Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael) | Oireachtas source

I will make my opening statement and then also address perhaps a number of issues in response to the letter where we may have different or other information that it may be helpful for the committee for us to clarify.

I thank the committee for the invitation to join it here today. I acknowledge Ms McNelis's letter to the committee. We share a common interest, which is ensuring that thatched property owners are treated fairly and can access insurance at an affordable price. However, rather than a silver bullet that can quickly assist us in this regard, the response is much more complicated and multifaceted. It will require both time and buy-in from everyone involved – insurers, the Government and thatched property owners themselves.

I understand that Ms McNelis highlighted the Solvency II directive. It is important to note that the Government is not speaking in generalities in relation to this but on the basis of our best legal advice and as members of the European Union contributing to the development of such directives and the implementation of them. The Solvency II directive plays a significant role in the insurance industry and it also impacts what the Government can do in plugging insurance gaps, as such. As members are aware, Solvency II is an EU level framework that has been in place since 2016. It contains provisions including on minimum capital, and supervisory and reporting requirements that apply to almost all insurers and reinsurers across the EU. Essentially, the directive helps ensure that insurance firms are run in a prudent, solvent manner and can meet policyholder liabilities as they fall due. That is in the interests of all policyholders across the spectrum for motor, home and every possible area of insurance.

Specifically, Article 21 of Solvency II states that member states, including us, "shall not require the prior approval or systematic notification of general and special policy conditions, of scales of premiums, of the technical bases, used in particular for calculating scales of premiums and technical provisions, or of forms or other printed documents which an undertaking intends to use in its dealings". This, essentially, means that the Government cannot set the prices or the terms at which insurers can offer cover.

I note the correspondence received by the committee from the European Commission through the European Ombudsman. It notes that insurers are expected to require a level of premiums that is commensurate to the risk they accept and the level of uncertainty for the insurer. Accordingly, what that means is that insurers may need to charge, according to the Commission, high insurance premiums, which in some circumstances could also be considered unaffordable, having regard to the risk. While this does appear unfair to affected policyholders, if we step back, it is in all of our interests as consumers that the insurers we purchase products from are on a sufficient financial backing in order to be able to pay out on claims that arise. Therefore, we do have to ask the question of whether it would be irresponsible for firms to deliberately price premiums lower than the risk they represent, whether that would be unsustainable as a business model and whether it would have an impact on insured people across the various streams more broadly.

Thatched properties are a continuing pinch point for me in the office to promote competition in the insurance market, which has been working for some time now. We have had good success in other areas but thatched properties remain a work in progress. Such properties experience a number of issues that make them more difficult to insure than non-thatched, or conventional ones. I think the Minister of State, Deputy Noonan, will speak more on this, but the biggest risk is fire. Department of Finance officials have been informed by the industry that for insurance providers, thatch is too risky for many to take on.

We work on this all the time with those who are currently providing insurance and with those who may step into the market. Indeed, this morning my officials met a provider who may look to step into the market. This week, I met an insurer who is providing cover to many thatched property owners to discuss the conditions under which they continue to do that. I say that to make the point that this is a constant conversation involving me, as Minister of State with responsibility for insurance, and my officials.

As reported to this committee last year, the Department of Housing, Local Government and Heritage estimates there are around 2,000 thatched properties in the State. Its report, published last November, indicated that there were 72 fires in thatched properties in the previous five years. The rate of fire is much higher than in conventional properties. As a consequence, many insurers have experienced large losses and indeed total losses, and are reluctant to re-enter the market, which has led to a lack of competition. Those who remain in the market generally either impose strict exclusions, as part of their policies, or charge very high premiums to reflect the risk involved in covering a thatched building. I think the letter made reference to other European jurisdictions where, as Ms McNelis said, the state had intervened. We are not aware of state interventions as such. There are a number of north European countries where thatched buildings are common, for example, in Denmark, and where is thatched insurance available, but in general, the cost is four to five times higher than normal house insurance. We can see that the scale of risk there is as much as it is here because thatch has an increased risk of fire. We are trying to do different things that will help the market be able to absorb the risk, particularly in the small market here.

As I said, the correspondence refers to certain interventions in the market that are worth considering. There are three broad options that are often suggested when dealing with insurance pinch points, and it should be noted that these are not limited to thatched properties. Let us go through them and discuss what impact they can have. The first option mentioned is mandatory insurance. As the letter notes, that is allowed under Article 179 of the Solvency II directive. The requirement to have insurance varies across member states. In Ireland, there are four mandatory insurance products, all for forms of transport. You must have motor insurance if you are driving a car. You also must have insurance for aircraft, light rail vehicles and ships. There is no other circumstance in which we say that you are required by law to have insurance. In other countries across the EU the scope can be wider. For example, in Germany, you are required to have health insurance. Different countries take different approaches. Nevertheless, as the letter notes, where an insurance is made mandatory, it is done so as part of a broader set of actions that, taken together, were intended to improve the effectiveness of their national insurance market. I do not believe that making insurance mandatory for thatched property owners in itself would not improve the situation as we would not be addressing the root cause of the issue, namely, the fire hazard, which is what makes thatch insurance difficult to access and much more expensive. Making it mandatory would not reduce the price where insurance is already available because the thatched property market in Ireland is very small and cannot benefit from economies of scale in the same way motor insurance can, and where a set of losses can be written off against another product. In addition, if we make thatch insurance mandatory then we also need to legally enforce that requirement. I do not believe that that is a fair thing for the State to do to people with thatched properties.

The second option is that of a public private partnership, PPP, such as in the form of a State insurance company. It sounds like an easy, attractive option, and I would have thought it was, but any such solution would be required to abide by the Solvency II rules. That would require the State to take a substantial amount of capital – most likely from the Exchequer – as well as appropriate expertise in the form of staffing to ensure compliance with the market condition rules set out in Solvency II. Most importantly, such a venture would not, under European law, be able to provide cover at below-market rates without flagrantly breaching prudential requirements. Another unforeseen impact could be to reduce competition in the market, as existing insurers that are currently providing insurance to about 60% of thatched properties now may decide to simply stop providing it if they realise that the State is going to step in as the insurer of last resort. There is a broader read across to other elements of the market about the State taking such a position on insurance generally that I am sure the committee would have a strong interest in. The danger is there is no incentive to write difficult business. This is a dialogue that we are having all the time in respect of flood and other areas of difficult business. It is going to become more important, not less important. It is precisely the opposite of what we are trying to achieve through the Government's insurance reform programme, namely, to make the conditions for insurance better and more stable, and therefore to have more competition in the market and lower prices. We are seeing the effect of that in motor insurance prices, new entrants to the market and in our ability to resolve other pinch point areas that have proven difficult. I believe that we will get there with thatched property insurance as well.

The third and final option discussed in the letter is to introduce into law provisions to require insurers to cover certain risks. I know Sinn Féin tabled a Private Members' Bill in respect of this in respect of flood insurance. I set out the reasons why that would work against us. I believe it would reduce competition in the market and it would send a very different signal in terms of the State's intervention in private enterprise, never mind just insurance. If we tell somebody how to run their insurance business, the read across is that we may tell them how to run their pub, coffee shop or whatever else. It is a very different enterprise policy to be taken by a government. Again, all of the same rules would apply in relation to Solvency II and other EU laws.

Given the niche nature of thatched properties, of which there are around 2,000 nationwide, we just do not believe that any of those three solutions is likely to work. We have been able to achieve results in other pinch point areas, such as in childcare, play centres, equestrian activities and for ice-skating. I had a meeting with one insurer this week who told me that they had, for the first time, quoted for a new ice-skating business this Christmas, but they had in fact been undercut by a new market entrant. Indeed, I had a conversation with the owner of that business some time ago. They have experienced a different insurance landscape this year than last year. They are still paying, but it is a good deal less.

The scale of the market is very important. We make motor insurance mandatory. There are over 2.9 million vehicles on the roads, which means there are greater economies of scale to offer efficiencies and lower prices. I realise I am running out of time and I will outline my point in further responses but we believe that we have had a big impact in the insurance reform programme on motor insurance prices. They have come down by over 40%. We are doing the same with public liability insurance for SMEs, small businesses and places with high footfall. That is just since July. We are having an effect in terms of price and in terms of new entrants to the market. I am meeting new insurers who are coming in and actively applying for licences with the Central Bank. I am meeting existing insurance providers who are extending their risk appetite into different areas. I met a very established Irish insurer this week, which informed me that it is stepping into the sports insurance market for the first time. Every insurer that I talk to is expanding its risk appetite into a particular area. I met a different insurer this week which is now, for the first time, going to start insuring urban pubs in a way it had never done before. It had done rural pubs. Urban pubs obviously have a much higher footfall and there is a much greater risk but because of the Government's reform programme, that insurer is now able to step into that market. I say this for the benefit of the committee to set the context of the insurance reform programme more broadly and to say that we have had other very significant pinch points, such as in childcare, equestrian activities and others, where the Department officials, working with different brokers, insurers and underwriters, have managed to find solutions.

The work that the Minister of State, Deputy Noonan, and I will set out is really very important, because it helps me have a conversation with insurers about very different conditions. Indeed, this week I spoke with one of the main insurers on thatched properties and outlined the work that the Minister of State, Deputy Noonan, had done, and asked it if that would help it continue to remain in the market and to perhaps continue to extend its risk appetite. The insurer is comfortable with the work that the Minister of State has engaged in and has done. That is very important.

In Ms McNelis's letter, there is a reference to OBF leaving the market. I appreciate what is in her letter but we, in the Department of Finance, have no information in relation to that. That would be news to us, having regard to the many conversations that we have. I respect what she has said in her letter and her information may be different to mine.