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Insurance Industry Regulation

Dáil Éireann Debate, Tuesday - 1 May 2018

Tuesday, 1 May 2018

Ceisteanna (85, 86)

Michael McGrath

Ceist:

85. Deputy Michael McGrath asked the Minister for Finance his views on recent reports that suggest insurance companies are using management fees to inflate premiums and to prevent outsiders from entering the market; and if he will make a statement on the matter. [18697/18]

Amharc ar fhreagra

Michael McGrath

Ceist:

86. Deputy Michael McGrath asked the Minister for Finance if the Central Bank has a role in monitoring management fees booked by insurance companies; if the Central Bank collects data on management fees booked by insurance companies; if these data were gathered as part of the Blue Book on insurance statistics that was discontinued; and if he will make a statement on the matter. [18698/18]

Amharc ar fhreagra

Freagraí scríofa

I propose to take Questions Nos. 85 and 86 together.

As Minister for Finance, I am responsible for the development of the legal framework governing financial regulation. Neither I nor the Central Bank of Ireland can interfere in the provision or pricing of insurance products, as these matters are of a commercial nature, and are determined by insurance companies based on an assessment of the risks they are willing to accept. This position is reinforced by the EU framework for insurance which expressly prohibits Member States from adopting rules which require insurance companies to obtain prior approval of the pricing or terms and conditions of insurance products.

I am aware of recent reports in the media relating to the management expenses of insurance undertakings. I understand that the coverage relates in particular to the portion of Net Premium Income which these costs represent.

The Central Bank has informed me that, audited insurance company returns to the Central Bank of Ireland show that total industry management expenses and commission have remained relatively stable over the last ten years.

Insurance Ireland has separately noted that the net premium income which has been referenced does not include the costs of reinsurance protection. In other words, it represents premium income retained by insurers following payments made for such reinsurance protection. This means that where the cost of reinsurance protection increases, net premium income by definition falls. Insurance Ireland has indicated that this is what has actually happened in some years and that a comparison is being made in such years between a reduced net premium income and a level of management expenses that have not risen in absolute terms and have remained largely the same since 2005. This they say is demonstrated by Central Bank Statistics on motor management expenses which in 2005 amounted to €224 million and in 2015 were €216 million. They say that the effect of this comparison is to create an apparent spike in management expenses in recent times, which does not reflect the reality of the situation.

Insurance Ireland has also pointed out that reinsurance is an essential risk management tool for insurers as it involves the transfer of claims risk to a reinsurer. There is a cost associated with this as such reinsurance entities must also meet their own regulatory solvency requirements and therefore they charge the appropriate reinsurance premium to cover such risks, which an insurer must pay.

In relation to the Deputy’s second query, the Central Bank has informed me, that information on management expenses was included in the Solvency I returns that were submitted to the Central Bank. These audited returns formed the basis of the blue book. Those returns were based on the insurance companies’ financial statements, which were audited, and are available from the Companies Office.

It should be noted that information on management expenses is also available in the Solvency II returns submitted to the Central Bank. Interested parties seeking data at company level can find such data in publically available reports which are required of all insurance undertakings under the Solvency II regime. These reports are known as the Solvency and Financial Condition Reports (SFCRs). The SFCRs include a detailed narrative report on the insurance undertaking coupled with key quantitative reporting templates that contain premiums, claims, expenses, technical provisions, solvency and other information. All SFCRs for 2016 are made available by the Central Bank in a dedicated SFCR repository which can be accessed at

https://www.centralbank.ie/regulation/industry-market-sectors/insurance-reinsurance/solvency-ii/solvency-and-financial-condition-report-repository.

Whilst the Central Bank monitors the levels of management expenses at a company and industry level it has no role in the control of those expenses.

It is worth noting also that one of the recommendations of the Cost of Insurance Working Group linked to increasing transparency in the insurance sector is the publication of key aggregated metrics on claims costs and trends within the market, as an interim measure prior to the establishment of the National Claims Database. In July of last year, I published the first of these reports on the Department’s website: http://www.finance.gov.ie/wp-content/uploads/2017/07/1st-Motor-Insurance-Key-Information-Report.pdf. That Report provides information on the expenditure of a large portion of the insurance industry for the years 2011 to 2016 as a percentage of gross premium income. In that regard, the data provided by insurers indicates that combined commissions and other operating expenses reduced from 18.9% to 17.4% during that time.

In conclusion, the reports in the media demonstrate the need for the National Claims Information Database. It is clear that there is a need to be able to collect data related to the income and expenditure of insurers, in addition to the data linked to the costs associated with claims. Having such information will assist policyholders and researchers to better understand the drivers of the costs of insurance. This is one of the central policy aims of the National Claims Information Database and I think the publication of such data at industry level will facilitate an understanding into how particular expenses may or may not have an impact on the overall cost of insurance.

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