Mr. Kevin Thompson:

On behalf of Insurance Ireland, I thank committee members for the opportunity to contribute to their assessment of the cost of doing business. We welcome the opportunity to inform the committee's work on this issue and have consulted our members to gather their views on the areas of most concern.

By way of background, Insurance Ireland is the representative body for the insurance industry in Ireland, comprising the general insurance, health insurance, life insurance, reinsurance and captive management sectors. Insurance Ireland represents more than 130 members, and total industry employment is approximately 28,000 people, comprising those who are employed directly and indirectly. Insurance Ireland members pay out more than €13 billion in claims and benefits to Irish consumers each year. The industry holds €200 billion in assets under management, with €35 billion invested in Irish infrastructure or Government debt. Our members pay €1.6 billion in tax and one in four jobs in financial services is in insurance.

Given the scale of the industry and how insurance is vital to almost all economic activity, our members are major service users, employers and utility customers, among other areas. Like all businesses, they aim to maintain close control of costs to ensure that they are predictable and do not compromise competitiveness. This involves benchmarking their expense bases against their costs from previous periods and, for international insurers, against similar-sized operations in different jurisdictions. Insurance is an internationally traded service and competitiveness is, therefore, central to maintaining and growing the industry in Ireland. The insurance industry is keenly aware of costs in the economy and the following submission highlights the key concerns of our member companies.

Regarding labour costs and given the return to strong growth in the economy, insurance is facing increased pressures in competing to attract and retain staff. This is leading to wage pressures and difficulties in attracting suitably skilled and experienced staff. According to the National Competitiveness Council's report, Cost of Doing Business in Ireland 2017, there has been modest wage inflation in the finance and insurance categories, and the Irish figure for 2016 is noted to have been lower than the euro area figure. However, it should be noted that this is a cross-section of all grades across the country. Insurers, while acutely aware of headline figures, are especially cognisant of wage levels for posts requiring technical experience and skill sets such as underwriting, actuarial and claims specialists, as well as IT and in-house professional services such as accountants. Some of our members have noted that the cost of many of these professional roles in Ireland is significantly higher than in other countries. If the projections of future economic growth materialise, our members expect further pressure on labour costs.

Regarding legal costs, and given the nature of the business of insurance, there is a significant requirement for the use of legal services. Insurance Ireland has pointed out the impact of rising legal fees in the claims settlement process and the costs associated with a claim proceeding to litigation in generating additional fees and costs for consultants and expert witnesses. As the Department of Finance's key information report on motor insurance showed, legal and other expenses add €42,400 to the cost of settling a €100,000 motor injury award.

Increasing legal costs are, therefore, a material factor in the price paid by customers for their insurance and in the cost base for insurers. Indeed, the National Competitiveness Council's Cost of Doing Business Report 2017 states that in Q3 of 2016, legal service prices were 10.4% higher than the corresponding quarter in 2013. It further states: "Ireland remains an expensive location in which to enforce a business contract and is the 6th most expensive in the OECD. The World Bank also estimate that the total cost of contract enforcement in Ireland amounts to 26.9 per cent of a claim, compared with 22.1 per cent in the OECD". The report continues: "It also takes significant time (650 days) to enforce a contract in Ireland compared with an OECD average of 551 days". This experience is borne out by the feedback given by our members who have noted extreme examples. One member has highlighted a 70% increase in the average cost to settle a non-nil claim since 2013. Insurance Ireland believes that Irish legal fees are a considerable competitiveness issue. Insurance Ireland also believes that reform is required to reduce legal fees and the requirement for legal services in the claims settlement process.

Commercial property costs are a growing concern for insurers. The Competitiveness Council's Cost of Doing Business Report 2017 states:

Growth Rates associated with Office Rents were 14.1 per cent in Dublin (D2 and D4 districts) and 7 per cent in Cork. The growth rates in Dublin were over three times the equivalent rates in both London City and London's West End. Commercial property prices in Ireland, however, still compare favourably to comparable cities in the UK but concerns persist about the availability of prime office space for rent in large urban centres in the short term as the market tightens and vacancy rates decline. This could result in future rent increases and any shortage of supply of new commercial space could adversely impact our competitiveness.

Our members have seen these figures through inflation in per square foot charges, particularly over the past 12 months of in the region of 10% and they expect it to increase further. Dublin does compare favourably with London, Paris and Brussels in this regard, which is important especially in the context of winning Brexit-related business. There is undoubtedly a Dublin premium leading to insurers seeking alternative operational sites in some instances. This is noteworthy as the role of an operation in Ireland will be benchmarked against capital cities but also against competing locations for back office operations.

Our members are concerned about the impact of rising accommodation costs on their staff in the form of rising rental costs and house prices. The availability of accommodation is a significant concern and we note the August 2017 report by Daft.iethat stated Dublin rents are now 13% higher than their 2008 peak with fewer than 3,000 properties to rent nationwide, the lowest figure they have on record for the country.

House prices are also on a trajectory that could jeopardise competitiveness. A Central Bank survey of estate agents, auctioneers, economists and surveyors in August 2017 expects house prices to rise by 15% over the next three years on top of the increases in recent years. Our member companies are part of international groups and have experience of many European markets. They have highlighted this as a major issue in terms of the ability of their staff to afford rental accommodation and this is especially true for entry level positions. For companies that need to bring in staff with linguistic skills, this can significantly impact on the attractiveness of the jobs.

Our members have highlighted the increased cost of regulatory compliance in Ireland and expect such costs to increase. There is a constant flow of new regulation from Europe in addition to local requirements that stem from the Central Bank of Ireland and other regulators. Recent examples include the introduction of Solvency II.