Ms Patricia Callan:

The Small Firms Association, SFA, represents 8,500 companies, all of whom employ fewer than 50 people from all sectors and regions of the State. Whether they have one business vehicle or multiples, their message coming back to us is very clear that there is now a motor insurance crisis and it is affecting the costs base of their companies. In 5% of members' cases they are actually saying this crisis could put them out of business. We welcome the attention the committee is giving to the issue. When all the different stakeholders come to the committee, there will be broad consensus about what needs to be done, and it is to be hoped we will see some action.

The SFA conducted a survey of members just last week to gather some contemporary data to share with the committee. It shows premiums have been increasing steadily over recent years. There was a 6% average increase from 2012 to 2013, followed by an increase of 9% in 2014 and 13% in 2015. However, in this past year things have actually skyrocketed, with most companies seeing premium price increases of 35%. We expected to see a difference between companies that had experienced claims and companies that had not, but even companies with no claims have seen premiums increase by 34%. Therefore, we know that the market is fundamentally not working in the State and there are a number of factors the SFA believes would help.

When we asked about the implications of motor insurance as an issue for our members' businesses, 20% of our survey respondents said they had reduced their number of vehicles because of the cost base, which means they cannot do as much work. They are reducing the scale of their operations and the employment that goes with it. This is an issue. Another 20% of our respondents have reduced their level of cover, leaving their businesses at greater risk of exposure, which is also a concern.

We have discussed these issues with our member companies and we have summarised our findings into five areas upon which the committee could focus its work: introduce a new book of quantum, which we understand is a work in progress; move to a care not cash approach, in particular for whiplash cases; increase competition in the insurance market to ensure there are a sufficient number of companies providing cover; combat fraud; and review the powers of the Injuries Board.

Businesses accept they have a responsibility to ensure the provision of proper safety management in their workplaces and to give their staff every training necessary. The SFA has been working with companies in this regard. That we have a responsibility for this aspect is a given. We know the book of quantum is being re-worked and will probably be published in the next month, and I have been around long enough to remember the previous crisis. However, our concern is the way the book is calculated which is based on actual court awards. At the time of the previous book of quantum the awards were already super-inflated because the judgments were too generous. That is the book with which we have worked all these years. If the same methodology is used and if it is based on the more recent awards, it will not act in our favour as it will actually increase the levels of awards. In the review of the book of quantum it is very important that we are not merely reflecting awards that have been given out in recent years but that we incorporate a system around what an injury is actually worth and do the benchmarking analysis internationally. Our analysis shows that court awards have increased by over 30% in 2014 alone. The book is one thing, but getting the book right is another. If we are going to have a book of quantum then it should not just be the Injuries Board that follows it, the courts should certainly follow it. Award levels should not be a discretionary matter to a given judge. The SFA has found and the insurance companies we regularly meet will tell us that everything goes to the steps of the court because it depends on which judge one gets on the day. That is not a good, fair or efficient system for dealing with this. Many costs could be removed if there was more certainty in the system.

I will now turn to the system termed "care not cash". This system has been trialled in the UK and is working well. Essentially it means that people who are affected by accidents will get all their hospital costs and their care looked after but there would be no financial compensation element to the award. That is what is important in this. It removes the fraudulent element from the situation. If one takes the awards for whiplash, for example, in Ireland the average award is almost €15,000 while in the UK it was £5,000 but now it is zero because of this new model. Getting those multiples of incidents out of the marketplace to begin with would treat people fairly and well and would also remove that noise from the system.

With regard to competition in the insurance market, the SFA met many insurance companies to discuss the issues. The SFA has a group insurance scheme and our companies would tell us they accept there is a cyclical element to it and their businesses may be in difficulty as well. However, I believe it is the legal underpinning which is essential for these companies. There are 1,000 insurers across the EU. Why can more of these not be brought into the Irish market? Those insurers will tell us that it is because they literally do not know what it is they would be underwriting. If an insurance company fails in Ireland the wider industry must pay out on its awards, which comes back to all of us as policyholders. The Setanta Insurance ruling has been particularly damaging and the SFA would ask for a lot more clarity around that. We should not tolerate a position where people operate in the Irish market while being regulated overseas but if they collapse then Irish policyholders are held responsible for that. We know from experience in the cycle that we have all benefited by tremendously low premiums at various points in time, but we would prefer not to do that. We would prefer to have a normalised cost base and not have people behaving irresponsibly in this marketplace.

It is estimated that fraud costs the industry €200 million annually, of which €100 million relates specifically to motor insurance fraud. Periodically the insurance companies step up their anti-fraud campaigns but we believe a lot more should be done on that front to raise public consciousness around not tolerating people claiming when we, as individuals, know these claims to be unfair. There also needs to be harsher penalties when it is proven that people have taken fraudulent claims, including custodial sentences. The area of fraudulent claims has been growing and if we become serious about it, it could remove an estimated average of €30 from the cost of every premium, which is the cost to cover these fraudulent claims. That would make a significant difference straight away.

The SFA strongly supported the establishment of the Personal Injuries Assessment Board, now known as the Injuries Board. In its early years it certainly solved the last crises and it was working very well. We know the board was not welcomed by the legal profession which, I believe, has been trying to undermine the board since its establishment. We need to look at that situation and figure out how this blend can work. It was believed that the Injuries Board process would remove a lot of the costs from the system.

Yet now, if we look at what is going through the Injuries Board, 90% of claimants have legal representation and in 40% of cases awards are rejected. If it is simply something that people are going through to get to the other end and if they are not really serious about it, then this is wasting the time of the Injuries Board and everyone else. Moreover, it is simply adding more cost. We need to review the functioning of the board. In terms of reform we believe that, for example, a request to attend a medical examination organised by the Injuries Board should be compulsory. Furthermore, we believe that if people reject the Injuries Board awards but do not get a higher award in court, they should be penalised. This would help to get the message out that this is genuinely an important part of the system and cannot simply be disregarded. At present, it is not working at it should be. As a model, we are confident that it is the right course of action and that it should be successful.

I will set out some broad points in conclusion. Small companies have had many issues to deal with during the recession, including issues around finance and public procurement. However, we are hearing from members now that costs are the most important thing, in particular, rising business costs and competitiveness. This is the case more than ever in the context of Brexit and our competitiveness with the United Kingdom. This issue is second only to labour costs - a staggering reality. We might think the bill will not be significant but for many companies this is definitely reminiscent of the early 2000s. At the time I knew of companies going out of business because they could not get any cover. At the time premiums eventually reached 100% or 200%. Were it not for the group scheme we operated, our members would not be still in business today - and these are good businesses. I do not want things to get to that stage and, therefore, intervention at this point in the cycle is important. In the context of dealing with this issue in the early 2000s, we probably rushed through legislation and the establishment of the Injuries Board. Then, when the crisis passed it was not revisited. If we revisit what we have, strengthen and empower it and change our legislation - something within the remit of the committee - then I believe we can go some way to solving some of the problems.