Pearse Doherty (Donegal, Sinn Fein) | Oireachtas source

I welcome today's statements on insurance. I will focus on motor insurance. We have heard that the CSO has claimed that premiums have risen by more than 30% in the past 12 months. The insurance industry and others have been quick out of the traps to try to explain this huge increase. It points to bigger claims payouts, fraud, Setanta Insurance, regulatory costs and so on. In fact, according to the insurers, everyone from the claimants to the legal people who represent them to the cases, the judges and the fly-by-night companies are to blame. While there is truth in all of that, I am not convinced it is the whole story. It is time for us to ask ourselves fundamental questions about the business model used by motor insurance companies in this State over the past period. It is time we asked questions about whether the regulator has done its job in ensuring the industry has been operating in a sustainable way.

In documents from the Central Bank, which I have seen under the freedom of information regime, the bank explicitly states: "A number of insurance companies took a very optimistic view of future economic outlook, built up unsustainable overheads and followed an imprudent pricing and underwriting approach which resulted in companies' business plans becoming less resilient to downside risks such as an increase in frequency and severity of claims." This was a comment to the Minister for Finance from the Central Bank. The question I ask myself is why did the Central Bank allow insurers to conduct business in this unsustainable and imprudent way? If the bank did not possess the powers to intervene and prevent it, then why, as legislators, did we not give them the powers? Did they ask for those powers?

I wrote recently to the Central Bank asking it to expound on comments attributed to it in a parliamentary reply, in which it was stated that investment performance was dragging down profitability and, therefore, increasing prices for the driver on the road. In its reply to me, the Central Bank explained in stark terms how the old model of relying on investments and bonds was no longer covering the lack of profitability in the underwriting business for insurers. We can see from the figures that investment income attributable to loss in 2012 dropped from €278 million down to €176 million in 2014. The actual loss was more severe if one looks at 2012 to 2013. That is more than €100 million of a loss in those two years. That is more than Setanta Insurance would cost the entire insurance industry.

I accept we have to get into the nuts and bolts of this issue. How did we allow an insurance company to operate in this unsustainable way? I accept there are regulatory changes we, as legislators, can examine which will have an impact on premiums. However, we must act in full knowledge of the facts. It is beyond doubt that regardless of what policy changes are made, as long as the business model for insurers is based on speculating, drivers will continue to live on a see-saw of premiums in a boom-and-bust scenario based on factors completely beyond their control. We need to end that situation. We must, however, examine what we can do in the immediate term given the seriousness of increased premiums and what they mean for all drivers, especially young people, small business and those living in rural areas.

In recent weeks, I have heard from constituents and others outside my constituency who recalled their dismay at having been quoted astronomical premiums by insurers of late. I will give two examples, including a taxi driver in County Meath. The cost of his insurance last year was €1,400. Fast forward 12 months and he finds himself being charged €7,000 for the exact same level of cover. This is a 400% increase, but the prospect of seeking cover elsewhere is not an option due to his having an open claim against him. He, therefore, cannot move to an alternative insurance company. Subsequently, this taxi driver is left with no other option but to borrow from a lender simply to meet the cost of his deposit or otherwise lose his taxi plate and thus his livelihood in the process.

Another case concerns a 27 year old farmer in Donegal who has a full licence and has been on the road since his 18th birthday. He has had no accidents, no previous claims and no penalty points. Last week he sold his car simply because he could not afford the insurance premium quoted to him by his insurer, which saw the cost of his insurance rise from €476 last year to €1,437 this year, an increase of more than 200% and far above the 30% hike the industry quoted and that we see in the CSO figures. I could continue to tell the House more stories of the 100%, 150%, 200%, 300% and 400% increases I have heard about from constituents on an almost daily basis.

We need to bring clarity to a number of issues that the insurance industry has claimed are a burden and that may continue to be a burden into the future. We need to determine whether the Motor Insurance Bureau of Ireland, MIBI, or the Insurance Compensation Fund, ICF, will take up the bill if an insurer goes bust. In the case of Setanta, it is likely that the Supreme Court will ultimately decide who picks up the tab - the MIBI or the ICF. If it rules that it is the MIBI, then the Central Bank estimates that this will result in a 3% increase in the insurance premium of every individual over a three-year period. If it rules that the ICF is liable, the 2% levy will be extended for a long duration. Given that it is ultimately the customer who funds both sources, it is a case of heads, the driver loses, and tails, the driver loses.

There is a bigger question: what happens if there is another Setanta or something on the scale of Quinn Insurance? The person who has a claim against that type of company would rather the MIBI were liable, because there would be a 100% payout and no upper threshold. The reality is that if the MIBI were liable, there would be a dramatic rise in premiums over a short period, which would not be good for other customers. The solution is that the ICF should be liable, but there should be no upper limits and no percentages. That would allow for a longer period to deal with a company such as Setanta that becomes insolvent in the future.

We are all aware of advertisements that tell us that €50 of an insurance premium is a result of fraudulent claims. Fraud is one of the reasons given by the industry for the significant increase in premiums over the past 12 months. The Minister mentioned it again today. Insurance fraud has always been with us. While I do not contest the impact on premiums, unless we are presented with a breakdown of the increase in the number of fraud cases over the past 12 months, it cannot reasonably be argued that fraud is largely to blame. The fact remains, however, that insurance fraud exists and is viewed as acceptable by many people. As legislators, we must determine what we can do to minimise, prevent and stamp it out. I do not see how fraud can result in an additional cost of €50 this year on insurance premiums when it was €10 or €5 last year. Last year it was probably the same figure.

It has been suggested that the Court of Appeal Act 2014 is something that needs to be addressed. It appears that it is working contrary to its intention in terms of legal costs and their burden on legal cases. It is something we need to examine in detail.

The Minister mentioned the book of quantum, something that has to be dealt with urgently and on which we need buy-in from the legal profession in regard to cases that will be contested before the courts.

Inflated claims have been offered as another reason to explain the significant hikes in insurance costs for some drivers. There is no doubt that claims have increased. Statistically, the level of personal injury awards is climbing, but over a period of five years the figures are hardly dramatic. The highest spike was in High Court awards, which are, on average, €85,000 higher in 2014 than in 2010. This is a significant increase. It would be interesting to ascertain how many cases make it to the High Court in order to determine if and by how much this figure is a cause for concern. We need information on how many people actually availed of an increase of €85,000 and whether it justifies an increase in premium costs of 30% across the board and 200% or 300% for certain individuals. The figures for the Circuit Court show an increase of €900 in claims awarded over the past five years. That is significant, but the 2013 award figures show they were €700 less than in 2010. Sometimes relying on figures is dangerous. That is why we need a full set of data in order to determine what is behind the significant increase in premiums. These are all issues my party is prepared to examine. It is to be hoped that all Deputies and parties are prepared to act wherever we can.

I welcome the Minister's mention of the review group. I note from the papers I have seen that the work was supposed to be concluded and a report issued by the end of March. That has not happened, which is unfortunate. We need to bring that forward as soon as possible. It is important that we dig deep into my concerns about the business model underpinning the industry and not just the five issues that are presented time and again.

There needs to be more transparency about what is happening. There needs to be far more regular reporting about what is happening in Britain in terms of insurance companies that operate here. We can learn other lessons. This is work that the future joint committee on finance should undertake as a matter of urgency as soon as the report is brought to the Minister and laid before the Dáil.

Before we try to referee, we need to make sure the game is not rigged. We need transparency about the real reasons behind the dramatic increases in premium costs and we need to know whether we are tweaking a broken model and whether real reform of the insurance market is required. Serious questions need to be asked. If a financial institution such as a bank lost an investment of €100 million in the past two years, it could not decide to increase the interest rate on credit cards from 18% to 38%. The Central Bank can intervene in such cases, but we cannot intervene in the insurance market. We are working on a boom-and-bust model. We have lost Setanta and Quinn Direct in the past number of years, and God knows what will happen in the future. Solvency II needs to be transposed into Irish law and will put pressure on insurance companies. We cannot have consumers experiencing increases of 200% and 300%, not just 30%, in insurance premiums, which are forcing them off the road and putting small businesses under serious pressure.

See this speech in context