Is cúis áthais dom a bheith anseo arís chun labhairt ar an rún seo faoi árachas d'aos óg na tíre. Táim ag súil go mbeidh díospóireacht spéisiúil againn agus go mbeimid in ann le chéile eolas cruinn beacht a chur faoi bhráid an tSeanaid.
I am happy to have this opportunity to discuss the issue of motor insurance for young drivers. Senators will be aware that the interim report of the motor insurance advisory board was released under the freedom of information legislation last week. I have provided copies of the interim report to the Clerk of the Seanad for Senators.
Since the early 1990s successive Governments have grappled with the issue of insurance costs, particularly for young drivers. There has been extensive research into ways of reducing insurance premiums. The research indicated that costs of settling claims, particularly personal injury claims, are largely responsible for high insurance costs. Further research was undertaken into possible solutions. A major outcome of that research is the second report of the special working group on personal injuries compensation, to which I will refer in greater detail later.
When I was appointed Minister of State with responsibility for commerce in October 1997, I provided that the research into personal injuries compensation should continue. I was aware of the degree of public concern surrounding the issue of motor insurance and, in particular, the issue of premiums for young drivers. It was clear that there was a need to inquire into the bases on which premiums were charged to people of both sexes and of different age groups. Accordingly, I set up the Motor Insurance Advisory Board, MIAB, in 1998 to examine the factors that influence the cost of motor insurance and the relationship between the premiums charged to different categories of drivers and the claims experience of those categories.
The Motor Insurance Advisory Board is chaired by Ms Dorothea Dowling who is claims manager of CIE and a fellow of the Chartered Insurance Institute, with 15 years of experience in the industry in both Dublin and London. The board members are representative of the various groups interested in motor insurance, including representatives of consumers, commercial motorists, young drivers, the Garda Síochána, the Department of Justice, Equality and Law Reform, the Department of the Environment and Local Government, the Department of Enterprise, Trade and Employment, driver trainers, the motor industry and, of course, the insurance industry, including brokers. It is an outstanding board. The board began its work in late 1998 and has dealt with a broad range of relevant issues as well as the issue of claims costs as compared with premiums charged.
The MIAB submitted its interim report to our Department last June. The board was conscious that the data on which it had based its first report was incomplete and that the findings were, therefore, tentative. Thus, the interim report clearly stated that the board required total access to the individual raw data from each insurance company before any firm conclusions could be reached. Further, it became clear last October that there were other deficiencies in the data. The board took the view that the flawed information compromised the already tentative conclusions of its report and brought that fact immediately to my attention.
In essence, the data concerning claims experience in various categories of drivers did not cover the whole market. The MIAB considered that the missing data was significant and could have an impact on the analysis. In addition, it was not clear that the data adequately identified different categories of driver – in particular, it was not clear that women drivers were always separately identified. The challenges in producing accurate data largely arose because the centralised IT system that the insurance industry used to deliver the earlier data had difficulties coping with mergers in the industry which had necessitated integration of sometimes different computer systems. It appears that these difficulties have been resolved and that the insurance industry is in a position to deliver accurate data to the MIAB at this time.
While the inferences that the MIAB had drawn from the incomplete information available to it were interesting, they could not be regarded as conclusions. Moreover, the board was careful to emphasise that they were not being regarded as conclusions by the board. Furthermore, the board pointed out that in calculating what it described as profits, it had not taken the insurers' administrative costs into account on the grounds that they would not differ from one policyholder to another. However, those costs existed. The board went on to point out that reliable raw data was required before it could draw conclusions about the relationship between premiums and claims experience for the various categories of driver within each company.
Clearly, the inferences drawn by the board were interesting and thought-provoking. However, to react to them would have been premature and ill advised. Once the board was in a position to confirm that the insurance industry would supply accurate data, I extended the appointment of the board to the end of 2001. I was anxious to facilitate the board's analysis of the data and the completion of its task in light of these early findings.
It is vital that any consideration by this Government of issues arising from the levels of motor insurance premiums should be on an accurate and well informed basis. The Government has a statutory duty to require insurance companies to comply with solvency legislation. That is one of the serious responsibilities I hold as Minister of State with responsibility for commerce. Consumers have a right to expect that the insurance companies they deal with will be in a position to pay claims and generally meet their obligations to their policyholders. This House does not need reminding that motor insurance companies have failed in the past.
The solvency regime imposed by the various insurance Acts restricts, at least theoretically, the entry of potential suppliers on the market and the reserving requirements imposed on insurance companies add to the cost and, therefore, the price of insurance. However, everybody will agree that the maintenance of the solvency regime is unquestionably in the interests of consumers. Accordingly, it is vital that the Government considers issues relating to the pricing of insurance on a basis that is demonstrably reliable and accurate. Thus it would not be in the interests of consumers and policyholders for the Government to react prematurely to incomplete information. The only sensible course is the one I have taken, which is to allow the board to continue its work so that it may carry out a full and detailed analysis on reliable and robust data.
I am most appreciative of the hard work already done by the board and the work now to be undertaken. I am also most appreciative of the outstanding work by the insurance division of my Department. This work will make a valuable contribution to informed debate on motor insurance costs. It is expected that the board will report towards the end of this year. The Government will take full account of the board's recommendations and will refer them, as appropriate, to the new financial services regulatory authority.
It may be useful to inform this House of the context in which insurance is sold in Ireland and the bearing it has on the options available to the Government in relation to pricing and underwriting of insurance. One of the fundamental principles of the Single European Market is the free movement of goods, services and citizens throughout the European Union. The third insurance directives provide the legal framework for the Single Market by setting out the rules to be observed by the supervisory authorities in all the member states. These rules facilitate the freedoms available under the treaty. As a result, any EU authorised insurer may offer insurance to any EU citizen without reference to country of origin. Equally, any EU citizen is entitled to purchase insurance from any EU authorised insurer.
The advantage of the Single Market, from the point of view of the consumer, is that it should increase competition resulting in downward pressure on prices. While a significant number of EU companies have notified us of their intention to offer insurance to Irish consumers on a services basis, there is little evidence that they are placing business on the Irish market. As the Single Market becomes a reality for both consumers and service providers, we will see more companies offering insurance, including motor insurance, here. I have frequently urged insurance intermediaries to seek quotes on behalf of their clients from insurers based elsewhere in the European Union. Representing Ireland internationally in insurance and other financial industries, I appeal to international insurance companies to deliver services here.
There are two principles in the regime established by the treaties and the third directives to be noted. One is that member states are explicitly prevented by the directives from intervening in the pricing of insurance. The other is the principle of free movement.
The ban on price intervention means that we cannot intervene to freeze, reduce or increase the price of motor insurance, either generally or for a particular group of motorists. The free movement principle means that I cannot compel any citizen to purchase insurance from a particular provider or in particular circumstances. It is not possible to compel motorists to join a "community rated" scheme such as we have for health insurance. In the event that such a scheme were set up, whether covering all motorists or only those within a certain age bracket, the best risks, that is the best risks as consumers, could exercise their rights as citizens of the European Union and opt out of the pool, thus defeating the purpose of the scheme. Evidence from such "young driver" schemes in the US suggests that best risks opt out and the price for those left in the pool escalates.
Although the European context in which we operate imposes these constraints, the Government is active in seeking alternatives to address the costs of insurance. One of the most important of these is the Government's intention to establish a personal injuries assessment board to improve the efficiency of the insurance claims process. The board will provide an independent forum to decide on compensation for injured parties quickly and in an unintimidating environment. It is not intended to reduce the amount of awards to injured parties. In its initial operational phase, the board will decide on the amount of personal injury compensation arising from employers' liability and will later assume responsibility for motor insurance claims. It will only decide on the issue of quantum, not liability. The board will not infringe on the individual's right of access to the courts. It will work as an independent and expert entity within the Courts Service. It will operate in a non-adversarial fashion and so should reduce the cost of delivering compensation for personal injury claims by streamlining the process.
Cost reduction will be achieved by reducing the number of cases which are settled by the parties following the instigation of court proceedings. At present only 10% of legal cases started for compensation reach the courts. The current practice imposes costs from which the injured party does not benefit, such as insurance administration, the expert witnesses and legal expertise. Research undertaken by the Motor Insurance Advisory Board indicates that a very high proportion of outlay on injury claims is absorbed by such costs. For every £100 compensation paid for injury in motor accidents, an extra 40% goes on lawyers' and experts' fees.
The Minister for the Environment has also taken a number of initiatives to reduce accident frequency. While accident rates remain too high, especially in view of their human costs, we are achieving real progress, particularly when the rates of accidents are compared with the rate of growth in car ownership. In 1996 there were 828,000 cars and today there are 1.3 million.
Yesterday, my Government colleague, Deputy Dempsey, Minister for the Environment and Local Government, announced the publication of the Road Traffic Bill, 2001, which extensively improves enforcement arrangements in relation to road traffic offences. The purpose is to achieve a reduction in road deaths and injuries. The Bill provides for the introduction of a penalty points system. Carelessness and lack of consideration on the road will attract penalty points. If a motorist accumulates 12 penalty points, he or she will be automatically disqualified from driving. This will cause motorists to drive with greater caution and consideration.
Speaking as Minister of State with responsibility for commerce, I am confident that my record speaks for itself. Last year, with the valuable input of this House and the Dáil, I steered the Insurance Bill through both Houses. Insurance intermediaries will soon be subject to a systematic supervisory regime so that consumers can have confidence in them. Consumers of life assurance are now entitled to receive important information before they purchase life assurance. Soon, the personal injuries assessment board will benefit injured consumers by giving them access to fast, transparent compensation for injuries. That will benefit insurance policyholders by cutting the costs of compensation delivery. The Motor Insurance Advisory Board will continue with its work and will report to the Government before the end of this year. We await the recommendations with great interest.
