Pearse Doherty (Donegal, Sinn Fein) | Oireachtas source

I welcome the opportunity to speak to the issue of insurance reform, an important matter. This is a timely discussion, two and a half years after the Government launched its Action Plan on Insurance Reform in December 2020. Although insurance often seems like a boring or dry topic, it is crucial to the functioning of a modern economy because it allows business to transfer risk, without which many would be unable to access funding and credit. It also allows for risk to be priced, enabling firms to allocate resources to reduce risk to the benefit of consumers. When there is weak availability of insurance cover, businesses and the wider economy suffer.

The National Competitiveness and Productivity Council has repeatedly warned that business costs such as insurance pose a risk to the competitiveness of our economy and the ability of businesses to thrive and grow and that risk remains.

Insurance is also crucial for citizens, however. It protects them from financial loss should unexpected circumstances come to pass such as illness, home damage or accidents on the road or elsewhere. Indeed, insurance cover is a legal requirement for anyone who wishes to drive in the State. That is why a properly functioning insurance market that provides affordable cover is so important.

Many of us will be aware that the insurance market follows underwriting cycles; periods when cover is readily available at good prices, or soft markets, and periods when coverage is limited and prices are high, or hard markets. There is no doubt that the Irish insurance market follows these cycles like every other insurance market. We know now there is much more to price dynamics in the Irish insurance market than just this, however. The national claims information database, NCID, published by the Central Bank of Ireland has offered valuable and granular data on price trends, claims costs, settlement channels and profitability within the insurance sector and the numbers are very clear. In the past decade, for example, the price of motor insurance rose by 25% while the average cost of claims for every policy fell by 29%. For several years, the insurance industry told a different story, which I will come to later. Motor insurance premiums remain too high, however, and we must see sustained reduction in prices over the coming years.

Liability insurance for small businesses, voluntary groups and community organisations remains in a state of crisis. The Central Bank of Ireland today published its second report on employer liability, public liability and commercial property insurance, which provides important insights for us all. Between 2013 and 2020, premiums for the employer liability component of policy packages increased by 44% while premiums for the public liability component rose by 25%. Not every sector is affected equally. Since 2009, premiums in the arts, entertainment and recreation sector have more than doubled; a level of increase that many simply cannot bear. In the same period, the number of claims fell by more than 25%. Premiums are doubling and claims are coming down by 25% while the number of claims on the public liability side fell by 47%.

Importantly, today's report highlights claim settlement channels and their costs. It found once again, as it has in recent reports, that settlements through the courts take longer with much higher legal costs than those through the Personal Injuries Assessment Board, PIAB. Where a claim is settled through the PIAB, legal costs make up approximately 2% of the overall costs. Through the courts, legal costs take up one third of all costs. Settlements through the courts may not always lead to better outcomes for claimants but it is definitely a moneymaker for the legal industry and that much is clear. Work must be done to explore reforms that would reduce legal costs and, crucially, strengthen the role of the PIAB.

One of the biggest changes to take place in insurance in recent years has been the adoption of the personal injuries guidelines in April of last year. These guidelines significantly reduce the level of awards for different types of personal injury. They were adopted as a result of the Judicial Council Act 2019, which was supported by my party. We supported these provisions for one reason only, which was that reduced claims through these new guidelines would lead to reduced premiums for consumers. Since the guidelines came into effect, personal injury awards through the PIAB have fallen by 42% and recent High Court decisions will ensure these guidelines are applied in the courts. It is clear that these guidelines are reducing the costs of claims for insurers. It is also clear that this is not being passed on euro for euro to the customers, which is simply unacceptable. This Dáil did not pass the Judicial Council Act 2019 to provide a windfall for insurers. Therefore, how can we ensure that insurers do the right thing? How can we ensure that they pass all these savings euro for euro to their customers? We do that through supporting the Judicial Council (Amendment) Bill 2021 that I introduced last year. This legislation would require insurers to send audited reports on an annual basis to the Central Bank of Ireland. They would be required to outline how and if they have passed these savings on to their customers in the form of lower premiums. Similar legislation was applied in Britain, where many insurers in the Irish market also operate. For reasons I cannot understand even to this day, the Government is opposing this legislation, which is currently before the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach. Neither the Dáil nor the Central Bank has a tool like this. The NCID does not provide the information that this legislation would provide for, which the Central Bank has confirmed. This legislation would exert pressure and increase transparency, ensuring that insurers pass on these savings to their customers. We cannot allow the insurance industry to pocket these savings during a cost-of-living crisis where every euro matters to motorists, small businesses, community groups and those struggling with high business costs.

The question of insurance pricing has been debated in this Chamber and outside for some time. For years, the industry peddled several myths to explain away high insurance prices. Many of those myths were regurgitated in this House by Government spokespersons. One claim made by the industry was that 20% of insurance claims were fraudulent yet information I received from the Department of Justice showed that the entire industry reported only 63 incidents of fraud in the motor insurance sector to the Garda in 2019, which is 0.5% of claims made that year. In 2020, only 48 instances of fraud were reported. We now know that one cause of high insurance prices is blatant price gouging by the industry. I wrote to the Central Bank of Ireland in 2019. I subsequently met with the Governor and requested that he, the Central Bank and the regulator investigate and ban the practice of dual pricing and price walking. This is where insurance companies target loyal customers and charge them artificially high prices in the expectation that these customers will not shop around. This is price discrimination, which is known to harm vulnerable groups and the elderly. Customers have wondered year after year why the price does not budge when they get their renewal or even increases despite them having made no claims in the previous year. We now know the answer is price gouging by the insurance industry.

Following my request, the Central Bank of Ireland carried out a review of the practice and it will be banned from 1 July. This is a big win for consumers. However, we must monitor the new rules and ensure that they are effective. I have my own concerns regarding the ban kicking in for second renewals and not for the first renewal quote. I believe this could provide scope for insurers to dodge the ban by loading the price hike on to the first year renewals. I communicated these concerns to the Central Bank and we must keep it under review.

Of course, further reforms are required. As I mentioned earlier specifically with regard to business insurance, the issue of claims must be dealt with. In this space, there is a clear need to rebalance the duty of care. A Government commitment was made in the action plan for insurance reform to have proposals brought before Cabinet by June of 2021. The deadline was missed by several months, indicating a lack of urgency within this Government. I welcome the fact there are no proposed changes, however. The Government now must move quickly to bring legislation before the Oireachtas that is effective in rebalancing the duty of care.

Finally, I wish to mention two other issues, the first of which is the Consumer Insurance Contracts Act 2019 that I introduced in the Dáil in 2017, with all those provisions now effective since September of last year. This legislation brought a radical overhaul of insurance law to increase transparency and shift the balance in favour of consumers.

To conclude, I believe many of the myths and excuses peddled by the insurance industry for many years no longer hold sway. While much work has been done to drive forward reform, much work remains to be done and actions taken by the Government are too often progressing at a snail's pace, sometimes blocking reforms such as my legislation that are so urgently needed. Consumers cannot wait for reform and affordable insurance. They need it now, especially given the fact that we see interest rates increasing in terms of the international markets, including Government bonds. This will mean that insurance companies will make sizeable profits in the year ahead as their investment portfolios start to reap benefits for them. These matters and the other reforms we talk about scream loudly to the fact that they need to stop gouging their customers. They need to reduce premiums for motorists, businesses, communities and others in society urgently.

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