Dáil debates

Wednesday, 22 June 2022

Insurance Reform: Statements

 

3:27 pm

Photo of Richard BrutonRichard Bruton (Dublin Bay North, Fine Gael) | Oireachtas source

I welcome the opportunity to contribute to this debate. As others said, insurance costs are a vital concern of businesses, families and communities. Between them they must come up with €2.8 billion to fund motor insurance, employer's liability and public liability. These are often huge burdens on businesses and families that are already hard-pressed. For families, insurance typically runs to about 5% of household spending. That gives an idea of how important insurance is. It ranks ahead of clothing and footwear when measured by the amount of the household budget spent on the various types.

I am glad to say the Government's reforms are working, but that is not to show any signs of complacency. We must not let up either in the implementation of those reforms, nor in pressing for greater transparency from the insurance sector and competition within the sector. One of the things that has characterised this debate over many years, and I have followed it for a long time, is pointing the finger at different elements. For some, it is excessive and unchallenged fraud. For others, it is unnecessary legal costs, or it is the courts setting awards at unrealistic levels, or it is insurance companies' lack of interest in controlling their costs. The truth is all of these have a share of truth in them but they have long been a feature of debate without having any capacity to bring science to bear on which are the more important.

One of the really important successes for long-term reform in insurance is the legislation that has brought this sort of focus on the actual hard data on what is happening in the sector. That evidence is beginning to shed light and exposes many of the bad practices we need to address. For instance, the recent report by the Central Bank on the motor sector shows the insurance companies are seeing steadily rising profits. Last year they were 12%, the year before 11%, the year before that 9% and the year before that 6%. Thus, we are seeing motor insurance becoming increasingly profitable in operating profit terms. We are also seeing questionably high administration costs in the insurance sector. They are running at €450 million, or 33% of premiums being earned in the motor insurance sector. There must be greater scrutiny of controlling those costs and making sure we are getting best value. Also really striking is the ratio of claim costs to premium income, which is a vital element in determining how profitable it is to quote motor insurance. That has reduced from 92% in 2014 - in other words, costs were 92% of premiums - which is down to 50% this year. That is a significant improvement in the environment for motor insurance that has been brought about by many reforms that have been undertaken by communities and indeed by Government. A clear signal from all of these figures on the motor sector is not enough of the gains have been passed on so far in the sector. I fully acknowledge the CPI is showing a 38% in motor insurance since December 2016, which is really healthy, but the Minister of State must not let up on his expectation to see more progress in the motor sector.

That report also shows if a case goes to the PIAB it incurs one twentieth of the legal cost. It is the difference between a few hundred euro and several thousand euro - perhaps €15,000. The difference in compensation is small. On the extra cost of having escalated a case from the PIAB to the court, 98% of it goes in legal costs and only a trivial amount goes to the increased settlement of the person who was the subject of the claim. There is a loud call there to ensure we do everything possible to prevent cases leaving the PIAB and going to litigation. It is worrying that even in motor, 36% of cases are still litigated, and that represents 66% of the settlements. In other words, these are the higher costs. We need to root that out. I really welcome the changes we now have before the House to bring mediation into the PIAB. Without mediation it has been easy for lawyers to persuade people to go to the next level and down the litigation route. Also valuable in that legislation is that it will remove the sort of one-way bet people have had whereby you could go to the court and have a reasonable expectation the settlement of the legal costs would fall on the insurance company and not on the claimant. That made it easy for a bit of ambulance-chasing, if you like, and less resistance to going down the legal route. Both those reforms when implemented will see a big improvement in reducing the proportion that still go to litigation.

When you turn to the evidence on employer's liability and public liability the Central Bank produces, it is even more worrying and we need to continue to press these reforms. The proportion of such cases that still go down the litigation route is 58%. By value, more than 80% of the cases are going down the litigation route. Again, this represents extra legal costs of €35,000 for each and every one of those cases. That is a massive amount. What is a bit disconcerting is it seems in the case of employer's liability and public liability, litigation is generating more settlements, so half the extra cost is going to the lawyer and half to the individual. That suggests to me there is a lot of inconsistency in the application by the courts of the quanta we are introducing. As other said, we need to have greater scrutiny of what is happening in these litigation settlements. Many of them do not go to the courts, as we know, and are settled on the steps of courts but there needs to be more consistency by insurers to stand up to these claims for higher settlements and to stand by the quanta of damage and not see this drift that seems to be a particular feature of employer's liability and public liability. As the Minister of State knows, the cost of claims to employers and other community groups taking on those types of insurance have increased by 37% in two years for employer's liability and 24% for public liability. We need to push on with reforms in this sphere. To be fair to the insurers, operating profits have been very poor in this sector. They were sustaining losses of nearly 50% of their premium income in 2015 and they have had to turn that around. It is healthy to see it has now moved to a break-even position and we must expect the insurance industry will co-operate very strongly with ensuring the PIAB that cuts out unnecessary legal costs becomes more and more the route by which these cases are resolved and that we do not have settlements on the steps of the courts where parties settle at much higher levels than the PIAB. We need to see more scrutiny of those settlement cases because we are only seeing aggregate data. It will be important for the PIAB to track what happens to cases where it has made a preliminary ruling and that subsequently go to court to see what exactly is happening.

I heard the Minister for Justice say earlier the duty of care reforms are pushing ahead with speed and I welcome that. It is important we have a fair balance or responsibilities when someone enters a premises as between the liability of the owner and the risk borne by the user of the facility. That balance has not been fair and the alliance of small businesses is right to be looking for reform there. I welcome the changes that are coming and like others think they cannot come quickly enough. It is important the Minister of State keeps pushing ahead with the transparency work he is undertaking. The Central Bank has pointed in its reports to further measures it will take to ensure scrutiny.

We need to see all segments of the industry and the legal profession co-operating in this regard. There is no doubt but that at a time of increasing pressure on the cost of living, which every family is experiencing, we cannot afford to have unnecessary losses, be they through fraud, through poor administration, through the unwillingness to challenge, or through settling at levels that are not in accordance with the community-accepted quantum of damages.

It is worrying to see that in its most recent report, the PIAB outlines that those accepting their awards have dropped from 51% to 37%. It suggests there are people stepping back and waiting to see if they will or will not have a punt on going down the litigation route. We need to keep a very close eye on that. It would be devastating if that occurred.

I welcome the Minister of State's resolve. He has put a lot of personal effort into this. It is a tough battle and it must be fought inch by inch. The consumer price index is showing that we are winning the battle. The 38% fall in motor insurance since 2016, the increases in health insurance falling below the general consumer price index, and the same for domestic dwelling insurance, suggest that we are beginning to win this battle. I urge the Minister of State to continue in relentlessly pursuing the agenda he has set for himself.

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