Michael McGrath (Cork South Central, Fianna Fail)
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1. To ask the Minister for Finance if he will reconstitute the Motor Insurance Advisory Board, which was previously successful in reducing motor insurance premiums, particularly to examine the profitability of the industry, the settlement of claims and the impact of false and exaggerated claims on premiums; and if he will make a statement on the matter. [1516/16]

Michael McGrath (Cork South Central, Fianna Fail)
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I thank the Ceann Comhairle. On a personal note, I wish the Minister, Deputy Noonan, all the best. It is good to see him in good form and working away following his health difficulties before Christmas. I wish him the very best.

The issue I raise in this question is the need to re-establish the Motor Insurance Advisory Board to examine the rapid escalation in motor insurance premiums. There has been much focus on insurance companies as a result of the flooding issue, which we will discuss later. This is a very important consumer issue and I hope the Minister will agree to the re-establishment of the board.

Michael Noonan (Limerick City, Fine Gael)
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I thank Deputy McGrath for his personal good wishes and for raising this very important issue this morning. As Minister for Finance, I am concerned that there should be a stable insurance sector and that risks to policy holders and to the wider financial system are limited.  I am aware of reports of the increasing cost of motor insurance.  However, the ability of the Government to influence insurance pricing is limited, as insurance companies are required under European law to price in accordance with risk, and neither I, as Minister for Finance, nor the Central Bank of Ireland have the power to direct insurance companies on the pricing of insurance products. 

The Central Bank advises me that competitive conditions within the insurance market intensified in recent years and that many firms focused on maintaining market share, which provided an impetus towards lower premiums.  Competition on premiums was subsidised by investment income and other measures.  Recent reversals in investment markets have generated investment losses that are a drag on profitability.  In the view of the Central Bank, the recent premium increases are aimed at restoring core underwriting profitability and to securing the financial position of the firms concerned for the longer term.

While the provision and pricing of insurance policies is a commercial matter for insurance companies, this does not preclude the Government from introducing measures that may, in the longer term, lead to a better claims environment that could facilitate a reduction in claims costs.

The question of the cost of insurance is a complex one involving a number of Government Departments, State bodies and private sector organisations.  Whilst I do not intend to reconstitute the Motor Insurance Advisory Board at this time, I have asked my officials to examine the factors which contribute to increasing costs of insurance.  This work is part of an overall review of the insurance sector which my Department will undertake in consultation with the Central Bank and other Departments and agencies.  This work will continue over the coming months and will involve engagement with a number of parties both public and private.

Michael McGrath (Cork South Central, Fianna Fail)
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I thank the Minister for his reply. These are more than reports of increases in motor insurance premiums - over the last 12 months or so, motor insurance premiums have increased by up to 30%. The industry predicts that over the course of 2016, increases will be of the order of 25%. Somebody who paid a premium of €400 in 2014 will probably pay €650 to €700 after this year.

That is simply not sustainable and the evidence suggests that younger drivers and people driving older vehicles, in particular, are being hit with the highest increases. We have been here before. The Motor Insurance Advisory Board, which was established in 1998 and first reported in 2002, made a series of recommendations which, when implemented, made a discernible difference to the cost of motor insurance premiums. There is no transparency in the sector. Seven out of every ten claims are settled out of court by insurance companies, with no register or evidence as to consistency with regard to the settlement of those claims. I welcome the fact that departmental officials will examine the sector but I ask the Minister to go further and to formally re-establish the aforementioned board.

Michael Noonan (Limerick City, Fine Gael)
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As I said, the Department is conducting a review at present and will consult with various interest groups, both public and private. Certainly there are issues that need to be addressed but under European law insurance companies must cover risk and must price in accordance with risk. If the risk is high, obviously premiums go up. Neither the Central Bank nor the Department of Finance can intervene to direct or influence the pricing policy of insurance companies.

I am informed by both the insurance industry and the Central Bank that the frequency of claims has increased over the past year. This is associated with improving economic conditions. They also state that the number of large claims has increased. The Central Bank further states that a number of changes taking place within the claims environment in Ireland are making that environment volatile. This in turn increases the claims costs for insurance. The changes mentioned include the changes in the courts' jurisdiction since February 2014 which has led to concerns in the sector that this will lead to increased legal costs. Furthermore, claimants are now more likely to engage a solicitor to handle claims and insurers report that this has led to cases taking longer to settle and has increased the cost per claim. There are also proposals to introduce periodic payments orders. There are changes happening in the sector so it is timely that we would conduct a review, led by the Department of Finance. While I am not re-instating the Motor Insurance Advisory Board, we will see what recommendations come out from the departmental review which should be concluded in a matter of months.

Michael McGrath (Cork South Central, Fianna Fail)
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I thank the Minister for his reply. The reasons behind the hikes in insurance premiums are many and varied. They include an increase in the cost of settling claims, an increase in the incidence of fraud, a lack of consistency in court awards and a lack of transparency around out-of-court settlements involving insurance companies and claimants. These issues require examination and must be dealt with. In that context, I welcome the fact that the Minister has asked his officials to lead a review. I ask him to clarify that the review is specifically focused on the motor insurance sector and will result in recommendations which will be on the desk of the Minister's successor - whether that be the Minister, Deputy Noonan, himself or another Minister for Finance - in the coming months. Hopefully, the outcome of the review will be similar to what was achieved in the past when the Motor Insurance Advisory Board made its recommendations, one of which was the establishment of the Personal Injuries Assessment Board. While that body has proven to be very successful, it also requires a review, given the passage of time and the fact that it has been overtaken by developments.

Michael Noonan (Limerick City, Fine Gael)
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The scope of the review is to examine the insurance industry with particular emphasis on why premiums are rising, particularly in recent months, in what many people consider to be an unjustified manner. Premiums are certainly rising very rapidly. There will be a particular focus on motor insurance. Insurance in Ireland has been fraught for some time. The Central Bank has explained that for some time investment income was used by insurance companies to keep premiums lower and to bolster their positions. However, investment income has gone down now so the companies are raising their premiums. We will have the full review and the Deputy is very welcome to make a submission to the Department of Finance to raise any particular issues along the lines of those he has raised today and I will ensure they are examined fully.