The issues being discussed today are of great importance to economic well-being and we welcome the opportunity to contribute to the discussion. Aviva has been operating in the Irish market for nearly 240 years. This year, we reinforced our commitment to this market by completing the establishment of separate legal entities in Ireland for our general insurance and life assurance businesses. This allows us to continue to protect our customers and serve their best interests in Ireland post-Brexit. We employ circa 1,600 people in Dublin, Galway and Cork. We are a socially responsible insurer that seeks to deliver value for all stakeholders, including our customers, over the long term. We contribute significantly to national sports and community organisations through our sponsorship of the Aviva Stadium and our support of charitable and community causes. We are one of the largest providers of insurance in the Irish market, with a general insurance market share of approximately 15%. To give a sense of that figure, we insure one in every five small and medium enterprises, SMEs, one in every five motorists and one in every six homes. We are well placed to know and understand this market and we exist to pay our customers claims. We hear from our customers on a daily basis about the difficulties they are facing as a result of the problems in the insurance market.
What is driving the cost and availability of the insurance sectors under discussion today? We point to three areas that have caused challenges for profitability in the market. Those challenges are the increasing cost of claims, a reduction in investment income and a reduction in premiums. The problems faced by the insurance market became a consumer issue from 2015 onwards, manifesting first in significant increases in customer premiums and thereafter in significant reduced availability of cover for certain market segments. Most domestic insurers reduced capacity for volatile and unprofitable segments of the market, including leisure, and these were replaced primarily by UK-based insurers. The additional problem, as highlighted in the media recently, is that these UK insurers are now exiting the market. Business customers in these sectors can find it difficult to get a quote and if they do, it can be at prohibitively expensive prices.
The cost of insurance working group was established in 2016 to address the issue of increasing insurance costs. The group correctly identified the need to establish the Personal Injuries Commission, PIC. One of the most significant aspects of the PIC was that for one of the first times ever, it included representatives of all stakeholders, including the Law Society, insurers, the Bar Council, the medical profession, consumer and competition representatives and relevant Government Departments. The excellent work of retired Mr. Justice Nicholas Kearns, who chaired the PIC, confirmed that personal injury award levels in Ireland are 4.4 times those in England and Wales, with the commission unanimously recommending the establishment of a judicial council to recalibrate awards back to reasonable levels. When whiplash awards are aligned to levels in England and Wales, this will result in substantial premium reductions.
What are the key changes that need to be made to improve the landscape for the cost and availability of insurance? The insurance landscape continues to create significant issues for Irish customers in terms of premium volatility and the withdrawal of insurance underwriters from what is an open market here. The issue of excessive award levels was validated by the cost of insurance working group and the Personal Injuries Commission and Aviva fully supports the recommendations they outlined. However, our customers remain frustrated that in spite of all the activity in implementing changes, there has been no real reduction in claims costs and, as a consequence, we cannot deliver more substantial premium reductions and sustainable premiums.
Business customers face an additional challenge. The excessive award levels have created a "compo" culture that is significantly impacting the liability market in Ireland. In our experience, the courts are taking a much broader view of the duty and standard of care. We are asking the Government to review the law of negligence as it applies to personal injury actions against small and medium enterprises, SMEs, and community and voluntary organisations in Ireland.
What has Aviva done to promote, encourage and deliver these required changes? In 2015, we launched our “road to reform” agenda and wrote to our customers highlighting the reasons for the rising cost of premiums and the changes required to reduce the cost. We have since proactively engaged with key stakeholders including Ministers, Opposition spokespersons and senior officials in the Departments of An Taoiseach, Finance and Transport, Tourism and Sport on the drivers of premium increases and the urgent reforms required. We recognise the need to substantially increase our capacity to prevent and detect fraud. We have invested heavily in our fraud team, which now has more than 30 dedicated fraud investigators working alongside a network of more than 50 additional claims investigators nationwide. Over the past three years we have worked very closely with the Garda Síochána and have increased the reporting of criminal disclosures to it under section 19 of the Criminal Justice Act 2011. In addition, we have proactively engaged with the Garda, industry stakeholders and the media to raise awareness of the issues of claims fraud, ghost broking, which involves the sale of counterfeit policies, and fraud tourism, involving claimants who travel to Ireland from countries with lower award levels solely to commit insurance fraud.
What is Aviva’s commitment to Irish consumers if the required changes are delivered? Aviva will continue to operate prudently from an underwriting and pricing perspective, as it always has, to ensure that we are here to protect our customers when they need us most, namely, at point of claim. The target return we hope to achieve is a small percentage of the overall cost of insurance. Most of a premium goes towards paying our customers' claims. For example, 65% of motor insurance premiums goes toward paying claims, with a further 11% going towards paying levies and claims from uninsured drivers. The cost of claims remains the largest influencing factor on the cost of insurance in Ireland. We would be delighted to pass on lower premiums to our customers who are bearing the brunt of these excessive awards. Changes in the awards handed down are essential if we are to deliver lower and more sustainable premiums to our customers and we encourage the Government to prioritise the completion of this reform process. We are committed to ensuring our customers will benefit directly from any such reductions when claims costs come down.
What is Aviva’s request of the Government and the committee? The biggest factor determining the cost and availability of insurance is the cost of claims. The mechanism to address this is a recalibration of award levels as provided for in the Judicial Council Act. Aviva calls for the establishment of the judicial council without further delay and for it to then establish the personal injuries guideline committee to recalibrate injury award levels as a matter of urgency rather than in accordance with the maximum timeframe permitted under the legislation. Aviva also asks the Government to review the law of negligence as it applies to personal injuries actions against SMEs and community and voluntary organisations.
I thank the Chair and members.