment on this matter, however, I will double-check with the Minister.
We do not know what role legal costs play because this is a matter of dispute. Members will hear this argument because we are already hearing it on our side. We can definitely dig down, find out more information and find out what impact legal costs are having.
Some players in the industry have indicated that legal costs can account for 60% of settlements they make. This speaks to cultural problems we have, about which other commentators have spoken. Deputy John Lahart referred to the journalist Charlie Weston, who has also written about cultural factors. We have considered these types of cultural factors in terms of what precisely is involved in claims and awards and what people expect. FBD Insurance has taken a strong public position on this issue and members will be aware of comments made by its chief executive officer on public expectations with regard to the costs of premiums and awards and managing these two competing or conflicting sets of expectations. A bigger piece of work needs to be done on this issue, which will clearly arise in the public sessions as it has certainly arisen out of the engagements I have had.
Rural-proofing is crucial, and I referred to the difficulties we are experiencing in this regard in my opening comments. As we progress our work, we must examine every type of case study coming through our constituency office doors, whether that of the returning emigrant, the person living in the country, the taxi driver or disabled driver or the driver of a 12 year old car that has passed the national car test and is in great condition. A car built 12 years ago will be in much better condition after 12 years that a car that was built 30 years ago was after 12 years. We must ask, therefore, why a 12 year old car is treated differently when it has been found to be safe in the national car test. We must consider all aspects to ensure we do not miss a trick in finding solutions that will work for everyone. For example, in respect of returning emigrants, I do not see any reason for not accepting official documentation from other jurisdictions. If other countries do this, why can we not do it?
Technology will have a role to play in making the system more efficient. I am aware of one case study related to what is being done in Canada. We will examine this issue in terms of the efficiency with which all of this is done. The industry will point to efficiency factors in terms of costs that contribute to the premiums it sets. It has not provided me with a drilled-down number similar to the figures it has provided on fraud and uninsured drivers. However, this is definitely a component part. Obtaining insurance and tax, passing the NCT and so forth must become much easier and we must ensure all the different technologies are talking to each other.
Deputy Pearse Doherty referred to deadlines in respect of the four sub-committees. I spoke about the composition of the four sub-committees before the Deputy joined us. Each sub-committee has a chair and vice chair. As they progress their role, the subgroups will identify different stakeholders with which to engage. As I indicated to the Chairman, it will be a matter for the sub-committees to invite stakeholders to join the committee. For example, the Central Bank official who chairs one of the sub-committees may pull in any constituent part that needs to be part of the subgroup at any part of the process to take part in the subgroup's work.
We will examine the business model of the insurance sector and insurance companies. This will be part of the work of the first subgroup.
Deputy Pearse Doherty asked about deadlines. I wanted to move with the subgroup model to ensure each aspect of our work received the necessary focus and I was able to interact with each subgroup separately from the plenary working groups to ensure their work was progressing and they were not meeting any unforeseen roadblocks in the process. This is the approach I want to take. In terms of deadlines, therefore, we envisage that the interim report to be submitted to the Minister in October will set out the areas in which consensus has been achieved in respect of where the problems lie and what immediate actions need to be taken. As I stated previously, it may be appropriate to return to the joint committee at that point to set out what we are doing in terms of spending the following month or thereabouts trying to secure agreement among the various State and Government actors on specific actions and timelines for starting to implement them.
We need to be cautious about managing expectations. Some things will come on line sooner than others and some may even come on line before the action plan is in place. I hope they will help. From my engagements to date, I believe that if we can show a strong working relationship between the working group I am chairing and the joint committee and achieve consensus on certain actions, we will pre-empt any further serious escalations in premiums. The first subgroup will examine the business model of insurance companies and the issue of transparency, as will the data subgroup, with which it will work closely.
Solvency II has changed provisioning requirements. The data we have been shown indicate that insurance companies have been booking losses.
I will let them explain more about the operating model but we will be looking at that in detail.
I note that members of the committee have been raising this and it has been very much to the forefront of the importance that the Minister, Deputy Noonan, has placed on the different aspects of work. I spoke about this earlier, in terms of setting up the task force. What we have seen in the 12 months to July last is the rocket in insurance premium prices. Increases have been going on for three years. In the first two years, the year-on-year increases for most motorists could be said to be modest, but in the past year, this 38% figure - circa 40% in most cases - has been incredibly significant.
What we have seen also in the past year is motorists finding it almost impossible to get an insurance quote. Deputy Pearse Doherty talked about this aspect. It is also being considered. The sector must come up with a realistic insurance quote. It is not acceptable for it to state that it has offered three quotes when those quotes are completely unaffordable. That does not solve anyone's problems and it appears to be trying to subvert a process that was put in place to protect consumers. That definitely will be looked at.
In terms of the regulation of the sector and the different correspondence Deputy Pearse Doherty has had with the Central Bank, I have met the Central Bank, given its role in this as part of the working group but also its role as regulator of the sector. Nothing has yet been expressed directly to me regarding those concerns that were expressed to the Deputy by the former Governor, Professor Honohan, but we are in constant contact. I will check within the Department as to whether it was copied on any of the correspondence sent to the Deputy from the Central Bank. I will not speak for the Central Bank because it would not be appropriate for me to do so. I assume the committee will meet the Central Bank at some point in its work and the Deputy will have a chance to tease out some of those issues with it in more detail. I do not want to speak for the Central Bank but it can speak as to its responsibilities directly in this area.
There is much better transparency in the United Kingdom and there is no reason we cannot have it here. We are similar common law jurisdictions. Indeed, a number of entities operate in both jurisdictions, on the insurance side but also on the legal side.
I commented on young drivers being refused a quote or given an unfair quote. There is a process whereby a motorist who is refused a quote on three occasions must be quoted for insurance. What we are hearing anecdotally is that motorists are being given unrealistic quotes. It is not that they are being refused a quote; they are given a quote they cannot afford. That is leading to what we are seeing already and what the evidence shows, namely, a dangerous increase in uninsured driving. The increase is large. It is coming from a low base. In terms of the number of overall claims coming in, it is still very low but it is a worrying development. There are, as I said, simple technological improvements that can be made and that are happening in other jurisdictions which can help us address that aspect.
I addressed looking at other models of insurance with Senator Conway-Walsh earlier. We must look at other models of insurance. I have looked at the New Zealand model of insurance. Perhaps I should not be giving a personal view, but I will. That is not the way to go, rather a care-not-cash model is the way to go. That is a personal view and perhaps I should not give it, given my role in chairing this working group. The working group will require big cultural changes in how we go about our business and there will be considerable resistance to some of these changes. Not all of the changes, if they happen, for example, the care-not-cash model, are positive because it might merely end up displacing costs from one sector of the economy to another, for example, from legal to medical. It definitely would help in terms of addressing fraud but this requires further examination. If we can build consensus around this as a route then it will be the way to go but I would not underestimate the difficulty in terms of introducing legislation to make such changes even in that regard, and the kickback that there might be. Nevertheless, if we believe that it is the way to go, we must fight that case.
It will be interesting to hear people's different opinions on those possibilities when it comes to the committee's public sessions. If one looks at the data, one can see the frequency of claims that are related to minor bodily injuries, the award levels for those injuries and how much higher they are than in other jurisdictions, what is happening with whiplash and how many more claims there are here than in other jurisdictions, and the evidence that we do not grade whiplash as they do in other jurisdictions. One could have a panel of medical experts in the Injuries Board process that could be compulsory if one could make it compulsory under the law and that could assess the degree of whiplash according to a graded scale, and then one would not have this fluctuation in terms of the costs awarded.
Once one has such fluctuation and uncertainty, it creates a difficulty for the insurance sector because it must make provision for expected costs under the new requirements and if it does not know, it will always book the higher price.
We are also seeing difficulties around changes in jurisdiction and changes in awards in the courts. To take the prudent course of action, the insurance firm will say it must book the higher price. It would be difficult for us to make an argument against that, if it might be seen to undermine the stability of the sector or the functioning of the market and, of course, the Central Bank would have a say in that as well. However, there are long-overdue improvements and structural reforms that we need to make urgently which, when we get them in train, will make a big difference to how premiums are calculated and the cost of motor insurance for drivers in this country.
I thank the Minister of State. Apologies, I was not here earlier. It is one of those days.
Listening to what the Minister of State stated in the radio interview this morning, the key repeated phrase is "managing expectations". That is not complex code. It is code stating that what motorists expect is that the massive hikes in premiums and the discrimination against all sorts of different groups of drivers will be reversed. The Minister of State is correct to think, in terms of the model he has put forward and what the working group will look at, that is unlikely to happen because he and the Government have already tied their own hands behind their backs in advance of engaging in this in terms of what they have ruled out. There will be no directives on pricing because these are private companies and one cannot direct them what to do and there will be fundamentally nothing in terms of regulation - legislative change that forces companies to do different things. It is not unfair to say what is being talked about is largely tinkering around the edges.
This is not new. It is a problem that has gone through different phases and there have been particular crisis moments. These crises have reduced and then returned. In 2002, there was a report by the Motor Insurance Advisory Board precisely because at that stage there was huge public pressure, there was an outcry about it and something had to be done. It produced 67 recommendations, many of which were good and were acted on and which had some impact. However, we are back to where we were before.
An issue the Motor Insurance Advisory Board found and which the Minister of State is partly pointing towards is the co-operation of the insurance companies. The insurance companies are not likely to be fully transparent. They are not likely to on their own bat open up their books to show what is really happening because it is in their interest to make as much profit as possible without coming under pressure about that profit. The board's summary report stated, "It has not been this board's experience that insurers have willingly provided all material information in the fulsome manner which the Minister is entitled to expect." That, in the unique language of reports, states basically that the insurance companies told the board where to go and it would not get the information sought. I suspect what the committee and the Government will get is largely the same, namely, more partial information to tell a partial story. Let us engage in the discussions and let us get the information.
The issue is fundamentally about profit and the for-profit model of car insurance that we have. It was reported that there was a briefing document to the Minister for Transport, Tourism and Sport which states, "Motor insurers are now imposing higher premium rates to return themselves to profitability or to boost profitability after a number of years of insurers competing for market share, with prices driven down". Fundamentally, this is about profit and a return to as much profit as can be made by car insurers. That was not any different in 2002.
In 2002 they found that between 1983 and 1999 the return on car insurance in Ireland was 11 times greater in terms of profit than in the United Kingdom. Profits between 2003 and 2008 have been around the 50% mark over percentage of claims. It is a significant rate of profit for corporations to be making. As there are huge levels of profit made by these companies, does the Minister of State agree that profit may be the problem? Does he agree that those companies will fight tooth and nail to maintain those levels of profit because that is what they do?
The model of car insurance should be part of the discussion instead of individual elements. There are international examples and it is not just a case of pointing to some socialist dream world where these things exist. There are state-owned not-for-profit models of car insurance in a number of different countries, including Canada and Australia. In a number of those countries it is paid for through fuel, so there is no way somebody can be an uninsured driver; if somebody is driving a car, he or she is insured. That deals with a number of problems and takes profit out of it. I welcome the Minister of State's personal view that this is not the ideal model, but perhaps in our discussions in committee we can consider the issue in terms of different models in different countries. We can find different experts. We can just do what we did in 2002 again and get back to the same point, but a different model is needed.
I thank the Minister of State. The working group is set up and doing what it does. It is made up of officials in various Departments, including those dealing with tourism, justice, jobs, finance, the Central Bank and claims. We are kind of in the loop but out of the loop in that they are all doing their stuff at meetings and between meetings. We kind of get involved somewhere along the way but it is not really our job to do the work of the working group. They are doing that stuff. I would like some of what I mention to be investigated by the working group.
The logic seems to be that premiums must rise to pay for the increased cost and volume of claims. I would like to see the percentage of motorists making claims and the size of claims broken down into legal, medical, compensation and settlement costs. I agree with everything said by members so far in that we do not know what is going on. Much of it is invisible because of settlements. One hears anecdotal stories of insurance company representatives hanging around courts and realising that a certain judge is not there and a different judge, who may tend to give higher payouts, is there instead. That may lead to a doubling of settlements because the company could still save money in comparison with what might have to be paid if the case went to court. There is talk of a book of quantum but, although it is nice, they apparently do not have to use it. I am intrigued by the value of it and whether it can be ignored when it suits.
I would like to see the average cost of claims, the age profile of claimants and whether urban or rural parts of the country have a higher incidence of claims than other areas. Ultimately, we can try to reduce the cost and number of claims while improving driver behaviour. We have all been driving at the speed limit on motorways while seeing plenty of cars going past us. In England and other jurisdictions there are average speed detectors: for example, a car might be clocked on at the Jack Lynch tunnel and clocked off at the Red Cow, and if the car gets from A to B too fast, a penalty is imposed for breaking the law.
I went pretty much all over the country during the Seanad campaign and I did not see many Garda vehicles. We know the number of gardaí in the traffic corps is down. People are taking chances and ultimately we end up with claims and injuries because of people not behaving as they should. There was a reference to technology.
There must be a way in this day and age of tracking every car in the country. We all have mobile phones and the companies know where we are. Every car could have technology to record average and maximum speed as we drive through towns. In five or ten years that could be in place and perhaps the technology already exists. A sensor on the car should alert the driver to slow as it is entering a zone with a limit of 50 km/h or 60 km/h.
Why is whiplash in this country so different from everywhere else? As a nation, why are our necks or bodies far more sensitive than every other country in Europe? There was a reference to paying for care, not cash, and I agree there are concerns about legal costs becoming medical costs. It seems that insurance companies are just paying out rather large amounts to settle a whiplash claim just because somebody said he or she had it. That is without any serious investigation as to whether the problem is real. It seems it is cheaper to give people €15,000 than to investigate the issue properly. One might wonder why an accident involving a tiny tip would lead to this.
We have a better theory test, provisional licences and improvements on what we used to have. Driver behaviour should be getting better. People and their cars are getting older and yet their premiums are rising. I know a person who reached the age of 80 and the insurance premium went from €800 to €1,360. That person does not drive too many miles and although the premium was reduced somewhat with negotiation, that 70% increase was just presented to the person. Most people in this room are probably paying a third more for their insurance. If the average rise is 36%, most people in the room will be paying more despite not having a claim. I want to know if the issue lies with 2%, 5%, 15% or 40% of drivers making claims in the past year. We must have far more information on what we are told is driving the cost. Private companies will always have a responsibility to shareholders and, in the current set-up, will want to make a fair return. There is the idea that we can just increase motor insurance by 30% this year - we fear it will be 30% next year and the year after - but our road network is better than it used to be and drivers have more screening than they used to have. It is not the case that somebody driving for ten or 20 years is just given a licence because of a backlog, as happened a long time ago.
The working group must present far more data to us. I am not referring to individuals or bringing privacy to this but I want to know who is claiming, what they are getting and why they are getting it. We are a small country, and compared with most other EU countries we have a very small motoring population. We cannot be the only country in the world with a motor insurance issue. Let us have a look at international best practice and see why we cannot be as good as the better countries in terms of motor insurance cost. I look forward to working with the Minister of State and the working group, as well as other stakeholders, in this process.
I just want to tease out some issues based on the responses to my original questions.
Perhaps the Minister of State will reply to the other questions before that?
Deputy Paul Murphy referred to the managing of expectations. I just want to be upfront about the challenges facing us. As we cannot control price directly, we must ensure we are building appropriate actions into a plan that everybody can buy into in order that we can get something done about the issue. I do not want to give people the false expectation that by October they will see premiums coming down because I have given a report to the Minister, Deputy Noonan. That is why I would have mentioned it a few times when speaking publicly about it this morning.
The Deputy asked what we ruled out. We ruled out setting the price because that is illegal. I have not ruled out any legislative changes relating to regulation but none has been requested to date. The Central Bank has representatives on the committee and is playing a very active role. That will come immediately to my attention if there is a required need. The Deputy mentioned that we have been here before, which is correct. One of the subgroups is considering why the structural changes did not happen or perhaps did not work. There is a race to the bottom that undermines the market. One of the reasons given for increasing premiums is that they come as a result of provisioning rules and enforcement by the Central Bank.
However, it will not be tinkering. Establishing a claims register to detect fraud by sharing information would not be tinkering. In fact, it would be quite radical, as would giving stronger powers to the Injuries Board whereby the cases before it would have some sort of legal footing so that people would not be starting from scratch again if their claims had to go before the courts anyway. The legal profession and the Injuries Board would not call that tinkering but a big deal. It will require a great deal of work, but that is the way that we want to go. Putting in place a data hub that affords the transparency that everyone has been discussing is not tinkering. It is not impossible to do, but it would not be tinkering if we actually achieved it.
These major changes will have a significant impact. We need to break down the constituent elements of setting a premium and tackle each. If we believe that fraud accounts for €50, what are the necessary fraud measures? A national claims database, new technology to read number plates and linking the NCT to insurance discs and taxation would knock €50 to €80 off the premium, according to the industry. These would have a dramatic impact on the price.
I understand why the Deputy might prefer non-profit models from abroad, but I prefer the care-not-cash model. This would not be tinkering if we could achieve it. I do not like the pay-at-the-pump model because it penalises people who drive more and takes the onus off the insurance sector to be a part of the reform and to provide greater transparency. It also removes the onus from the legal profession, which is another contributing cost.
Provisioning rules and what has happened in the market have made it more difficult to book a profit. The data that I have seen show that a number of the companies operating in Ireland are doing so at a loss when the provisioning is taken into account, given future uncertainty. This situation may change. Some of the people whom the committee will be meeting might claim that we have just about reached the appropriate premium pricing and profit is returning to the system. This point should be examined. We have discussed related issues in respect of the operation of different industries and the appropriate approach to take. I have not examined the pay-at-the-pump model in detail yet, but I have explored it a little with a few people. It would remove the onus to reform in other parts of the sector and penalise people who drive more.
These hearings are necessary and helpful because they are in public. During some of the chats that I have been having in private, I have sat there and hoped that others would tell the committee what they were telling me because people need to hear it. It is not a duplication for this reason, but also because, based on the list of stakeholders with whom the committee is engaging and our own provisional list, we and the committee are meeting different people, which means that we will get different aspects. The committee might place more of an emphasis on examining consumer concerns, for example, whereas the working group will have to place a balanced emphasis on all those who are involved in the industry. This committee is important because we will need to make legislative changes, which will require buy-in if we are to make them quickly. There is no point in my going away with a group of interdepartmental officials and devising an action plan that the committee does not support. That is not in anyone's interests.
We do not know what is happening, so we need the data. We have too many worrying anecdotes. For example, one might hear anecdotes from the insurance sector. I do not know whether it is possible, but the committee might request a presentation from someone who once worked in that sector and no longer has an interest in keeping schtum. The industry might be open about this matter, but one hears anecdotally about how and why industry is so quick to settle, the balance of probabilities that it takes into account, etc. This is worrying at an anecdotal level, so we need the data. They are there. We must ensure that we can pull the data together, interrogate them and put them to good use.
The book of quantum is published in other jurisdictions. In the UK, I believe it is published by the judiciary. In such a scenario, there is buy-in from the judges. We must consider how to strengthen the book of quantum. I do not want to pre-empt the Injuries Board's appearance before the committee, but it will discuss improvements that it has made to the book of quantum. They sound like good improvements, although more can be done. I suppose it will also mention its engagement with the Judiciary, but I do not want to discuss that, as it is for the board to comment on that matter. It is important to understand that the book of quantum quantifies costs awarded and does not try to set out what costs should be. However, compiling the awarded costs is helpful, and it is helpful for the Judiciary if those costs are stuck with.
However, one hears complaints about how changes in jurisdictions have introduced awards that have created uncertainty about what average cost levels should be. Some of them are doubling. If a company is trying to provision for possible claims in so far as it is meant to do under Central Bank rules, uncertainty about what the courts will award poses a problem. The company will try to keep a matter out of the courts by settling more quickly. We need to weed out and address the many perverse incentives that are in the system.
Technology is key to improving driver behaviour. The AA will probably discuss its survey of the level of buy-in from its members to the concept of sharing technology freely as long as they own the data, just as one owns the data in one's mobile phone. One is probably not aware of what some of the apps are picking up in terms of mapping, etc. As long as people owned the data, many would be willing to share it, be it from their phones or their cars' telematics. I like the idea of average speed cameras.
I can refer to recent personal experience of Garda enforcement. I have seen quite a number of camera vehicles on the roads clocking drivers, with penalty points and fines arriving in the post. I have seen increased Garda enforcement as more resources have been devoted to that area by the Tánaiste and the Department.
The question of tracking every car relates to telematics. Were it to be put that way, though, one would hit data privacy concerns, with people saying, "No way". It is a long-term issue, given how the car industry is beefing up and improving its technologies. We need to find the right way to achieve buy-in. Dublin City Council is trying to introduce mandatory 30 km/h speed zones around schools and other areas. What I would like to see in that regard, although it might be future tech, is inhibiting technology that automatically reduces speed. That is not Big Brother, but prudence and safety. That is down the line, though, and there is no point in our focusing on it in the next weeks or months. There would be no harm in exploring it, of course.
Ireland has a problem with whiplash. The committee will hear more about that from witnesses.
We will provide as much data as we can to the committee as we go. Senator Horkan suggested that we revert to this committee in October to share what we have learned. Many people will watch this committee closely, but it will not be able to see the work we are doing. Reverting might be a good way of showing where we are. However, I will consult the Minister, Deputy Noonan, before giving a definite commitment.
The Minister of State responded in terms of the group's structure, but I asked whether he would provide us with the membership of the group and each sub-committee, not the organisations that their members represent. I also asked for each sub-committee's terms of reference.
Does the Deputy mean the named individuals who are on the working group-----
-----and the named participants in the subgroups?
Who represents the Central Bank, who represents-----
That should not be a problem.
I do not believe that the Minister of State addressed my point on the Central Bank's statement that insurance companies had followed an imprudent pricing and underwriting approach. In the same letter it mentioned how Irish general insurance companies had eroded their capital base and why the Central Bank did not intervene when that was happening.
I cannot speak for the Central Bank. It is a part of the working group, where it is taking an active role, and vice chairs at least two subgroups. Since starting our work in July, no specific concerns have been brought to my attention other than those that have been expressed to the Deputy about what the Central Bank feared was happening in the market in terms of provisioning and what needed to be done to correct that situation. I do not want to speak for the Central Bank. Since I presume that it will appear before the committee, that would be the appropriate place to-----
I raised this matter because the Dáil, including the Minister of State, agreed that we needed to examine regulation of the sector. That includes how the Central Bank handled the issue. To clarify, the Central Bank did not tell me this. Rather, it told the Minister of State's boss, the Minister, Deputy Noonan, in a letter dated 18 August 2015.
If the Minister has not informed the Minister of State to whom he has given responsibility in this area that the Central Bank has written to him and said that there was an imprudent pricing and underwriting approach taken by the insurance companies, then that is an issue the Minister of State needs to clear up with the Minister for Finance. This is correspondence between the Minister and the Central Bank that I received through a Freedom of Information, FOI, request. The question I have is crucially important and one that cannot be brushed under the carpet. There may be a very legitimate reason for the Central Bank's actions but it is important that the working group, chaired by the Minister of State, would deal with all of these issues.
A further extract from the document asserts that "Irish general insurance companies have eroded their capital base". The next part of the document is blacked out and I assume it contained information on the capital base of the companies. The document goes on to say the following: "You will have noticed as well that these companies have put in place, at their helm, new CEOs, to effect this return to profitability". That is what is at the core of this. The nub of the issue is that these companies eroded their capital base, as the former Governor of the Central Bank, Professor Honohan outlined to the Minister for Finance in August. They did this because they lost €100 million on investments over two years. They employed new CEOs, almost across the board, to increase their profitability, as the former Governor pointed out. They have increased their profitability by increasing premiums by approximately 50% in the last two years. In some cases, the increases have been in the order of 100% to 200%. They have made several excuses such as whiplash claims and so forth but the core of the matter is something else entirely. If that is the reason, that is okay and we need to deal with that.
It is crucially important that we ensure that this does not happen again in the future. If the Central Bank was of the view that the insurance companies were taking an imprudent approach to pricing and underwriting what steps, if any, could it have taken to prevent that from happening? If it could have taken steps to address this, why did it not do so? This is crucial.
Absolutely, I do not disagree with that at all. All I am saying is that if the concern of the Central Bank was that legislation was not in place to allow it to perform its regulatory function, that has not been brought to my attention. If there are concerns that capital requirements are not adequate, that has not been brought to my attention. Solvency II is a new regime and there is more intense scrutiny by the Central Bank of these companies. Again, it is up to the Central Bank to speak to that issue.
I do not want to reach any conclusions here. Deputy Doherty has come to a conclusion and has articulated very strongly his assessment of why premiums have gone up. He has spoken about the market model and how the competitors acted in that model, as well as the instrument of provisioning that was put in place in terms of capital requirements and what that has meant in the last two years. If that is the conclusion the committee comes to, then we will have to deal with that. We must work on this together but I cannot come to that conclusion yet.
For the record, that is not my sole conclusion. I believe it is the primary reason for the increases but there are other reasons which have also been articulated. I am not asking the Minister of State to reach a conclusion now. I am asking him, as the chairman of the working group, to identify why the Central Bank believed that imprudent pricing and underwriting approaches across most business lines resulted in the companies' business plans becoming less resilient to downside risks and what it did, if anything, to address this at that time. It is crucially important that we know the answers to these questions. The Central Bank might say that it did not have the power to act and if it did not, then we need to make sure to give it that power. On the other hand, the bank may have been asleep at the wheel. We need to know why the Central Bank believed this was happening. The Central Bank is the regulator for these companies and we are under the impression that it would deal with issues such as this because that is its job.
Absolutely. We must raise these matters with the Central Bank. We are looking at the adequacy of Solvency II and it might be something that needs to be fleshed out with representatives of the Central Bank when they come in. We need to determine whether the Bank believes it is sufficient. We need to look at the move from Solvency I to Solvency II and the changes that have occurred in terms of the type of risk-modelling that has to be done for assets and liabilities by insurance companies as well as the inability to cross-collateralise risk, depending on the different parts of an insurance book. The regime is much more stringent and is making things much more difficult for companies which, for example, have a strong focus on motor insurance, to build up their capital requirements. One of the reasons given to me as to why a company recently left the Irish insurance market was that it could not meet the capital requirements. All of this must be looked at but I do not have any answers regarding the view of the Central Bank.
I ask the Minister of State to investigate that further.
To go back to letter to the Minister of Finance from Professor Honohan from over a year ago, I am shocked that the Minister of State is not aware of it. It is very clear from his presentation to this committee that the Minister of State has covered his brief and is on top of the issues. Whether the Minister of State is acting speedily enough is a different-----
I am sorry to interrupt but I have seen a large amount of documentation since taking on this role. I am not aware of the specific letter to which the Deputy refers but I would be incredibly surprised if I had not read it.
Okay, let us say that the Minister of State has read it. Let us forget about the suggestion that the Minister for Finance or Mr. Moran had not shared it with him-----
Let us not make that suggestion because I do not believe it is the case.
That is fair enough. That is what I am saying.
I just want to be clear on that and to say that my interactions with the Minister for Finance on this are frequent because he considers it so important. When the Deputy starts quoting from a letter that I do not have in front of me, it is a bit difficult to ---
Sorry, the reason I am saying this is that in response to an earlier question, the Minister of State said that no suggestion has been made to him that there was a need for additional powers to regulate the insurance sector.
Since we started our work, that has not been put to me, that is, since the working group met.
What I am saying is that the letter from Professor Honohan points out that the Deputy Governor of the Central Bank, Mr. Roux, flagged in a letter to Mr. Derek Moran additional measures that could be taken to strengthen the supervision of non-life insurance. They include the consolidation of disparate insurance regulations in a coherent whole, transposing without further delay the Solvency II directive and giving the bank the power to regulate insurance holding companies effectively. The Minister of State took on this job at the behest of the Minister for Finance. My point is that the Minister of Finance was made aware, through correspondence from Professor Honohan, that the Central Bank was seeking additional powers to regulate insurance holding companies and wanted the disparate insurance regulations gathered together into a whole. We also know that Mr. Moran was aware of this because the Deputy Governor of the Central Bank flagged it to him previously.
I am asking the Minister of State if these powers have been given to the Central Bank. My understanding is that they have not, even though Solvency II has been transposed since this letter was written over a year ago. Have these powers been given to the Central Bank? If not, why not? Why is the Minister of State not aware that the former Governor of the Central Bank and the Deputy Governor were looking for additional powers to regulate the insurance holding companies effectively?
Solvency II was the priority. We had to move on Solvency II. That is what we had to look at first and that was the most important thing that had to be done. There is continuing engagement between the Central Bank and the Department on what the next moves might be to make sure that the Bank has the powers it believes it needs. That is the ongoing situation at the moment.
In so far as the working group is concerned, we are identifying the priority areas. I said earlier that a number of things are in the pipeline, to which I also alluded in my opening statement, that will take effect in the near future. Part of the job of the working group is to make sure that we drive those as well and they may come on stream in advance of the actual action plan. We hope that will happen and I do not want the Deputy to think that they are not being worked on at the moment.
That is a different answer to the one the Minister of State gave me earlier and a very simple one -----
Sorry Deputy -----
With respect, I asked the Minister of State a question about additional powers that the Central Bank was seeking in order to regulate insurance holding companies effectively. The Bank wrote to the Minister over a year ago seeking those powers. When will the Bank be given the necessary powers? Solvency II was transposed in January of this year and we are now in September. The Minister of State's response earlier suggested that he was not aware of a request for more powers, despite the fact that Mr. Derek Moran and the Minister for Finance received such a request from both the former Governor of the Central Bank, Mr. Honohan and the Deputy Governor, Mr. Roux. I am seeking a clear answer to my question. Is it the intention of the Minister of State, his task force or the Department to provide the additional powers that the Central Bank is seeking? This is particularly pertinent given that since this letter was written, another insurance company operating in the market has gone bust.
Just to avoid confusion, I spoke about the volume of correspondence and documentation I have seen and without having the letter in front of me, it is difficult to be sure that I have seen it and discussed it. I thought that the Deputy was suggesting that the Central Bank was talking about new powers but clearly it was not. What I mean is that since the committee has met, the Central Bank has not come to us and said, "In addition to the engagements we are having, we are proposing these new powers". Of course, I was made aware of the interactions between the Central Bank and the officials that were happening prior to my appointment to this role. Apart from that letter and some other items of correspondence that have come through, nothing new has been suggested since the task force first sat in July.
That is being developed and we are having those discussions with the Central Bank. We will not be remiss in ensuring that they have the proper powers. Solvency was the priority.
They are looking for powers, which means the powers are new, right?
I am talking about a particular point in time when an engagement was already happening, before I was appointed to my current position.
Yes, I know that.
I was made aware of those discussions, but since I was appointed there has been nothing new in addition to that.
I agree with that, but they did not get the powers they were looking for last year. That is the point.
No, but that engagement is still ongoing.
Right. We will move on to the last point I want to make. It is a suggestion, so hopefully it will not be problematic.
I am against it.
I understand that.
We talked about the increases in insurance premiums, and the CSO gives us the average increase. The reality is that we have seen, or know of, people who have had increases of 100%, 200% or 300%. Those are bizarre increases for people who, as the Minister of State mentioned earlier, have made no additional claims or have not incurred penalty points. I have spoken to a large number of people in the sector and everybody has different views. When I cited certain examples, it was suggested to me that the insurance companies want those individuals off their books. They have basically quoted them exorbitant prices just because they may have too many females under the age of 35 on their books, so they increase a premium from €420 to €1,237. That is nearly a 200% increase. We have seen some examples of 300% increases.
We all know that we cannot interfere in setting insurance premiums, but insurance companies have to charge based on risk. Will the Minister of State's working group ask the insurance companies for a sample of the premium renewals they have quoted their customers that were in the 200% or 300% area? They should be asked to justify, on the basis of risk, how those premiums went up. It would be an interesting case study to see why Mary, who had a premium last year of €427, is being charged €1,237 this year, although she has had no accidents or penalty points. The insurance companies should be asked why that is the case.
Earlier on, the Minister of State suggested drilling down into the average premium to see what makes up the different components, which is helpful. Equally, however, the insurance companies need to be able to justify the increases based on risk. In some of these cases the increases are unjustifiable, yet the companies are able to get around it because they have too many of a certain cohort of individuals on their books. They want to de-risk that type of cohort, be it people living in rural areas, young people under 20, or people aged over 85. It is crucial that the companies be asked to justify such increases.
I thank the Deputy. I have heard that too and I think it is a good idea. I will request that, and when I get it I will pass it on to the committee. We will not keep it to ourselves.
I thank the Minister of State.
Deputy Doherty referred to a letter from the Central Bank, which the Minister of State commented on earlier. Can we have a copy of that letter?
Yes, absolutely. It was correspondence that was copied to Deputy Doherty, as well.
Chairman
The Injuries Board was established in 2004.
Yes.
Chairman
The figures the meeting has been discussing show that of all the claims before it, only 20% are actually settled.
The Injuries Board will speak about the data better than I can, but-----
They are the figures that I have heard.
Roughly 20% of claims are settled through the Injuries Board, 10% in court and the other 70% are settled, but it is not clear whether they are settled before or after the Injuries Board process.
Chairman
When the claim goes to the Injuries Board, what are the legal costs then? Who pays for them?
The Injuries Board cannot provide for legal costs. There are a couple of exceptions. One might be in relation to a serious case. From my interaction with the Injuries Board, I understand that it cannot provide for legal costs. That said-----
Chairman
That is part of the legislation.
What they have said to me is that the legal element of that part of the process has not fallen away. In 95% of cases that the Injuries Board sees, there is a solicitor involved.
Yes, but I am talking about the payment to a solicitor.
Yes, I know.
If that solicitor is not being paid appropriately at that level when dealing with the claim, is there then not an encouragement for the solicitor to engage with a barrister and go further into the courts? Is that not really what is happening?
I do not want to come to a definitive conclusion on that but if one looks at the number of cases that fall out of the Injuries Board and enter the courts, one could draw a conclusion that people are not taking the Injuries Board route seriously. They may believe either that they can get a higher award in the courts, or in a settlement, or they may be cognisant of fees that may need to be paid.
Yes. I am not drawing a conclusion; I am just taking it as what is known within the industry - that that is what is driving an awful lot of cases from the PIAB to court. When one gets to court, one has not only the solicitor's fees but one also has the barrister's fees and the time taken up in the courts. In addition, one has a greater settlement impacting on the insurance industry because that is the way it is in the courts. I am looking at this from the viewpoint of what can be done now or in the medium term to resolve some of this.
How much of the action is actually within our own remit in terms of legislation? A review of the PIAB legislation, in the context of how it was intended to work and how it is actually working, could be undertaken. As we discuss this matter, there is a significant upward movement in insurance costs. If we, as legislators, do not intervene, in terms of the PIAB, it will just shoot way beyond the mark. My concern is that the PIAB is not working in the way it was intended. When it first started in 2004, there was a significant change in settlements, which had a positive impact. That legislation needs to be reviewed, however, because of the issue of payments to solicitors. We need to take immediate action which would lead to a positive outcome in terms of the work the Minister of State is undertaking.
As we deal with this, I expect it is not so much that we might kick the can down the road. However, if one of the players in this - that is, the Government - does not take a role in it through legislation, we may very well see further exits from the market. We may see a further consolidation within the market and, if so, we will definitely see insurance premiums going up. Zenith went out of the market this week, so all of that is going on. I am suggesting that we should examine that immediately.
I have another concern about insurance, the NCT and licensing in a number of cases that I have examined where premiums were being renewed. For example, one young woman was being quoted €2,300 which was up almost 100% on the previous year. However, when she went a different route, it was reduced to €1,300 by another company on the basis that she would do a test. Look at the difference in the premiums. Is there now not enough confidence in our NCT and licensing that an insurance company would take that route?
The haulage industry has been hit and that impacts on the economy. Some haulage operators have seen insurance increases of 50% last year and 50% again this year. It is just not sustainable.
When they engage with individual members of the committee, they are looking for explanations and immediate action because all the costs associated with the haulage and transport industry will get passed down the line. At the end of the day, the consumer will take the brunt of all of this. It is inexplicable that young and old people travelling to work are now being forced to look at paying enormous insurance costs. A taxi driver told me the other day that his insurance costs have increased by €50 per week. The Minister of State mentioned that an interim report will be ready in October. I respect the work he is doing. It is obvious from his contribution to today's meeting that he is on top of his brief. The Injuries Board legislation will delay this process. Maybe it would be better to front-load it and look at it now. That is the reality of the claims.
The Chairman is right when he says we have to look at the levers that we can pull as legislators. I agree that we should not follow fanciful things around technology and telematics in the car industry, although I would be very interested in looking at such matters at a later stage in the work of the working group. We have to look at what we can do immediately. We are looking at the Injuries Board legislation at the moment. That is being done in the Minister's Department. We probably need to do a bit more. My understanding is that we need to toughen our approach to that legislation and some of the potential changes we could make in it to ensure people cannot fall out of the process as easily as they seem to now. Consensus will be required from this committee when the legislation comes before it so that it can be supported and enacted.
I believe the committee will be impressed when representatives of the Injuries Board appear before it. I was very impressed when I met them. It would be good if we could all listen to them. If this committee wants to structure its priorities in that way - by saying this will take some time, so we should do it first and nothing else - I will be open to that approach. As I have said, we can do this in tandem with other things that are under way without distracting from the focus of getting something done immediately. I emphasise that we can act immediately. The sooner we act, the sooner we will see some sort of sense coming back to market pricing.
I know we are in charge of the Injuries Board legislation, but what other levers are we in charge of?
A number of factors need to be considered in this context so we can improve the Injuries Board. In addition to looking at the legislation that underpins the board, we can look at legislation relating to the provision of legal services, the obtaining of medical tests and the availability of data. For example, we can look at the grading of different types of whiplash.
The legislation underpinning the Injuries Board is being examined at present. In addition, consideration is being given to legislation in other areas that is directly relevant to how the board does its work and how we can ensure the Injuries Board is the de facto place for activity of this kind. If it is not the de facto place, we need to make sure anyone who is settling before or after the board does its work settles at basically the same price. When the officials from the Injuries Board come in, they will say that the main intention behind the establishment of the board in the first instance is being achieved. The evidence for that is the fact that just 10% of cases are going to litigation. They will also mention that they do not have transparency in 70% of cases. I would listen to what they have to say because they have a number of good ideas.
The Chairman is right when he speaks about the damage that is being done to competitiveness in the economy. This is affecting individuals and industries in the economy. We are also seeing the significant risk of no insurance. According to the industry, this is adding to premiums. Taxi drivers are in a very difficult situation. I was in a taxi when someone attempted to cause a fake accident. Taxi drivers are able to spot how and when this happens. Some people believe taxi drivers are quicker to settle in cash, without even going to insurance companies, because of the damage claims can do to their insurance policies.
All sorts of things are happening and are not even being recorded. These things are negative consequences of the current situation we have. We need to find ways to address all of them. If the committee decides in two or three weeks' time, after it has done this work, that it considers the Injuries Board, and the attendant factors to the Injuries Board in relation to the different areas of legislation, is the way to go, I will come back in then and we will look at it in terms of the work we have done on our side.
I put it to the Minister of State that legal fees comprise the most significant inbuilt cost in most of the claims that are settled in court. One must ask why just 20% of cases are settled through the Injuries Board. It is possible that legislation or regulation is the only lever we have. My strong belief is that the Government should be showing intent in respect of all the vested interests in the insurance industry by making it clear we are serious about leading the way and doing certain things. There is obviously something wrong with the market because companies are leaving it. My greatest fear is that a further consolidation in the market will lead to an upward-only change in premiums. That is a certainty. If the Government can intervene by leading the way in terms of taking legislative action - it needs to do more than arrange hearings, etc. - it will force the vested interests to see that the game is up and that this House is intent on doing its business. Neither data protection nor anything else should get in the way of having an industry that is capable of dealing with the claims and so on that come before it. There is a need for certainty about the legal process involving the Injuries Board or otherwise. We should be taking that action.
The Chair is absolutely right when he expresses fears about people leaving the market and what that might mean. He is also right when he says the Government should come with actions. I will take action. The sooner we can show consensus between the Government and the Opposition parties, the sooner we will send the right signal to the industry and the other players that something is about to happen. I hope that can have a calming effect in terms of preventing any unnecessary spikes in premiums before the actions actually begin to take hold.
I would like to set out what I think the committee will hear about the costs associated with awards being given in court. Representatives of the industry will probably say that 60% of these costs can be attributed to legal fees. Certain players in the industry have voiced an expectation that when an accident happens or damage is done, people will go looking for an amount to cover the fixing of the car, but they will also look for more than that as an additional type of compensation. That is a cultural issue. A CEO in the industry made the point that we cannot have low premiums and high court awards. We need to bear such cultural factors in mind. I think the committee is right to focus on the Injuries Board. I believe, on the basis of the engagements I have had, that such cultural factors can be avoided. The industry wants certainty because it needs to provide against uncertainty. Volatility does not help it to make such provision, so it always provides for the higher cost. Even if the Injuries Board were beefed up, more transparency would help because it would give the industry certainty about what it needs to provide against. If the number of cases coming through the Injuries Board were to increase by 50%, it would mean that 30% of cases would be coming through the Injuries Board, 10% of them would be going to litigation and 60% would be dealt with outside the Injuries Board. I think that would help to have a calming influence on premiums.
In most cases, the person who is making the claim has a legitimate claim. If that person receives an award for the repair or his or her car and for a health issue or injury that might have arisen from the incident, that is what insurance is for. Insurance is not for what is happening now, which is the legal profession getting a massive amount of money. That is what seems to be happening in these settlements. There might have been a better opportunity to settle for smaller money, at far less cost, in the Injuries Board. I understand the Minister of State's strategy for dealing with this. I respect his wish to get everyone to buy into it. I would like to see the Government leading the way by saying it is going to do this by introducing legislation with regard to the Injuries Board or whatever it might be. That would really show the market that we are serious about this. I think the Opposition is serious about it. The Government needs to be serious about it. If the Minister of State acts in this manner, he will get buy-in and everything else will begin to fall into place.
I cannot remember the committee's schedule off the top of my head. Are representatives of the Law Society of Ireland and the Bar Council of Ireland due to come before it?
Chairman
Yes; they are all involved here.
Good. They are coming before the working group as well.
I will be putting the same question to them.
Great.
Chairman
I am very anxious to get to it.
Me too.
It needs to be said publicly and it needs to be analysed publicly so that everybody has full knowledge of where the fault lies in relation to these costs.
We need data on costs.
Yes. I encourage the Minister of State to look to the Injuries Board in that regard. We will be meeting all of the players in this area. Today's meeting is the opening meeting on this issue. It is infuriating that as we discuss this issue the industry is moving as fast as it can towards higher premiums, as much as to say whatever changes are introduced in 2017 will be applied from the increased base. That is unfair and the industry should be told so.
When will the Injuries Board appear before the committee?
On Tuesday, 13 September 2016.
That is next week. Great. I believe its presentation will be a strong one.
I ask the Minister of State to take note of the issue.
In regard to people being of the view that they are bailing out the insurance companies, it might be helpful if we could get an aggregate figure of the monetary value of the marginal increases from the insurance companies such that we would know the hole that is being filled by people in terms of what is coming out of their pockets.
I have figures with regard to the way in which companies are operating. According to the figures provided to me, they are booking a loss on their motor insurance books. I have requested data from one insurance company that will also help in terms of identifying the increases. As soon as I have received it, and if it is appropriate to do so, I will share it. In the interim, we will share whatever data supplied thus far that it is appropriate to share. Insurance Ireland will be appearing before the committee. Data for 2015 are in the pipeline. We are currently working off data from 2014 because that is the latest information that the industry has provided to the Central Bank. New data is on the way. If we get it first, we will ensure it is shared with the committee.
I thank the Minister of State. As far as the public is concerned, I have met many people who battled with their insurance companies about increased premiums and succeeded in having them reduced. The public have a role in this too. People should not take increases in their premium at face value. They should engage with their insurance companies and seek reductions, thus bringing attention to this issue, which is critical to all of our lives, as we want to be insured.
The joint committee adjourned at 4.25 p.m. until 11 a.m. on Thursday, 8 September 2016.