Mr. Conor Faughnan:

We are concerned about the stability of the insurance market and have warned about it. Realistically, there are only five competitors left in Ireland. Others are retreating and the five left are trying to narrow their footprint. We need foreign competition. The Senator’s point about regulation is strongly made but there was nothing foreign about Setanta. The only foreign thing about it was its brass plate. There were Irish directors with an Irish brand name selling Irish insurance to Irish customers. It was regulated in Malta, poorly. When it went broke, one of the questions we asked, and to which I have not heard a good answer, was why do we not send the bill to Malta? It was asleep at the wheel. It is beyond me why ultimately the Irish motorist should be picking up nearly €100 million in additional costs on foot of the Setanta collapse. The Senator should not let others in the conversation spin that into a notion that we cannot trust foreign regulated insurance companies. These were Irish guys who caused the mess. At the same time, I believe we have to correct the regulatory space. There is an outcome from the Setanta situation which is preventing insurers from coming in and that is the notion that, through the insurance compensation fund, the insurers must pick up the tab if a domestic insurer fails. That is asking an insurer to play Russian roulette with its competitors’ reliability. I have said, by way of analogy, imagine that somebody tells Supermac's or McDonald’s that if a guy selling hamburgers outside Croke Park gives a dozen people food poisoning, he will go broke and they will pay for that because they are also in the hamburger industry. It is just illogical to expect an insurer to come into Ireland and start trading feeling that if one of its competitors acts recklessly and goes broke, it will have to pick up the bill. We know that first-hand from a conversation a colleague of mine had last week with an insurance player which would like to get into Ireland but that hangover from the Setanta issue is preventing it from doing so.

The other strong point the Senator made was about legal costs. I agree absolutely. It is scandalous how much money is being hoovered out of the system by the legal professions involved in motor insurance claims and they are adding no value. The Injuries Board was created to prevent the legal professions hoovering money out of the compensation fund and it has worked only to an extent. The real solution, however, as I have said before, is around the book of quantum. If the book of quantum is done correctly and the courts adhere to it, the incentive to get the lawyers involved fades away. At the moment going into court is like a roulette wheel. If the Injuries Board says an injury is worth €15,000 or €20,000, the person may or may not accept that but the solicitor is probably whispering in the client’s ear that he or she should spin the roulette wheel and see how much can be made in court.

A number of rogue or bizarre court judgments were handed down a couple of years ago that have terrified insurance companies, which I can detail separately if the committee so wishes. For example, in one case before the High Court in County Clare a couple of years ago, the plaintiff's lawyers expected to get €150,000. They tried to settle with the insurance company for €150,000 but the view of the insurance claims assessor was that the claim was worth only €60,000. As they could not come to agreement, they went to court. The award from the High Court was €508,000. The plaintiff thought he was getting €150,000 and the insurance company thought it was only going to have to pay out €60,000, yet the award by the court was €508,000. There are many similar awards, some of which may be overturned by the Court of Appeal in due course. In the meantime, insurance underwriters have to examine their reserving across their back books. They had to look at all of the risks they have on cover with a view to strengthening their reserves. If the €508,000 award is the new normal, insurance companies must increase premiums. The real trick to cutting the legal professions out of this is to get the book of quantum standardised, relied upon and adhered to in court. That pulls the ground out from under them. I accept that there is a tremendous amount of money being wasted in this area.