Mr. Gary Dunne:

I start by thanking the committee on behalf of the Society of Actuaries in Ireland for inviting us to present at this meeting. We aim to help the committee by providing insights into the context of the rising costs of motor insurance. We will also discuss how the Society of Actuaries in Ireland can support informed policy-making by contributing to a Government-led and market-wide statistical analysis of the industry. We welcome and support the call by the Minister of State, Deputy Eoghan Murphy, for greater transparency in the industry.

I am Gary Dunne and I am the chair of the of the general insurance committee for the Society of Actuaries in Ireland. I am joined by Mr. Ronan Mulligan, the deputy chair of the committee. The Society of Actuaries in Ireland is the professional body representing actuaries. It is primarily a voluntary body and we are not representative of the industry. The society's roles are: to develop the role and standing of the actuarial profession in Ireland and enhance its reputation; support actuaries throughout their careers; and develop, maintain and enforce actuarial standards. The society seeks to make an impartial contribution to public debate on social policy and public interest matters where an actuarial perspective may add value. This committee - and its eventual report - provides one instance to make such a contribution so we are delighted to be here to assist.

I will discuss insurance premiums and the factors behind them. The premium a customer pays today will discharge the claims that may be settled more than ten years into the future. The time taken to settle a claim introduces uncertainty when the policy is being priced. Property damage claims are relatively predictable in terms of both incidence and cost but injury claims are not only the largest component of an insurance premium, they are also subject to the greatest level of uncertainty. The key factors relating to the price of insurance are the total cost of claims - which, in turn, depends on the number of claims and the average cost of an individual claim - the insurance company expenses, including the commissions paid, and the insurance company's profit target.

I mentioned earlier that we would like to bring some insight into the rising cost of motor insurance and, in particular, the base to which the rises are being compared. Part of the recent increase in premiums reflects the need to restore pricing to a level that provides better security for claim payments. In effect, this is a return to the correct base level. Central Statistics Office statistics indicate that car insurance prices fell 27% between 2003 and the start of 2010. Thereafter, Quinn Insurance went into administration later in 2010, Royal Sun Alliance incurred a loss of €240 million in 2013, Setanta collapsed and there have been changes to court awards. In addition, we had the Russell case in 2014, the proposed civil liability (amendment) Bill relating to periodic payments orders in 2015 and the FBD loss of €96 million, also in 2015. During the period in question there has been a 42% increase in the number of Injuries Board awards for motor insurance as well.

Three insurance companies required significant increases in reserves. This meant their pricing was too low over the period. This is backed up by Central Bank of Ireland statistics indicating motor underwriting losses of between €20 and €30 per €100 of premium between 2013 and 2015.

Another part of the increase in costs is a higher degree of uncertainty in awards driven by court and other changes. In addition, the experience has been worse than expected with more claims and higher costs. In our view, for policy makers to be able to take effective action to control costs now and in the future while maintaining a properly functioning insurance market, it is essential to have ongoing information on the key factors impacting these costs. This must include information on how these factors are evolving over time. One of the key issues in resolving the rise in costs, however, is the lack of adequate information. We are aware that many other bodies have called for greater transparency. As insurance is quite a technical industry, the design of any study is very important.

There has been criticism of the lack of information on claims and market trends in the Irish motor insurance sector and this contrasts with the availability of information in the USA and UK, to cite just two examples. The Institute and Faculty of Actuaries in the UK has undertaken a market-wide analysis each year since 2010. This annual analysis has highlighted factors behind changes in insurance costs which allows policy to be informed by evidence-based research. For example, it was possible to show that after legal reforms, legal costs reduced from approximately 40% to approximately 20% of claims below £100,000. This has also allowed the institute to provide other support to policy making such as the 2013 Transport Select Committee investigation into whiplash claims. We do not have this market analysis in Ireland and it is therefore not possible to see the contributions of various factors to the overall premium. We have carried out initial work on the feasibility of the Society of Actuaries performing a similar analysis in Ireland. Considerations that we have needed to address include access to data, financing and resourcing the work. We have also received legal advice that there may be competition law considerations. We note now that Insurance Ireland is starting a process to gather industry data and it may be that this data can be used to undertake a market-wide statistical analysis. Evidence-based research is vital to underpin informed policy making. As such, we support the call of the Minister of State, Deputy Eoghan Murphy, for greater transparency and urge the Government to commission an annual analysis similar to that performed in other jurisdictions. Such an analysis should not just cover industry data but also data from the Injuries Board and other road safety data. The Society of Actuaries in Ireland will be very happy to lend its technical expertise and contribute to the design of such a study.