The Irish Brokers Association, IBA, would like to thank the Oireachtas Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach for asking us to attend seeking our views in respect of the rising costs of motor insurance in Ireland.
The IBA represents over 500 insurance brokers in the Republic of Ireland and our members sell motor insurance policies to over 700,000 Irish consumers. Attending with me today are two of our most prominent members and large players in the motor insurance market. Mr. Paul Carty is managing director of ARB Underwriting and wears two hats here today: one as a managing general agent and the other as a broker; and Ms Caeva O'Callaghan of O'Callaghan Insurances Limited, whose broker business has a large personal lines client base. Also with me are our director of general insurances, Mr. Brian McNelis, and Mr. Frank Lahiffe, our public affairs adviser.
Our members are at the coalface and have had to deal with the many confused and angry motorists whose premiums have increased by over 70% in recent years, although the majority remain claims free. The reasons for the dramatic increases in premium have at this stage been well documented and what I would like to focus on in this brief presentation to the committee is what we consider as remedies to spiralling premiums, and, ultimately, to what will lead to a more consistent pricing model.
Insurers have failed in the past and probably will fail in the future. We, in Ireland, have had too much experience of insurers failing. The root cause has always been unsustainable pricing models to win market share. In the 1980s, we had the collapse of PMPA and Insurance Corporation of Ireland, and in the past number of years we have seen the collapse of Quinn Insurance, Setanta and Enterprise and have also witnessed insurers having to be recapitalised by parent companies and investors to stay in business, namely RSA, FBD and Liberty. Five years ago, drivers could get comprehensive car insurance for as little as €230 which is approximately a third of the price in the 1980s. Putting this pricing into context, it was well below most individuals' motor tax and also if the policy included windscreen cover, the cost of replacing that windscreen was more than the cost of the policy.
To arrive at a sustainable affordable price, certain market dynamics need to be urgently addressed. We, as a body, have witnessed first-hand the dysfunctional nature of the present market whereby we have seen prices increase and margins improve, and yet insurers like Zenith are leaving the market while at the same time there is not a queue of insurers seeking licences from the Central Bank of Ireland to enter, or passport in to, the market. This is because, apart from the small scale of the Irish market, the ability to make a return on capital is too uncertain. If we are to have a functional market that is competitive, we need greater certainty to allow companies price properly and make a return for the shareholder. In the Irish market today, capacity is reducing which inevitably leads to price increases and if the limited capacity is to continue, prices will inevitably rise further.
All stakeholders have a role to play in normalising the market - the Government through policy changes, the Central Bank through proper oversight of pricing and reserves, the insurance industry by being more transparent on claims and the sharing of data, the courts in respect of awards, the broker in providing choice and claims support, and the consumer with regard to driving behaviour and fraudulent or exaggerated claims. In particular, the Government has an important role to play and we believe these important first steps need to be taken as soon as possible.
In essence, the Government needs to take the following action. It should ensure the market is attractive to new entrants and competition by removing uncertainty, and tackling the claims culture that currently exists. Greater capacity in the market avoids the cherry-picking of perfect risks, increases competition, reduces price and improves choice for the consumer. It should increase the powers of the Injuries Board, ensuring fewer cases end up in the courts and if they do, that the courts refer to the book of quantum. This, we believe, would reduce significantly legal costs which could amount to approximately 50% of the overall claims cost in disputed cases.
Any innocent third party should be adequately compensated for injuries caused in a road accident. However, up to 70% of all claims are for soft tissue injury with no long-term detriment to health or lifestyle. There is undoubtedly an element of exaggeration, or indeed fraud, in many of these cases and therefore, if the incentive of cash was replaced with treatment for injuries, many of these claims would disappear from the system. We would, however, reiterate that people seriously injured should get adequately compensated.
The Government should remove retrospection with regard to changes in legislation. Insurers price on the factors that apply at the time of taking the risk. However, we have seen in recent years changes that have affected claims not yet settled, examples of which are where they change the discount rate, court award limits and compensation rules.
The Government should appoint the Central Statistics Office to gather information regarding claims data. The co-ordination of existing databases holding claims data, penalty points, driving licence and NCT information is essential in the efforts to fight fraud, improve processes and ultimately reduce costs to the benefit of the consumer. Data protection rules are often used as excuses, but if the availability of data allows for better and fairer pricing models then in our view the majority of motorists will agree to allow visibility of relevant data.
The Government should set up a compensation fund to cover the inevitable future failing of an insurer. It could be funded through contributions from insurers who operate in the market relevant to their market shares and by the current insurance levy on premiums. This would ensure a level playing field for all operators in the market, take pressure off the Exchequer when a failure occurs and ensure the industry does not have to cover the liabilities of an imprudent competitor, which makes no sense and would be a major inhibitor of new insurers entering the market.
Fraud needs to be punished to deter offenders. If a case is fraudulent, wasting time, money and, more importantly, ambulance, fire and Garda resources attending an accident, the perpetrators should be heavily fined and in certain cases, receive custodial sentences.
The Central Bank needs to make the public aware, from May 2017, of the solvency and financial control report, required under Solvency II regime, for all insurers operating in the Irish market which will greatly enhance transparency of their financial standing. This will enable consumers and their advisers make more informed decisions regarding from whom they purchase insurance.
Insurers need to become more transparent and provide the relevant data on claims so that the whole claims picture is in the public domain. The settling of claims early, and outside the courts, is acceptable if all parties are happy but the absence of data causes distrust when the industry is trying to explain the actions it is being forced to take. Also, policyholders should be more involved when an insurer agrees to settle on their behalf. In many situations, this only becomes apparent at renewal. We all have heard stories of minor damage being exaggerated and settled without any recourse to the policyholder to defend the settlement.
Courts need to be mindful of the book of quantum as a fair assessment of injury compensation so that there is a consistency in awards. Also, if cases are found to be fraudulent, they should be sent to the DPP with a view to criminal prosecution.
The Garda should be resourced to reduce the numbers of uninsured drivers who take chances knowing their chances of being caught are negligible. All gardaí should have APNR equipment so that they can scan registrations to see if cars are insured, and the requirement for insurance discs should be abolished. If vehicles are not insured, they should be confiscated and the driver banned from driving for a number of years.
Drivers also have responsibilities. They need to provide accurate details when acquiring insurance. Education is required with regard to fronting, whereby the parent insures the car as the main driver, even though it is the son or daughter's car and he or she will be the main user of that car. Parents think they are saving their children money when, in fact, their children are driving without insurance.
With insurance costs so high for young drivers, the premium is now often in excess of the value of the vehicle they purchase. We tend to allow the most inexperienced drivers drive the oldest and less roadworthy vehicles. Most of these older cars do not have the safety features of modern cars and may have previously been crashed or renovated. There is also a strong correlation of older cars being used for fraudulent or staged claims. We also need tougher penalties for speeding, careless driving and the use of mobile telephones when driving.
Brokers play an important role in the arranging of insurance. Indeed, unlike an insurance company, they shop around at time of renewal to ensure their customers are getting the best cover at the most affordable price. As a result of the current hike in premiums, members have seen an increase in new business. However, with reducing capacity, their ability to find better priced products has reduced. Also, certain insurers operate a differential pricing model whereby they offer different premiums for the same risk through different distribution channels. They often also discriminate between new and existing customers. In our view, a risk is the same irrespective of which channel it comes through or whether it is new or renewal, and the price charged should be the same. In fact, purchasing insurance through a broker not only provides a wide choice of product, but also ensures a fairer settlement as the customer is often represented in the claim.
It is a dysfunctional market with no new entrants and the incumbents are losing money. Unfortunately, we have a system with high awards, which, unless tackled, will lead to further premium increases. The insurance industry not only provides significant employment but invests heavily in the economy and facilitates daily living and business through the transfer of risk. It is imperative that we address the issues highlighted to the committee if we are to continue to have a competitive and profitable industry. In the past, premiums were too low. Consumers must realise the new norm will see average premiums closer to 1990 levels than what we have been used to in recent times. The correction in premium size was warranted but in a functional market it would have been more gradual and less discriminatory. I will be delighted to answer any questions that committee members may have.