Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I welcome the opportunity to discuss in the House today the important issue of insurance costs and I look forward to the contributions from my fellow Deputies. I am aware of the concern across the House about the increasing cost of insurance. It is an issue for the majority of households and businesses. There are many issues to be addressed and while I will touch on these now when I mention some of the drivers of insurance costs, I do not wish at this time to anticipate the outcome of the review of policy in the insurance sector that is under way in the Department of Finance.

It is important that Ireland has an insurance sector that is not only financially stable but is vibrant for the economy. Consumers, be it individuals or businesses, need to have access at a reasonable cost to the insurance products they require. Healthy competition within the insurance industry should facilitate this, and with regard to competition, the National Competitiveness Council has emphasised that a resilient and well-functioning insurance sector contributes to economic activity and financial stability.

A number of issues are widely reported to be contributing to the increasing cost of insurance in Ireland. Motor insurance appears to be particularly affected with the cost of premiums reportedly increasing by between 20% and 35% in the past 12 months. The cost of insurance is determined by a number of factors, some of the most significant of which are the frequency and scale of claims, the cost of claims, and the operation of the insurance market. Both the insurance industry and the Central Bank state that the frequency of claims has increased over the past year, associated with improving economic conditions. They also state that the number of large claims has also increased. I am informed that a number of changes taking place within the claims environment in Ireland are making the claims environment volatile, which in turn is increasing the claims costs for insurance. These factors include increases in court jurisdiction since February 2014 which is possibly leading to increased legal costs, the increased engagement of solicitors in the handling of claims which reportedly leads to cases taking longer to settle and an increased cost per claim, and a recent High Court ruling that has reduced the discount rate in the case of catastrophic injury awards. The view has also been expressed that uncertainty over the costs from court awards is another driver of claims inflation. The insurance industry reports that there is a high level of insurance fraud in Ireland and it is reported that Ireland has a comparatively high number of uninsured drivers. This in turn leads to increased costs on the insurance industry which handles resulting claims through the Motor Insurers Bureau of Ireland. All of these costs are fed back to the consumers through increased insurance premiums.

I wrote to the Governor of the Central Bank of Ireland last July seeking a report setting out his assessment of the outlook for the insurance sector generally. I was advised that the Irish insurance sector emerged from the initial stages of the global financial crisis relatively unscathed. However, the ensuing downturn in Ireland, together with the low interest rate environment, has challenged the sector over the past five years. Non-life insurance is a business with its own internal cycle that is reflected in varying premium levels and profitability over time. Competitive conditions within the insurance market intensified in recent years and firms' focus on maintaining market share provided impetus to lower premiums. Until recently firms enjoyed a prolonged period of reasonable investment returns on the asset side of their balance sheets. This income stream provided firms with the scope to compete aggressively on price. However, recent reversals in investment markets worldwide have generated investment losses. This issue of lower investment income returns is an industry-wide problem which is expected to continue for the foreseeable future, unfortunately.

The Central Bank has advised me that recent premium increases are designed to restore core underwriting profitability and to secure the financial position of the firms concerned for the longer term. Profits which are retained are the source of internally generated solvency cover. As Minister for Finance, I am prohibited from interfering in the cost of insurance products. Also, the Central Bank would only have grounds to issue directions to firms where they price and operate in a manner that would endanger the firm as a going concern and so undermine the interests of policyholders.

I have outlined a number of the issues facing the sector and reasons put forward by differing parties for the increased cost of insurance in Ireland over recent years. As Members will be aware, to examine these issues in more detail, I have asked my officials to undertake a review of policy in the insurance sector. This is being undertaken in consultation with the Central Bank of Ireland and other Departments and agencies. The objective of the review is to recommend measures to improve the functioning and regulation of the insurance sector.

The first phase of the review of policy in the insurance sector is concentrating on an examination of the framework for motor insurance compensation in Ireland after the failure of Setanta. This work is being conducted by a joint working group comprising officials of my Department and the Department of Transport, Tourism and Sport, which began its work in January of this year. The terms of reference for this review set the objective of identifying the features of a motor insurance compensation framework that is comprehensive, effective, affordable and consumer focused. This is important. The joint working group has met a number of key stakeholders with an interest in the insurance compensation framework in Ireland, including the European Commission, the Irish Brokers Association, the State Claims Agency, the Central Bank, Insurance Ireland and the Accountant of the Courts of Justice. The joint working group will shortly report to me and the Minister for Transport, Tourism and Sport with recommendations for our consideration. In turn, these recommendations will be submitted to Government in the coming weeks. I look forward to seeing these recommendations. It is disappointing that Setanta claimants have not yet been paid as we continue to await a clear outcome of the Law Society of Ireland v. the MIBI court case. We must, however, fully respect the judicial process and hope for an early decision on whether the MIBI will be given leave to appeal the case to the Supreme Court. For now, the review of the motor insurance compensation framework can examine the issues and make recommendations going forward.

The outcome of this work will feed into the wider review of policy in the insurance sector. This review will include an examination of the factors contributing to the cost of insurance. The Department of Finance is working closely with the Central Bank of Ireland and has met a number of stakeholders, including the Department of Jobs, Enterprise and Innovation and the Injuries Board. The Department of Jobs, Enterprise and Innovation has advised that the Injuries Board expects to have the revised book of quantum ready as soon as possible.

It is important to be aware that the book of quantum is not a recommendation for compensation levels but rather a reflection of the prevailing level of awards, that is, compensation values awarded by the courts, settlements agreed by the insurance industry, settlements agreed by the State Claims Agency and settlements agreed through the Personal Injuries Assessment Board, PIAB, process. Another issue that has arisen as part of the review has been the lack of insurance data and statistics. The lack of data presents difficulties from a policy analysis and development perspective. However, data are not useful unless they are comprehensive and are presented in a standard format. Apart from statistical analysis, insurance data can be very useful in the reduction of insurance fraud and efforts to reduce the numbers of uninsured drivers on the roads. My colleague, the Minister for Transport, Tourism and Sport, will raise specific issues with the insurance industry regarding the establishment of a motor insurance database. The co-operation of the insurance industry is important if we are to make progress and the issue is being examined as part of the ongoing review. The consultation process will continue over the coming months and will extend to other stakeholders, including certain motoring interest groups, in due course.

While the review will examine the issues, it then will be necessary to approach the relevant areas to ascertain where improvements can be made that can feed into reducing the cost of insurance. I should note it will continue to be the case that insurance premiums will be priced individually by insurers, which use a combination of rating factors in making their individual decisions on whether to offer cover and what terms to apply. My officials will continue working on the review of policy over the coming months and the work is expected to be completed by the end of this year. The final report then will be presented to the Government. As I stated earlier, the parts of the review related to the insurance compensation framework will be completed first and the recommendations of the group are due to be submitted to me and to the Minister for Transport, Tourism and Sport in the coming weeks.

Finally, I wish to touch on the issue of insurance and flooding. It is important that homeowners have access to insurance to cover unforeseen losses, including flooding. A fully functioning insurance sector should be able to provide this at a reasonable cost. The Taoiseach and some other colleagues of mine in government met representatives of the insurance industry in January to discuss the industry's role in providing flood insurance. Government policy on flooding is focused on the development of a sustainable, planned and risk-based approach to dealing with flooding problems with a view to addressing the increased availability of flood insurance. To achieve this aim, there is a focus on prioritising spending on flood relief measures and on the development and implementation of plans by the Office of Public Works, OPW, to implement flood relief schemes. This strategy is complemented by a memorandum of understanding between the OPW and Insurance Ireland that provides for the transfer by the OPW of data regarding completed flood defence schemes to the insurance industry and which should provide a basis for the increased provision of flood insurance in areas where works have been completed.

I also add that my officials are undertaking research in the area of flood insurance that will include an analysis of the different approaches to flood insurance taken in other countries. This then will feed into a report to the Government from the interdepartmental flood policy co-ordination group, which is expected to be completed before the summer. It also will feed into the overall review of policy in the insurance sector being carried out by my Department.

To conclude, the cost of insurance is a complex issue involving a number of different parties, including Departments, State bodies and private sector entities. During the course of the review my officials are undertaking, preliminary views already have been obtained, which I have outlined to the House. In addition, a significant amount of work has been done by the joint working group on the motor insurance compensation framework and its recommendations are due in the coming weeks. I expect more progress in the area of insurance during the course of 2016. I thank the Acting Chairman and colleagues for their time and I look forward to the contributions from all interested Deputies in the course of the discussion today.

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