Wednesday, 20 April 2016
Insurance Costs: Statements
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.
I thank the Minister. I revert to his final remarks and agree the cost of insurance is a complex issue. However, urgency to address that issue is missing but is absolutely necessary in the context of motor insurance premiums initially rising by 32.3% over the past 12 months and of house insurance premiums rising by a minimum of 10%. I met a gentleman this morning whose insurance premium for this year was €970 but for whom the cost of the premium for the next 12 months has risen to €1,495. This is without a claim, anything in the area to do with flooding or anything that would point to the reason for such a premium. While I acknowledge this issue is complex, urgency is what is needed and it is particularly complex when one does not have the money to pay for it. The choice then is one either leaves it aside and does not insure one's assets or one gives up something else. People will not be happy to hear that insurance premiums are increasing purely as a result of investment losses. Once again, ordinary people must pay for the mistakes of highly paid professionals who are getting away with it all and this burden and this cost again go right down onto the citizens of the State. There have been many reviews and discussions during the two years since Setanta Insurance closed. While I accept there are legal cases regarding that specific incident, the principles, which are what are driving many of the claim increases at present, could have been dealt with during that time.
There also is a serious issue with health insurance and public liability insurance and once again, the courts are making decisions that are bringing us back 20 years in respect of claims and settlements. There must be urgency in addressing various items of information that should be provided to courts in this regard. I point to the success of the Motor Insurance Advisory Board established in 1998, which reduced motor insurance costs by 40% between 2002 and 2013. The Personal Injuries Assessment Board arose directly from that process but has been frustrated at every turn by members of a legal community who do not wish to lose control of this particular highly lucrative market for themselves. Moreover, during the term of the previous Government, the Legal Services Regulation Bill was introduced on Second Stage in December 2011 but its Final Stages were rushed through the House, in a much watered-down form in January 2016 because the Labour Party refused to stand up to its legal community to ensure that citizens got a better deal. This is another element of the complex pattern to which the Minister referred and that is driving this on.
As for motor insurance, the Minister also mentioned there is a large number of uninsured cars. This should not be the case because the State surely has the technological capacity to ensure that on purchasing a car, a person's insurance can be linked to it. This also is a result of reduced Garda patrols, if that has an impact. If the Minister does not believe in the veracity of this claim, to tackle that claim surely he and the Department of Justice and Equality should be able to provide statistics showing the level of enforcement pertaining to uninsured cars. Finally, on motor insurance, while I acknowledge Members have had a lot of engagement with the Minister of State, Deputy Harris, on this issue, I refer to the petrol stretching that occurred in August 2014 whereby contaminated petrol entered the system. It was bought from reputable retailers who did not know they had it by motorists whose cars were destroyed as a result. In many households, both cars were destroyed. Such cars in rural areas are not luxuries but are needed to live. Serious damage was done in respect of insurance claims and premiums were increased considerably. In some cases, older people who had made no claim for many years lost their no-claims bonus through no fault of their own. No compensation was given to these people and there has been very little follow-up regarding the impact. I again ask the Minister to look into this matter to ascertain what occurred. Petroleum products are one of the biggest producers of tax returns in Ireland and the Minister, his Department and officials surely must have an element of control over the supply that would enable them to know from where that supply came. Many people now are paying additional insurance premiums and many others who were not affected are paying because the insurance industry is using this event as an excuse.
I have been raising the issue of the impact of insurance increases on businesses with the Minister, Deputy Bruton, for many months. This is not a shock and the level of increases evident in the consumer price index cannot be a shock to anybody. Increases of 30% in motor insurance premiums have been occurring.
We are all subject to it ourselves in terms of our own premiums. Businesses have been hit with major insurance costs for 18 or 19 months now and they cannot sustain the increase. They do not have the revenue to sustain it. In particular, small businesses which are struggling cannot sustain it. It should be apparent to the Minister now that there is no recovery to keep going. This is one of the elements ensuring people do not have that extra cash he thinks they should have in their pockets or businesses. It is going to pay costs over which they have no control and they see a Government that is not acting with urgency.
The incoming Government must address this urgently. It is a matter of concern that two Departments are once again fighting for control. There is the Minister's Department and the Central Bank and then there is the Department of Jobs, Enterprise and Innovation. One person needs to come in, take charge and address the issue. If we keep sustaining and standing over insurance increases such as these ones, they will undermine people's ability to live and do business and their ability to create employment.
Finally, unless the petrol stretching issue is brought to a conclusion, people's faith in the justice system will be undermined. Anyone who has suffered from that issue will also be undermined.
I thank Deputy Dara Calleary for giving me a few minutes to speak on this subject. Insurance cost increases are a very serious issue right across the spectrum. Many Deputies have spoken on the drastic increase in motor insurance costs, which is adding to the bills of already hard-pressed and overstretched families as well as those of the business community. Deputy Calleary has been raising this issue over the past number of months at committee level with the Minister, Deputy Richard Bruton, and others, but there is a crisis point.
I have met many proprietors of businesses and, depending on their business, they have seen their insurance costs increase by drastic figures. I am absolutely shocked at the figures they quoted to me. There is a further piece to the issue, which is where the business owner has to put up the first €10,000 of every claim and this is adding to the cost. If they have one or two claims, not alone do they have to pay the insurance premium, but they have to pay out perhaps €20,000 on top of all of that.
The point is that many of the underwriters - the people providing these insurance policies - have left the Irish market. This is a fundamental difficulty. Operators have left the Irish market and, in some instances - I do not want to be specific - there is only one or two insurers remaining. They are based in London and are quoting for business in the Irish market. It behoves the Minister and the Department of Jobs, Enterprise and Innovation to have a serious look at this issue. They need to bring in representatives of the insurance industry to examine the issues.
My colleague spoke about the costs involved. We have seen high profile cases in the past couple of weeks in respect of claims. We have to take a very serious look at the issue. If what has happened over the past 14 months continues over the next 14 months, many small businesses will be priced out of the insurance market. They are taking out insurance against every eventuality. On the car insurance side of it, we have seen young people returning from other countries. Having emigrated, they have been out of the country for three or four years and they are being asked for somewhere in the region of €3,000 to insure an ordinary 1.6 litre or 1.8 litre car. That is not acceptable.
It seems to me that the insurance companies are now looking at every little dent. If every A, B or C is not met, every i not dotted and every t not crossed, they will add a further 10% to the premium. Many have spoken about the insurance industry and non-attainability of insurance. Fundamentally, the point I would make is that, if the insurance industry keeps going unchecked over the next 14 months as it has done over the past 14 months, many businesses in both urban and rural Ireland, which have been providing jobs, employment and standards of living for people in their communities, are going to cease to trade because they cannot pay the premiums. They cannot insure their businesses properly because of the way the insurance industry has been handling this issue.
We have to examine why the underwriters are leaving the Irish market. What is the difficulty? It is high time the Department of Finance and the Department of Jobs, Enterprise and Innovation sought an urgent meeting today or tomorrow with the insurance industry. This is continuing and premiums are being dished out right across the spectrum every day of every week. People are getting exasperated by it and the time for action is right now.
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.
I ask the Acting Chairman to ask the two Deputies to my left to stop muttering. I was distracted by them when Deputy Doherty was speaking. If I am going to speak, I do not want to be distracted.
To add to what has been said, everybody is pretty concerned about this. The Beatles sang a song about the taxman, whose lyrics stated: "If you drive a car, I'll tax the street ... If you take a walk, I'll tax your feet." The same could be said of the insurance industry today. Everything is subject to insurance, from people's homes to their cars, their bikes, their pets, and every part of their health.
Insurance costs have risen dramatically, particularly over the last three or four years. The cost of insuring my van increased by 40% recently. Everybody is suffering as a result of the increase in premiums, but it is particularly punitive for younger people. Some examples have been given, and I would like to refer to a young woman who ran as a candidate for us in Carlow. The cost of insuring her car rose by €2,000.
Insurance costs are punitive and discriminatory towards younger people and those who cannot afford new cars. The system requires an NCT test for cars that are more than ten years old, but at that stage insurance companies impose punitive measures, which increase the cost of insurance. Why this is happening has already been discussed.
We need to examine the issue, but no proper data are available to us. If we in the House are supposed to be regulators and legislators, the absence of clear data makes that almost impossible. A report by Dorothea Dowling, the chairperson of the MIAB, stated:
We are being told premiums are going up because awards are going up but the argument is not supported by published records of compensation awards. In fact there is a €1 billion difference between premium income and published awards.
We know from the Central Bank that the income of the ten companies that underwrite motor liability insurance is €1.4 billion a year. Records show that, collectively, awards in the courts totalled €1.69 billion and awards by the PIAB totalled €166 million. As she said, there is a difference of €1 billion. There are inconsistencies in the claims of the insurance industry. The industry also tells us that we are paying for the losses of Setanta Insurance, which is true. Its €90 million losses are being loaded onto the public.
I want to make a more general point about the absence of regulation in the insurance sector. What has happened has been referred to as a boom-and-bust scenario, but it is actually an aspect of finance. That is how it is dealt with by the markets. Therefore, it is subject to all the nuances and ups and downs of the capitalist market.
That goes to the nub of the problem. Insurance which is required on a person's home, car and life - on the crucial aspects of living - is subject to the good and bad of the financial market and how it performs internationally. Vulture capitalists who run these companies will sometimes invest money in dodgy and precarious deals. They will invest money and lose money, and they will try to make returns on their investment with the money we pay in our insurance. Therefore, the public is bailing out what is effectively gambling on the stock market.
There is another aspect of regulation which seems to have been a concern of the Department of Finance to a degree. The Central Bank deputy governor, Cyril Roux, wrote to Aidan Carrigan, assistant secretary of the Department of Finance, in a letter that was released under freedom of information. When Mr. Carrigan expressed concern that competition in the sector was not viable and prices were going up, and requested a report setting out issues of concern in the insurance industry, Mr. Roux replied by pointing to the disjointed nature of insurance regulation and he said the 40% vacancy rate in the Central Bank's insurance enforcement section meant it lacked the powers and staff necessary to do its job properly.
Therefore, we do not have regulation over this industry. In fact, the Minister, Deputy Noonan, said it is impossible to regulate this industry due to the EU framework directive on insurance, which prevents a government from regulating it. This points to a problem. What are we doing believing this great institution called the European Union is somehow best for this country when, even on a simple thing like this, it is holding us back from being able to regulate an industry which is crucifying people earning less and less money? The examples have been given of the extraordinary insurance increases in all areas, whether it is for a farmer, a fisherman, a worker, somebody cycling a bike or somebody driving a car, or in regard to the increased level of flooding or the cost of covering home insurance. It is a big issue. It needs to be regulated and it is about time this House got hold of it.
Suppose we wanted to strike a blow against the interests of young people, old people and people on low incomes simultaneously, how would we go about doing it? The insurance industry gives us a case study of how it can be done. Last summer, Allianz and Aviva announced they were no longer taking new business for cars of 15 years or older. There was an outcry and the usual mantra was trotted out - shop around. What happened when people went to the other insurance companies which kept their doors open for this business? I will give the example of a constituent of mine. He was 50 years a driver, without one penalty point, with a full no claims bonus and his car had a full NCT. What happened with his premium last summer? It had been €329 for third party, fire and theft and it nearly doubled to €610.
There are 250,000 cars in the Republic of Ireland which are 15 years or older, which is 13% of all cars. When we multiply 250,000 cars by that type of markup, or even a third of that markup, it makes a very tidy profit indeed. That is just one small example of the way this industry operates. The example I gave is about profiteering, not road safety. The Road Safety Authority stated in 2012 that vehicle condition was a serious contributory factor in what percentage of fatal car accidents or serious injury collisions? The answer is 0.2%, or seven cases out of 3,200. That is just one small example of the kind of profiteering that goes on. It strikes a blow against the young, who cannot afford cars that are, say, six or seven years old as opposed to 15 years old, against the old, who might have an older car because they only use it on a limited basis, and against all people on lower incomes. Welcome to the world of car insurance in Ireland in 2016.
Deputy Bríd Smith correctly made the point that this bears down particularly on younger drivers. No one disputes that younger drivers should pay a higher premium because, if there is a greater risk, there should be a higher premium. However, the increased price should be in line with the increased risk, not way above it. What are the sections of drivers the industry is making the most profit on? I will give an example based not on a one-year model but on a five-year model to allow for the processing of claims and to give the full picture. For provisional drivers, the average premium for a young man aged 21 to 24 is €1,422, on which the insurance company makes an average profit of €560. For people on full licences, the biggest profits are made on young men aged between 17 and 20, with an average premium of €1,701 and average profit per premium of €287. Deputy Bríd Smith has given the example of the €1 billion gap between claims awards and the income of the insurance industry as a whole, not just motor insurance. While there is the mystery of how far out-of-court settlements bridge that gap, what we do know is that, between 1994 and 2014, motor insurance profits in this State were €2.866 billion, with an annual average return on investment of 12.2%.
To conclude, we have seen the role of the State propping up big insurance companies in the Quinn bailout, with a possible bill of €1.6 billion and with the tab paid by the taxpayer and the policy holders. We need a different role for the State in terms of intervening on behalf of policy holders. In Canada and Australia there are states where the state provides not-for-profit insurance, so why can this not be done here? We look at the figure of €2.866 billion profit over 20 years. With State-run, not-for-profit insurance, we can imagine the type of cuts in premiums that could be provided for policy holders. We are talking big money. However, that would require a Government prepared to challenge the interests of the big insurance corporations. Fianna Fáil and Fine Gael have certainly not been prepared to do that. It is a powerful case for a radical left Government in this country.
I welcome the opportunity to address the rising costs of insurance and, more generally, the ongoing increases in the cost of living in Ireland. The Social Democrats campaigned on reducing the cost of living and we will pursue this goal in this Dáil term.
During the campaign, it is fair to say there was broad political agreement across all parties and the Independents on the need to put money back in people's pockets after eight years of austerity, and it is something we can probably all agree on in this House. Where we differ is as follows. Fianna Fáil, Fine Gael and Labour propose to do this by cutting taxes to make work pay, even though the OECD has just shown we have one of the lowest tax wedges on labour in the 34 OECD countries. The Social Democrats do not believe the way to put money back in people's pockets is to cut taxes, which we believe is irresponsible.
We need a stable and an ongoing tax base to invest in infrastructure, supporting small businesses, sorting out the housing and homelessness crisis, policing, tackling child poverty and so forth. We must find ways to put money back in people's pockets. We believe the way to put money back into people's pockets is to systematically and ruthlessly address the costs of living in this country. They were too high to begin with. We now know from the Central Statistics Office that these costs are increasing across the board.
We are debating insurance costs today and they are a good example of this. They were too high to begin with and are on the rise. The CSO data show that insurance costs are rising across all measures except one, that is, travel insurance. Last year insurance costs increased on average by more than 11%, an extraordinary increase. Most people pay a plethora of insurance premiums. Most households are already at the pin of their collars in trying to make ends meet and pay the bills at the end of the month. An average increase of 11% on insurance bills will push many people over the edge. It will force people to cancel insurance, for example, health insurance. I wish we did not need health insurance in this country but many people believe they have no choice but to pay for it.
Car insurance deserves a special mention because it increased by one third in the past 12 months. There has not been a one third increase in the number of crashes, whiplash cases or fatalities, thank God. However, car insurance has gone up by one third. That is an extraordinary additional bill for many people. Some drivers have been asked to pay up to 50% more. The Freight Transport Association has reported receiving premium rate increases of between 50% and 70% over 2014 and 2015. Home insurance costs have gone up by 10% in the past year. An additional 100,000 people took out health insurance in the past year because of lifetime community rating. However, although the base has increased by 100,000 people, health insurance costs are up 3.5% this year. Premiums for hundreds of thousands of VHI customers are to increase by a further 3% in May. This will be the second increase for them in the past six months. Businesses are suffering. We know that hauliers have seen significant increases in their insurance costs. The Small Firms Association has estimated that insurance costs have increased by 30% for small and medium enterprises since 2011. Let us think about that. Since 2011 there has been significantly less economic activity and yet small businesses in Ireland are paying nearly one third more in insurance bills than they were paying in 2011. That suggests a serious lack of focus on this issue by the last Administration.
Why are costs going up? We know that the book of quantum is past its sell-by date. Whiplash injuries account for 80% of motor insurance claims in Ireland. In some other jurisdictions, the corresponding figure is 3%. Perhaps Irish people have extraordinarily delicate necks or maybe we rear-end our fellow motorists 20 or 30 times more than in other jurisdictions but it is highly unlikely. More likely, we have a litigious culture where people claim to have whiplash and the costs associated with firms defending or trying to disprove those claims are such that the firms simply pay out. What happens in this scenario? Everyone else suffers.
The book of quantum currently gives guidelines for remuneration of €14,400 for a neck injury lasting up to one year and €16,300 for back injuries. As someone with a long-suffering back injury myself, I believe that in many cases there is a need to pay. However, given that 80% of claims are for whiplash versus a corresponding figure of 3% in other jurisdictions, clearly something is not right. The book of quantum was introduced in 2004, some 12 years ago. To the best of my knowledge, it has not been updated. It needs to be updated quickly.
The price for legal services continues to rise. I recall a meeting we had with members of the troika when they were here. They were very exercised about legal costs. They showed us a graph with many lines starting in 2008 and going downwards over time. The presenter pointed to a particular line and explained that it referred to the accountants. He pointed to another line and said it referred to the consultants. He pointed to yet another line and said it referred to someone else. All the lines were trending down very quickly. However, there was one line that was going up and up. The presenter explained that this line referred to the lawyers. Somehow, even though we have solicitors and barristers who are unemployed and are screaming for work, legal fees have bucked the trend of those in all other professional services and have managed to increase significantly. Obviously, this needs to be dealt with very quickly.
What do we do? Average claim costs need to come down. We need to reform how awards are set by the Injuries Board and the courts. We must have better non-litigation options in order that legal fees are reduced or, in as many cases as possible, abolished. We must have better information sharing in the industry such that fraud can be more readily tackled. We need to make it easier for drivers to switch premiums for car insurance. We need to make insurance options far more readily accessible and consumer friendly. I heard an analyst explaining health care insurance policies on the radio one day. I imagine many people listening that day had blood coming out of their ears while trying to understand the plethora of different options and non-options available. There needs to be a serious focus on consumer friendly products and simplicity in the market. AA Ireland has suggested that the Government should set up a task force to bring all relevant Government agencies together. That is something the Social Democrats strongly agrees with.
While we are systematically and thoroughly addressing the increasing costs of insurance and ensuring that not only do they stop going up but that the 33% increases we have seen in motor insurance start coming down, we must do the same for the costs of living more generally because Ireland is an expensive country. It is simply too expensive to live here. Rental prices have gone up by 9% in the past year, education costs have risen by 4% and the cost of third level education has gone up by 5%. Child care in Ireland is already the first, second or third highest in the world but it has actually increased by 1% at a time when inflation is essentially 0%. What do we need to do? Here are some of the things we need to do. We must improve State funding for child care and cap fees for parents. We have to introduce paid parental leave for 12 months and legislate for better work flexibility. We have to introduce truly free primary education by covering the cost of school books and transport. We have to cap third level fees. The Social Democrats has proposed a cap of €2,000, which is far closer to the European norm. We have to end water charges.
I am pleased the Dáil is taking this seriously. I hope we see some very focused and targeted reductions in insurance. However, we must broaden the conversation to reducing the costs of living in this country quickly and significantly.
I do not think I will need ten minutes because much of what I have to say has already been covered. However, the increase in the cost of insurance is considerable. A figure of 30% has been mentioned for young drivers. These are young people trying to go to work. They include apprentices starting out or people starting new jobs on small incomes or wages. They have been getting quotes anywhere as high as €5,000. That is not on. It is enticing these youngsters to stay at home rather than attempt to go out to work.
If they have to pay €3,000, €4,000 or €5,000, it is too much for these young fellows and girls who are starting out. This category is hit more and hit harder than all the other categories of drivers.
It is unfair that older cars can go through the rigours of passing the national car test, NCT, and be in a legal road state but insurers will not insure them. This means another category of people will not be on the road because they cannot afford a newer or dearer car. There is nothing wrong with the cars they have as they would have an NCT. They are not even being given a quote. Families may have a second car, with a wife or partner at home having a car to bring children to and from school. These people have to drop one car and it is making it very difficult for them to survive in rural areas. I was disappointed with the economist Mr. Dan O'Brien, who wrote an article a few weeks ago for the Sunday Independentarguing that the upturn in the economy had reached all 26 counties in Ireland. I resent that and say to him that when people like those we are highlighting now are faced with increased costs, it is unfair to say that equal improvement has been felt in all 26 counties. The county I represent is very rural and expansive, and one cannot manage in any part of the county without a car. In Dublin and the cities there is the Luas and all the other types of public transport, but it is not available to people in rural Ireland. I was very disappointed to read Mr. O'Brien's assertion in the paper two weeks ago last Sunday.
People with commercial vehicles, including hauliers, are also seeing effects on their businesses in a big way. There was a reduction in the tax rate last year, which I appreciate, but these people are back at square one because of the increased cost of insurance. From personal knowledge I know that when somebody makes a claim against a person and the insurance companies should fight it, the companies often do not want to do it. We will not name the companies but they seem to pay the person making the claim. They do not fight the claim, even when the insured person feels he or she is right. They just pay out the claim and charge the insured party more. The practice must be regulated and something must be done, as it is very unfair. An insured party may feel that the blame should at least be assigned 50-50, or even that he or she was more in the right. The insurance companies do not fight such issues and prefer just to pay out, meaning it is left to the people paying their insurance costs. It is one of the reasons costs are increasing. There are also bogus claims, which should be tackled in a more efficient way. Many claims are being made and every Member has heard about them. Something must be done, as it is one of the reasons insurance costs are rising.
Insurance awards seem to be excessive. As Deputy Donnelly mentioned, it just does not seem right that all these claims are going through. People have whiplash and there is no real vetting of what is happening at all. People seem to be claiming and getting away with it but they could be back playing football or hurling, swimming or whatever again, with nothing wrong with their necks, a few days after getting the award.
There is also the issue of flooding and what this entails for people in their homes. If they make a claim because of flooding, their insurance costs go up, and if there is a second claim, they will not get insurance again. It is a very serious issue. It is happening and one of the reasons we have so much flooding is because our rivers are not being cleaned. There has been no attempt in the world to clear rivers in Kerry. I do not know what is happening in the rest of the country and every other fellow will have to speak for himself and represent his people. The rivers I know in Kerry are totally clogged, which is a reason places like Clonkeen, Foiladown, Glenflesk and Curreal are flooded continuously. Houses are ruined and people finish up with no insurance.
There is a new phenomenon with a crowd called the catchment flood risk assessment and management, CFRAM, doing a study around the south of Ireland. I know a number of people in one area, Glenflesk, who have been told their houses and property may be flooded some time in the next 50 years. The insurance companies know that now and they have the maps. Accordingly, these people are being charged excessively for insurance on their homes. That is not fair as the properties have never been flooded. Some genius has come up with the divine knowledge that the houses will be flooded some time in the next 50 years, but in the meantime people will have to pay an exorbitant cost for insurance. The houses may never be flooded.
These issues must be addressed as people in homes need insurance. It is not fair for any insurance company not to quote them. The reasons for not providing a quote or insurance are unfair, which is not on. I feel very strongly for these people. If it was said to somebody in a car crash that when the money was paid out, he or she could not get insurance any more, we would not accept it. People's homes are their castles and they are entitled to insurance for their families and properties. The rules of insurance companies must be sorted out. If we do nothing at all in here, we should highlight such matters. People are suffering and it is a big worry. Many of us would be very worried if we went to bed and thought there was no insurance to cover the house.
I welcome this debate. In many ways this Dáil is unique and will be tested by its ability to take on issues like this and to shape better thinking on how to tackle it. We are, rightly, setting new ambitions for ourselves and planning to work in different ways. It is also important to remember that economics have not gone away, to paraphrase another political phrase. At this stage in our economic rebuilding after the crash, we have restored a little less than half the jobs that were lost. That is 142,000 jobs. It is quite an achievement but not quite half of where we need to be. We have seen a healthy economic recovery, with average growth in the economy in the past two years of 6%. That is significant. People need to bear in mind as we grapple with issues in the House that 75% of that new national income has come from investment.
The last ten years have been a lost decade in terms of investment that just did not occur in the economy. It is important, however, to understand the nature of future growth. It is not there for all of us to come up with new claims or demands; it is a process of trying to rebuild investment that was lost. Those of us who work in the public sector know more acutely than most that the lost decade saw a huge impact on our capacity for public investment. Lost investment in that period probably ran at approximately €15 billion, which would have gone into housing, health, education and child care - things that we rightly set as big ambitions.
It is important to recall that Ireland is a small, open trading economy which stands or falls by our ability to create a competitive edge to win in difficult economic markets. The National Competitiveness Council has often talked about the need to create a virtuous circle whereby our ability to provide better living standards, including wages, in the public, private and personal spheres must be matched by our ability to generate new business. We must also create a competitive edge and do things in a smarter way so that we can grow the economy and fulfil our ambitions.
As we start to see momentum in our economy, this is not a time for wage demands that go way beyond productivity, or seeking to profit-take at a time when many families are under severe cost-of-living pressures. In the context of this debate on insurance, we have to keep a sharp eye on things that make an impact on the country's competitiveness or families' ability to make ends meet, which is what underpins competitiveness. Recent years have seen trends, particularly in motor insurance, that are out of kilter with that. We have seen a 60% growth in motor insurance costs over the last four years, for example. We therefore need to examine what is driving such costs and identify the elements we can manage. Motor insurance is extremely important to ordinary families and represents nearly 2% of family expenditure, according to the consumer price index. For families that have a greater dependence on cars, the cost is much more than that. For the business sector the cost is smaller, at approximately 1%, but insurance can be a significant block to progress in certain elements of the commercial environment.
I was not here for the speech by the Minister for Finance, but I read it subsequently. The study that the Minister is undertaking with the support of the Central Bank is absolutely crucial. A lot of anecdotes are thrown around about drivers and costs, and what causes insurance premiums to grow so rapidly. The truth is that it is a combination of many elements, which we need to disentangle. We must identify which elements on the supply chain we can hope to influence and change. For example, the PIAB is a piece of the jigsaw for which my Department is responsible and there are encouraging trends in that area. We are continuing to deal with the same proportion of cases in this non-legalistic fashion, with awards being broadly accepted across the board. The awards by the PIAB have been remarkably stable, with virtually no change since 2007, so it has managed that really well. The PIAB handles around 12,000 claims annually from a total of 34,000. Many of those claims are settled outside the PIAB or the courts. We need more knowledge about what sort of settlements are occurring outside the PIAB, because they are certainly not as stable as what is happening within the PIAB. Rather than relying on anecdotal evidence, let us assemble hard data from the companies. That is an important piece of work that should take place.
There is no doubt that the frequency of claims has grown; they have increased by 21% in the last four years, which is a lot faster than the growth in insurance policies. Therefore, something is driving claims frequency, which we need to understand so that we can manage it more effectively.
The cost of awards has arisen repeatedly in this debate. While the PIAB system is stable, people are clearly looking at court awards. There is some evidence of what is happening there. The number of cases that get to court is relatively stable, but more of them now appear to go to the High Court than the Circuit Court, and that is where awards are high. The value of awards, while fairly stable in the Circuit Court, appears to be growing substantially in the High Court, by 40%. Of course, very different cases are involved, including medical negligence cases. We do not have them sufficiently disentangled. That will be an important piece of work to get a better handle on what is happening in the courts.
My Department is currently updating the book of quantum. While the courts remain independent, they have an obligation to take account of the quantum of damages. We hope to have a new quantum of damages in place in the first half of this year, which will bring greater consistency to court awards. In turn, that will reduce the likelihood that people will either have recourse to the courts or, in making out-of-court settlements, be influenced by a sense that court awards can be very high and almost a lottery if one goes into it. It is important therefore for us to develop that quantum, and work on it is well advanced.
We are also looking at changes to the PIAB legislation which could make the system smoother and provide fewer opportunities for cases to be brought elsewhere. The report by the National Competitiveness Council on insurance stated that legislative changes were needed and new provisions required to tackle non-attendance at medical tests. It also recommended prohibiting claimants from introducing new information or details into court proceedings that were available but not submitted to the PIAB prior to the assessment. While respecting the independence of courts, we need to ensure that the PIAB can keep the maximum possible number of cases out of the court system, where, inevitably, legal costs as well as awards are added in.
I welcome this debate. As the National Competitiveness Council report on insurance states, it is important to obtain data forensically because so many elements contribute to insurance costs. Many of them have been listed here. Insurance companies have been making losses on their underwriting business in recent times, so on the face of it there is not a bonanza from their returns. Management fees represent a significant proportion of premiums and deserve to be assessed. Their reliance on investment returns, which are volatile, is an issue of impact. New capital requirements resulting from greater prudential sensitivity represent another factor. The key thing is to distinguish the matters that we can rightly expect policy to influence from the ones that will not be easily changed. That is the area the new Parliament can hope to influence, both through legislative work and through greater scrutiny of what is happening in this important sector. Insurance influences the costs facing ordinary families as well as the cost of doing business.
One of the key challenges for this Dáil is to drive forward economic recovery, which is really important. This depends on a series of decisions we must make concerning skills, investment and innovation, as well as making companies leaner and sharper with a better start-up environment. At the same time, we must also focus on serious challenges in public service areas, where we rightly need to frame ambitions and match those two key elements.
Success in meeting our ambitions in public services will be very much driven by our capacity to create an economy and an economic environment that creates the jobs and drives the enterprise sector and the tax revenues that come with it.
As this is my maiden speech, I ask for a little indulgence for the first 60 seconds. I thank the people of Wexford for the honour of electing me to represent them in this Chamber. It is humbling to have such faith shown in me. I hope that I can meet their expectations; I will give them my best.
Today, throughout our society, there is a timbre of fear. People cannot anticipate their future or that of their children and the fear from this uncertainty is governing their lives on a day-to-day basis. For many, it is a disconcerting fear because it is abstract in nature and its causes often feel unclear. The enemy is unknown and the solutions are difficult to see, but the fear is real and it permeates our entire society. It is felt not just by those who protest, but also by the many who show their emotions lightly but feel them intensely, some to the extent that they feel they cannot go on. It is manifest in many aspects of our day-to-day lives from the locked doors and high fencing in rural Ireland to the sense of isolation often felt by those living in the middle of busy populated cities. It manifests itself in a country where young people are often afraid to go out and old people are often afraid to stay in. Our society is dangerously off balance. A nation or individual cannot prosper in any valuable sense if such a large portion of the people living around them are drowning.
However, the solutions are not found in further division promoted by those with the faith that the breadcrumbs will tumble from the over-filled table at the banquet to nurture those below. Neither are they to be found in the creative inertia of the first responders in the Cabinet or the promises of utopias by pseudo-religious ideologies. Solutions can only be found if we put our community first and create an Ireland for all. While that means developing a successful economy, any economy must serve as a means to an end and not an end in itself. That end is our community - a compassionate community that guarantees security, opportunity, fairness and social justice for all.
I welcome this debate on insurance and will focus on motor insurance. Motor insurance is now the fastest rising item in the Central Statistics Office basket of goods, having risen by almost 40% since last year with insurance companies warning of further increases of up to 25% in 2016. Motorists are being fleeced by motor insurance companies. These increases in insurance mean that by the end of 2016, the cost of insuring an average-size family car is likely to have increased by almost €300. This is resulting in a huge squeeze on family finances and is a serious hit to families' disposable income. Hackney and taxi drivers are being hit with even higher premium increases and are being driven out of business. This does not just affect the employees of these businesses. When a hackney or taxi service is withdrawn, particularly in rural Ireland, it affects the most vulnerable and marginalised the most as it is these vulnerable groups who rely on the availability and safety of known local services. It is the disabled, the elderly and the isolated who rely on safe local hackney and taxi services the most.
I will also address increases in the cost of insurance for people with disabilities. Some of my constituents have seen dramatic increases in the cost of their insurance to the point where it would appear that most insurance companies have little or no interest in insuring anybody with a disability who needs to drive. Subventing people with disabilities so they have an equal chance at life and at exercising their rights in civic society by being able to get insurance for their cars should be looked at by any future committee.
Deputy Donnelly from the Social Democrats said whiplash injuries account for 80% of motor insurance claims in Ireland. I have been involved in personal injury cases for ten years and I can only recall one case solely involving soft tissue injuries to the neck. We in this Chamber need to be very careful about relying on insurance industry statistics. I welcome the Minister's comments about the courts. We need greater transparency in the type of cases going through our courts system. In particular, pleadings should be available to people because this would also help drive down costs.
As rural Ireland has been systematically undermined by the cuts to our schools, Garda stations and post offices and the threats to the viability of rural GPs, people have to travel ever further to avail of critical services. Therefore, access to transport has become necessary to be able to participate in civil society. It is this participation that is further undermined by the unaffordability of motor insurance. The rapid, unjustifiable and profiteering increase in insurance costs is also having an impact on people trying to return to work. People who have found themselves unemployed during the recession and who are now being offered work often find that they must travel for this work. They are willing to do so but find that motor insurance can be as expensive, if not more so, than the cost of a car or van. Motor insurance costs are becoming a significant barrier to people re-entering the work force.
Motor insurance is mandatory but it acts as a flat charge taking no account of ability to pay. I am calling for the establishment of a task force to bring together consumer advocates, the insurance industry, the Garda transport division and the regulator to bring forward practical proposals to reverse this trend. A task force known as the Motor Insurance Advisory Board was set up in 1998. Its recommendations successfully achieved a decrease in insurance costs of 40% in real terms between and 2013. A similar task force should now be set up to end unfair practices in insurance companies. It would appear that the real underlying purpose of what they are attempting to do is to simply back up capital in their funds in light of the case of Setanta Insurance.
As it is my first time speaking in the Chamber, I thank the people of east Galway who elected me and gave me the opportunity to represent them. For those who do not know east Galway, it takes in people from Portumna to Bearna to the sea at Kinvara down to Gort and Athenry and all the way down to Tuam and Headford. I humbly thank them for giving me this opportunity.
My comments will focus on flooding, which has affected south and north Galway for the past number of months. Newly elected colleagues eagerly await the commencement of work on real issues of concern to our constituents and the people of Ireland in general. My mission statement when entering public life remains the same today. It involves representing the young and the old and people in rural and urban areas on local, regional and national levels by giving voice to their concerns, needs and aspirations for local provisions, services and living standards across key areas of agriculture, education, health, employment, finance, safety, security and other emerging issues so that, in the near future, communities can enjoy the true values of security and prosperity and the fruits of their own hard work, time, talents and skills in a fair and honest society that is rooted in our Irish tradition.
In speaking for the flood-weary people of east Galway, I speak for people right across our country who have endured indescribable hardship because of flooding this past winter. I speak about the winter of 2014 but it also happened in the winter of 2009 and if one goes back to 1995, that was when people in Peterswell were worst affected. While the stench of damp carpets, rotting furniture and cracked floorboards has greeted families returning to their homes in some areas, others' homes such as those in east Galway remain uninhabitable and farms are submerged for the foreseeable future. I spoke to a farmer the other day who is selling off his stock. He reckons that he will not have grass until after the Galway Races. With no solution in sight, must these families now accept flooding as a recurring annual event in their lives simply by virtue of where they happen to live and the planning deficiencies of recent years? The hardship and grief of losing one's home and treasured memories compounded by loss of a livelihood in farming defies description. How will these people fare with their insurance companies now and in the future? That is the question. Householders who have erected barriers since flooding in 2009 succeeded in keeping waters out this past winter yet are rewarded by denial of cover by insurance companies. I congratulate Mr. Joe Healy, a fellow county man, on his election as the new president of the IFA. Mr. Healy and I face huge problems as we see farmers going out of business due to flooding. When will the OPW enact its relief plans, which have been drawn up for a period of considerable time? This is something which must be addressed as a matter of urgency. It is not something that can be shelved and lip service paid to whenever flooding occurs. Tell that to the people of Crannagh, Peterswell, Tarmon, Cahermore and Skehanagh.
Rising insurance premiums reflect a combination of Government imposed costs, poor regulation, mismanagement by the insurance sector and legislative failure. All of us have spoken today about rising costs in insurance but the people from east Galway that I represent cannot get insurance at any price. In January 2016, Fianna Fáil published legislation to ensure flood insurance cover is provided where OPW flood relief schemes have been completed or where the risk of flooding is at an acceptably low standard. The Bill provides that where the OPW has completed a flood relief scheme to European standards, resulting in the flood risk being reduced to a one in a 100-year possibility or where the OPW deems the flooding risk to be extremely low, an insurance company must offer flood insurance at a price that a person can afford.
This Bill is also relevant for areas where the scheme is to be carried out into the future. Furthermore, the Bill outlines the respective roles of the Financial Services Ombudsman and the Central Bank in ensuring its full implementation.
Deputy Danny Healy-Rae spoke earlier about the Catchment Flood Risk Assessment and Management, CFRAM, report. This also affects me in respect of the Shannon catchment area. It is a desktop exercise in certain areas where it says there is a one in ten, one in 100 or one in 1,000 year risk that the flood could happen. That draft plan has not been implemented. We are talking hypothetically. Levies are being raised from people in those areas and we have not adopted maps. It also affects how county councils make decisions on planning. Where flood issues have been addressed in Ballinasloe, Clonmel, Fermoy, Mallow and Kilkenny these people still have to pay a full premium on their insurance which has increased. We can praise the Office of Public Works, OPW, where it has put in proper flood defence mechanisms because it has saved these towns the guts of €900 million yet we penalise businesses and householders. Is that correct? Is that right?
Fianna Fáil acknowledges the need to address the lack of insurance in areas which remain prone to flooding. Models such as the flood relief scheme in the United Kingdom are being examined and proposals for adaptation to the Irish situation will be published.
During the course of the election campaign one of the big issues on the doorstep particularly in rural communities was the enormous cost of car insurance for young people. I met a young man who was quoted €8,000 for insurance. Another was quoted €8,500 and €9,000. Neither of these lads has any road traffic convictions. They have full licences and three years’ experience of driving. They work approximately 12 to 18 miles from their homes and need a car. They live in rural Ireland where there is no public transport. The only way they can get to work is by car. At €8,500 or €9,000, that is between €170 and €180 per week for insurance. They bring home approximately €380 per week. Effectively they are working for nothing. That does not take into account the wear and tear on their cars, tyres, petrol, tax, all of which has to be taken into account. These young men and women want to work and are lucky to have work but they are being discriminated against because of their age and the fact that they come from rural Ireland. If they lived in a city or large town where there would be public transport it would be very easy for them to live and work in their areas.
I participated in a debate on Monday morning with a spokesperson from the insurance industry. Part of the excuse that person gave for premiums going up was the cost of going to court. The spokesperson said that 60% of the insurance industry costs were legal costs. This is a gravy train for solicitors and insurance companies, and young drivers in particular are their victims. I cannot understand why an insurance company will settle outside the court and pay compensation on the assumption that it will not win the case.
I have had that experience following an accident. The person who ran into me took responsibility and I accepted that but four hours later the person had a change of mind. I then instructed my insurance company which settled outside the court, each of us paying our own costs, against my wishes. That was a decision taken by the insurance company. How many people find themselves in similar situations where an insurance company, rather than go into court and fight to defend what is right, is prepared to compromise and settle, using the excuse that legal costs are 60% of what they pay out?
Rural Ireland is not in a good place because of neglect by successive Governments down through the decades. The abdication of their responsibility for rural Ireland is clear for everybody to see in the social consequence of mass emigration. Where there are jobs for young people who want to work they are crippled and penalised by insurance companies. We need to start thinking outside the box and see if there is a way to make those costs affordable, fair and equitable. In the so-called UK there is a smart box installed in the car which is used to monitor young drivers. There is technology which can restrict the speed of the car and restrict the cc of the car for younger drivers which would go some way to help ensure that people could get to and from work.
Insurance for local employment schemes has increased 300% in the past two years. That means that a service primarily for rural Ireland is being crippled by insurance companies. They use the excuse of false claims. Are they going to penalise the innocent because people are making false claims? That is what they are doing. They are penalising genuine, decent, young people, with the excuse that some people are making false claims and they have to pay them. Why pay them? If they are false, fight them and stand up to the people making false claims and do the right thing.
Insurance is a huge issue. In my constituency of Offaly and North Tipperary not alone does it affect young drivers in rural areas but also elderly people who for some strange reason receive huge quotes. This needs to be urgently addressed. In rural areas such as my constituency there is no adequate or proper transport system.
Over the past year we have witnessed insurance companies holding the people of this country to ransom through the costs associated with insuring road vehicles. It is evident that these insurance companies have profiteered on the back of staggering increases in motor insurance, as they know it is a necessity for most working people around the country. The insurance industry and others have been quick out of the traps to try to explain this huge increase. They blame claims, payouts, fraud, regulatory costs and so on. They seem to blame everyone but take no responsibility themselves. I am not convinced by their arguments and frankly neither are the Irish people.
As Deputy Martin Ferris said, this needs to be addressed. Deputy Pearse Doherty also raised concern over this issue. It is time that serious and fundamental questions were asked about the business model used by insurance companies in this State. Therefore, it is time we took a critical analysis of the operating model underpinning the insurance industry in Ireland to see if a long-term unsustainable way of doing business is the real reason behind the increases in premiums.
I believe an investigation will reveal as much. Correspondence received by Deputy Doherty from the Central Bank states:
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 will serve to restore core underwriting profitability and to secure the financial position of the firms concerned for the longer term.
This points to insurance companies punishing customers because profitability has dried up from their other sources of income. It is completely unacceptable for insurance companies to apply punitive levies to drivers because they were operating in an unsustainable manner and are now feeling the repercussions of their actions.
The insurance increases these companies are imposing on people are pushing the owning and running of motor vehicles out of the reach of many ordinary people. This, in turn, affects people's ability to travel to and from work and it is a particular issue for people in rural areas, and for young people and older people who are also being quoted extortionate rates.
It is our duty, as elected representatives of the people, to address all of these concerns. Without doubt this is one of the biggest concerns of the people of my constituency in Offaly and north Tipperary. The ordinary people of Ireland do not have the money to cover these costs which are having a severe negative impact on their lives professionally and personally. I call on the Minister to meet the main actors in the insurance industry as soon as possible to address this because the current situation is totally unacceptable.
As with some of the previous speakers today, this is my first speech to the House. I thank the people of County Limerick for electing me and for giving me the privilege of representing them here, which I will try to do to the best of my ability.
I welcome today's debate. I will talk in particular about motor insurance as, like the previous speaker, I come from a rural constituency. I welcome that the Department of Finance has embarked on a review of the insurance sector. Currently people are affected by huge increases in motor insurance. As these effects are serious and ongoing the review must be conducted as quickly as possible with clearly defined deadlines in order to advise on strong solutions.
The average cost of motor insurance premiums rose sharply by approximately 42% in 2012. It is now mentioned that in 2016 motor insurance costs have increased by 40%. I understand that from 2010 to 2013 the average cost per claim increased by 32% for comprehensive insurance and 56% for third party fire and theft insurance. However, the level of vehicle sales has also increased dramatically since 2012. That year there were 145,033 vehicle sales rising to 216,523 sales in 2015, an increase of 71,490 vehicles or 33% owing to the economic recovery. In three years vehicle sales rose by a third. The first quarter of 2016 had vehicle sales at 99,328 which in just three months are already 68% of the total sales of 2012. Given the extra buoyancy in vehicle sales and the knock-on effects in the number of insurance policies sold, why is there such a major increase in motor insurance? This is having a serious impact on people and was raised on a number of occasions during the general election campaign by voters in my constituency of Limerick County.
Limerick County is a rural constituency and a car is a necessity not a luxury. There is no DART or Luas in County Limerick so there is a major dependence on the motor car. Its primary function is to get to work or college and it is required for people to go about their daily lives. The rising cost of insurance will drive more young people from rural areas into the cities and towns where there is more frequent and elaborate public transport.
Last week one constituent mentioned to me that the best quote she could get on a 2005 1.9 l diesel car with a full licence and one year as a named driver on her parents' policy was more than €6,000. That was for a lady driver. This constituent wants to pursue farming and settle in a rural location, but is being priced away from the area. I am not quoting figures for souped-up Lamborghinis or Ferraris here. This was for a car to facilitate this person's life and chosen work. Such pricing of motor insurance is just not affordable.
We need to keep people in and attract more people to rural areas to keep our schools open, our sports clubs going and to further enhance and develop our communities. We must also extend this to returning emigrants who wish to return to rural areas of Ireland. I was one of those when I returned in 2013. I learned it at first hand, as without a policy in Ireland for more than three and a half years the no-claims bonus was not taken into account as it had expired beyond the two-year threshold. I believe this is still the case today.
The rational was presented of three and a half years' extra driving experience in a more challenging driving environment than County Limerick, given the city I resided in had more than 5 million people, but that was not accepted. The provision of proof of no claims was then presented but that was not accepted either. The bottom line was that as it was more than two years since there was a no-claims bonus in Ireland, as a returning emigrant any driving experience acquired before leaving was scrapped. This was against the backdrop of having more driving experience in a large city with a more challenging traffic environment. The result was an insurance cost of three times what was paid before leaving.
This policy is sending the wrong message in attracting and welcoming our emigrants home and it needs to change. A change like this would crystallise a proactive effort in bringing our sons and daughters, brothers and sisters back to rural areas of Ireland where we want and need them. They bring enhanced experience, extra economic wealth and greater international networks. This can help to bring new ideas, innovative ways, job creation and investment to rural areas. What I have said puts it in very cold economic terms; in real terms these people are missed by their loved ones.
The plight of drivers of older vehicles must be also highlighted. These vehicles, which have passed the NCT at a cost to the owner and are deemed roadworthy, are more often than not in the possession of the less well off or younger people. I would not like to see a culture develop in the insurance industry of penalising due to age of vehicle. The less well-off and younger people will feel the burden the most.
During the election campaign I met some rural mechanics running small businesses in County Limerick who said that insurance costs were hurting their businesses. These mechanics depend on general servicing of older cars, as newer cars are serviced under warranty by the large outlets. Motor services in rural areas are a major source of economic activity. These people have taken the risk to open small businesses which attract more people to the area.
It is imperative that these issues are highlighted as they represent a snapshot of life on the ground for people in County Limerick. I call on the industry to take note of the effects. Responsibility must be taken, as there is no room for bogus of fraudulent claims. I again ask the Department to prioritise the review of the insurance sector and to carry it out as soon as possible as this is a real issue for people on the ground.
As this is my first time to address the House I want to express my thanks to the people of Wicklow and east Carlow for the opportunity and honour to represent a new type of politics which hopefully can be introduced in this Dáil. I appreciate and share the frustration of people over the length of time the Government formation process is taking but I want to thank all those Deputies who are trying to resolve this so that I can get down to the job that I was elected to do, which is to find realistic solutions to the many problems facing this country.
I come from a long business and community background, and I want to use the experience I have in these areas to provide solutions to the problems that my fellow citizens face. I want to work with every Deputy in the House, regardless of party affiliation to enable the Dáil to be a Parliament that provides an inclusive and comprehensive analysis of our problems and, vitally, to put in place measures that will address these issues in a manner that is accountable.
It is acknowledged that increasing insurance premiums are an unacceptable pressure that individuals, families, farmers, businesses and communities are facing year-in year-out, without any adequate explanation to Government or to the Dáil. The true profits being made in this industry are not nearly transparent enough to justify the rising costs to Irish citizens. In fairness to the insurance industry, Ireland risks creating a claims culture unless we have a realistic view of personal responsibility and unless fraudulent claims are prosecuted as a serious crime.
Insurance costs have been rising relentlessly for families and businesses. The CPI indicates that in the 12 months to March 2016 motor insurance premiums have gone up by 32%. Since December 2011 motor insurance premiums have risen by a massive 50.6%. This is way ahead of the general rate of inflation over the same period.
One of the ways to help resolve rising motor premiums which in the past year have risen by 30% is to re-establish the Motor Insurance Advisory Board whose recommendations reduced insurance costs by 40% between 2002 and 2013.
As I said, there should be full transparency surrounding insurance costs. The income of ten companies which underwrite motor and liability insurance is worth €1.4 billion a year. Total compensation awarded in 2014 was €335 million. There is a gap of €1 billion between premium income and awards made.
The term “public liability” sends shivers down the spine of every small business and community group which owns a facility or runs an event. This week, the Small Firms Association warned of a crisis for businesses due to a compo culture which is leading to increases in public liability insurance premiums. The Freight Transport Association of Ireland has warned that a recent award of €40,000 in damages to an injured hillwalker in Wicklow will have a negative impact on insurance premiums and should be reviewed by the Court of Appeal. It said the award against the National Parks and Wildlife Service was “excessive, setting a precedent for future claims, and ultimately forcing insurance premiums to rise”. I was also struck by the response of Mountaineering Ireland when it stated:
The mountaineering community has a long held and proud tradition of personal responsibility. Mountaineering Ireland feels that today’s judgment runs contrary to this long-established principle. We cannot continue to live our lives without the acceptance of personal responsibility in the belief that every misfortune is someone else’s responsibility.
The last line In particular has significance in this debate. As an hotelier in Glendalough, County Wicklow, I know more than most the value of outdoor recreation as a key economic and tourism pillar of rural Ireland. I have worked all my life both in the tourism sector and with organisations, such as County Wicklow Partnership, Wicklow Uplands Council, Coillte, the National Parks and Wildlife Service, Wicklow County Council and private landowners, to develop and promote an agreed an open walking trails policy which is an essential part of our rural economic infrastructure. It is my consistent and confirmed view that any regeneration of rural Ireland must further develop and promote this industry which provides sustainable employment and income to every county on this island.
The past week has seen outdoor recreation in the countryside being put at unacceptable risk due to the award of damages to an injured hillwalker. On a positive note, the decision has resulted in a remarkable unity of purpose being shown by diverse organisations, such as the IFA and Mountaineering Ireland, which are at one in expressing shock at this decision. It is essential for the protection of our outdoor recreation sector and landowners that the State undertakes to introduce a blanket insurance cover for upland areas. In return, agreed and accessible walking routes can be developed and crucially maintained. I thank the House for its consideration of this issue.
It is important that we have this debate today while we have a strange vacuum in our Parliament and parliamentary business. Many people outside the House, especially businesspeople and those working trying to make a living, are dumbfounded at the delay in the formation of a Government. They are very disappointed that, after going out to vote, so many weeks on we still do not have a Government. It would not happen in any business. No business could afford to be without leadership, vision or the wheels being kept oiled and turning. We need to ask ourselves some serious questions.
I am glad to be able to speak on insurance costs. As a self-employed person since 1982, I have been grappling with insurance costs and claims. I have also dealt regularly with constituents’ problems with insurance costs from community groups to businesspeople, from road hauliers to hoteliers and the restaurant trade. Insurance is vital and we all have to have it. I condemn those, especially car drivers, who do not have insurance cover, as they leave nothing but chaos behind them. As for the recovery the Government talked about, many people, certainly in rural and provincial Ireland, would not know how to spell the word because they are barely holding on, trying to keep the bills paid. I do not know what justification there is for insurance premia to steadily rise every week.
There are many areas which need to be examined, particularly the most recent case of an award to a hillwalker. I am involved with Knockmealdown Active and the Glen of Aherlow Fáilte Society in Tipperary, groups which, with the co-operation of Coillte, county councils and, above all, private landowners, do much work to open up walking trails in the wonderful countryside with its rich heritage. Much valiant effort was made to get where we are, but it is frustrating to think that such a willy-nilly claim like last week’s could damage these efforts. In Waterford, we are doing much work on a greenway right from Waterford city to Dungarvan but people have already made several claims for injuries on this trail which is a flat surface, an old railway line track. There is bound to be an element of risk with such activity, so one has to take care. They are not jumping off trees or off cliffs but walking on flat surfaces. If one falls, surely there is some onus on oneself to take care.
Any small business which wishes to work for a local authority must have public liability cover of €6.9 million, as well as large cover for employer liability. That is an exorbitant amount of money for a business with the cost of it going up drastically. Last week in Tipperary, I met a haulier with a sizeable business whose insurance was €80,000 last year. This year, his premium has increased by €100,000. It is just a case of pushing the boat out as far as one can, unless we get some more players in the market. I had experience one time of trying to get insurance but no one would touch me in Ireland. I was told I had to go to Lloyd's of London for underwriting. I found out afterwards that those not giving me a quote in the first place were already underwriting with Lloyd’s. There are many shenanigans going on in the industry but not a lot of openness or transparency. There is absolutely zero regulation, unlike with many areas of our business life and other life in this country.
The legal profession has a lot to answer for, particularly when one sees solicitors advertising now with a free first consultation and on a no foal, no fee basis. That was taboo 30 years ago but now it is commonplace. There need to be refresher courses for most of our eminent judges. Judges are appointed for life and my colleague, Deputy Ross, is trying to change the way they are appointed. They need to be aware of the pressure and hardship some spurious and over-the-top payments and legal costs can put on a small business, community organisation, public hall, walking trail or greenway. More effort must be made to deal with the scams going on. The courts have much to answer for. More cases - I had them myself - are settled on the steps of the High Court. They cannot be settled, with everyone traipsing up to the High Court day in, day out, for two years, but eventually, they are settled on the steps.
The costs to business and ordinary people are enormous.
The legal eagles and the legal system seem to be disconnected from the reality of the damage that is being done to the fabric of society, to the enthusiastic people in the community and voluntary bodies and to the entrepreneurs, small business people and hard-pressed ordinary families trying to make ends meet. The scale of legal costs and fees are in the category of telephone numbers. There have been some alarming pay-outs. For too long it has been a far too lucrative industry and the Government has direct responsibility in this respect. The Minister and the incoming Government need to deal with this issue in a realistic, fair, honest and decent manner. Rip-off Ireland is alive and well. We thought that in the aftermath of the Celtic tiger years some of that practice had ended but it is back with us. The cheek of any business to try to double and more than double insurance costs for a hard-pressed business man.
I did not thank the previous Government for much but I thanked it at the time for the efforts it made with respect to road hauliers. We had banged on for years about the pressure they were under with the high taxation on their lorries. I think the Acting Chairman spoke about it at the time. We were helping out the hauliers. It is a vital industry to our country for exports and connectivity with Europe and our near neighbours. It seems that because they got a break on that aspect some of those in the insurance industry believe they can penalise and screw those fellows and double their premiums. There is no regulation of this by the competition authority or anybody else. All these toothless bodies have been set up. There are countless such bodies and I heard another one mentioned on a radio programme the other morning, one I had not heard of previously. It is another quango. We have all these quangos. It is like a disease the way they are spreading. It is killing businesses. Those bodies are not doing the job they were set up to do. They are not serving the public or serving the public interest. Many of them are self-serving and there are good jobs for the people in those bodies. It has become a good industry for policing and for having good jobs. Many of those involved in them would not know a lorry from a mountain deer. Those are the facts. There is no regulation. I do not know why we have allowed that to continue and why someone in government has not addressed it. The same applies to the competition authority when it comes to food prices in the large conglomerates and what they are doing to small businesses in Ireland. We are driving the lifeblood and spirit out of the people.
We have seen all the work done by the IFA, other rural groups and farmers to open up pathways through their lands with the development of greenways. It is no wonder there are difficulties when people see large claims being made. I condemn the people who commit fraud and, unfortunately, there is a good number of them. That is the reason we need insurance cover.
Medical indemnity insurance is frightfully expensive. We need balance, some semblance of fair play and honesty, and not these types of rackets. There are not enough exposés of such practices on television programmes and elsewhere to expose these wrongdoings. The wrongdoing is one thing but the underbelly of overcharging within the legal limits where no laws are being broken goes against the spirit of every law and action when it comes to any right-thinking person.
We are trying to kick-start the economy and rejuvenate our town centres and rural areas by getting people to support our home industry. We need to have a root and branch examination of the cartels in the industry and in the legal profession who are all in it together. The attitude of "You scratch my back and I'll scratch yours, and I'll pull the ladder up when I get up and keep it up so that anybody else can't get up" borders on the perverse. It is not good enough. We are having statements on the industry but it is all talk and no action. We need action. If somebody is seriously injured at work or elsewhere, they have to be looked after but where industry and voluntary groups are being penalised unduly, the wrath of Government must come down on those involved, if we are ever going to have a Government and if that Government will ever have any wrath or power. I mean "wrath" and not the other kind in case those opposite think I was saying something bad about them.
I welcome the opportunity to contribute to the debate on the insurance costs. I want to concentrate on the areas of public liability insurance, health insurance and general insurance. On public liability insurance, much has been made of the recent decision to award €40,000 to a hill walker, which was referred to by my colleagues in their contributions. That has generated a general concern about access to the countryside and walking routes and the fear this may be curtailed with attendant loss to the community and the tourism sector. That would be lamentable but I believe it need not happen. We have to be careful and measured in our response to this settlement and consider aspects of the judge's verdict. The woman appears to have been an experienced hill walker who had climbed mountains abroad in difficult conditions. Equipment was provided in the park by the National Parks and Wildlife Service which was found to be wanting and had rotted, which led to the accident. We have to consider where there is a duty of care in such situations, and it is not unreasonable to suggest there is, particularly when the equipment was provided. It would be a different matter if the person had stumbled across a bog oak or something naturally occurring in the landscape. The judge found that there was no contributory negligence involved. As I said, the person was an experienced hiker who had the right equipment and a reasonable expectation of care on the route. It is important that we realise that this case was reported not because it is the norm but because it is the exception, and it should not have wider implications for the industry or for walking. Was there negligence present? The judge appeared to think so.
It is worth reflecting on the Occupiers Liability Act, and in particular on section 3 which gives landowners the opportunity to downgrade their liability should they wish to do so. That is a measure landlords may wish to consider in the light of that finding if they wish to downgrade their status by erecting signage on their areas, which may reduce their duty of care in those situations. There are a number of options available, short of addressing it through the insurance field, which can allow the case to be dealt with as an isolated case without necessarily increasing costs to the insurance market or the consumer or restricting access to such public places.
On the same case, it has been suggested to me that another implication that has arisen is that, historically, a number of community groups may have been involved in putting in place pathways and walkways or restoring old bridges or towpaths, or greenways as we refer to them now. There may be some concerns about vulnerability if, say, a Tidy Towns group or Irish Men's Shed-type group has been involved in some restorative work as a community project and perhaps in the absence of a written agreement with the landowner. A potential vulnerability of those groups in the case of litigation is something that may be considered.
On the field of health insurance, and I must declare an interest because prior to entering this House I worked in the industry, it is a complex industry and one that in this country is undoubtedly expensive, although not by comparative international standards. Health insurance in Ireland is probably more accessible and affordable than in many jurisdictions, in particular the United States. Our health insurance system is underpinned by the concept of community rating, which is essentially a one size or one price fits all approach. The fundamental premise is that at the age of 18 or 80, despite having wildly different health costs and exposures, one pays the same price for the same plan. That intergenerational solidarity enables the younger members of the market to subsidise the older members. The theory, underpinned by public policy, is that as one moves through the stages of life, one will get out at the end what one puts in at the start. It is a good system. It works in many jurisdictions, including Australia, Ireland, Switzerland and the Netherlands. Until recently one could jump the gun by only joining the system later in life. The recent introduction of lifetime community rating, LCR, which addressed that, is to be welcomed.
However, flaws remain in the system. In particular, the concept of risk equalisation is a technical measure which allows different insurers in the same market to apportion risk according to their risk profile. Put simply, those insurers with an older book of insurance have a higher claims exposure and those insurers with a younger book are paying out less in claims but with the same price being applied to all customers regardless of age or health status, risk equalisation allows a transfer to a central fund to balance the risk between each insurer and ensure there is no profiteering on the basis of this approach. The system works well, where it works, and means the incentives to private companies are to compete on operational efficiencies, health outcomes, health care excellence and early diagnosis rather than on the basis of health status or trying to discourage older or sicker members to join a particular insurer, which would be contrary to the premise of community rating.
Risk equalisation is not yet fully effective in this jurisdiction. Some measures were introduced recently but they still fall some way short of a fully effective system. We must urgently address the risk equalisation system to provide a level playing field across the health insurance market and ensure that all customers, be they young or old, can benefit from the system of community rating, and that intergenerational solidarity allows the younger members to subsidise the older members and ensure quality of care in the private health insurance market across the board. This, in turn, saves the State money, because a functioning health insurance market reduces the burden on the taxpayer and the public health service. In budget 2014 the Minister for Finance at the time introduced a cap on tax relief for what he termed "gold-plated plans", which I think was a retrograde measure. I hope it is now acknowledged that the gold-plated plans that were referred to actually represent 90% or more of the market and the vast majority of plans were affected, leading to a rise in the cost for consumers. This may have led to some shrinkage and exiting from the market, which does not help the system of community rating and results in a rise in premiums for everybody who remains in the system.
The concept of product proliferation is often discussed, whereby there are multiple health insurance products on the market. This leads to confusion among consumers and within the insurance industry. It must be understood that this is a function of the Health Insurance Authority, HIA, which mandates that every change in a benefit or plan leads to the creation of a new product. It is something of an artificial construction and I urge the Minister and the HIA to re-examine the rules in this area for simplicity and ease of competition in the market.
Moving on, briefly, to the field of general insurance and the rising premiums we see there, I have heard of anecdotal evidence that this may represent the reluctance of many insurers to tackle fraud adequately or to challenge claims and we see a large proportion of settlements on the steps of the court, as my colleague, Deputy McGrath, alluded to earlier. From speaking to private investigators and people involved in the claims analysis and claims investigation sector, there are many cases with flimsy evidence that proceed to settlement in the absence of trial, when a trial would have found against them had they gone the distance. It is submitted that insurers should have the courage of their convictions to proceed to trial in these cases where at least an arguable case presents. That in itself would discourage opportunistic claims, reduce the number of unnecessary settlements and reduce costs. This is backed up by section 14 of the Civil Liability and Courts Act 2004, which references the onus on claimants to provide an affidavit of the truth of their claim and evidence supplied. Criminal prosecutions can ensue from a false claim under that provision. It is very rarely invoked and I am not sure there have been any successful prosecutions under that section, but it is there. The law is on their side and it should be used in those cases to challenge bogus claimants to prevent them defrauding insurers and in turn passing the price increases on to the rest of the market and the ordinary man.
A final point on the cost of general private insurance. The book of quantum needs to be revised. The majority of cases coming through insurers and going to litigation reference the Personal Injuries Assessment Board settlement guide. Against international comparators, many of the metrics of quantum in that are outdated and overpriced. For example, the price of whiplash and standard injuries can be referenced in this book and used as a guide for settlements. Many of these are known to be very much inflated by international standards. Revising the PIAB book of quantum would lead immediately to a reduction in settlements and therefore a reduction in the cost of personal injury claims and of general insurance.
That is a brief synopsis of some points regarding the health insurance and general insurance markets. I thank the Acting Chair for the opportunity to contribute to the debate.
I am glad to have the opportunity to speak on this very important subject. It affects everybody in the country; it affects costs to businesses and to households, to industry and to the country. To make a brief reference to motor insurance costs, this affects young people to a huge extent. Tragically in many cases, young people do tend to get involved in accidents more than one would like. This very often has tragic consequences for those involved and obvious consequences for the insurance sector. The statistics are there to prove it. I do not know what the answer to that is, other than to try to ensure that whatever regulations need to be improved to deal with that issue are improved as a matter of urgency, because this issue has come up again and again. People under 20 or 21 years of age were always "loaded" in respect of motor insurance. We all understood that. It is a long time since I was in that age group, but despite what people might think, I was in that age group and I can distinctly remember how unfair I felt it was. That applies to the young generation nowadays as well. Even when getting out of the danger age, there was still a reference to it in all insurance quotes, so there is nothing new in that.
Remarks have already been made by a number of speakers to the effect that some insurance companies and banks tend to move in and out of this jurisdiction. That is something we need to be very careful about in the future, because we all have been victims of the insurance companies which tend to move out. The manner in which insurance is made available by such companies needs to be carefully examined by the powers that be in the future to try to ensure that when a company comes into a jurisdiction and decides to do all that is necessary to establish a market head, it does have responsibilities after that and moving away when the going gets tough is not one of them. The public may find themselves penalised as a result and we should also draw attention companies themselves and what their responsibilities are in that. That is just in passing.
The cost of home insurance, particularly in respect of flooding, is an issue that has to be dealt with. We need to deal with it differently. It is far too common now for insurance companies to say to homeowners that because the house was flooded before, either the company will not insure them or if it does, it will cost an arm and a leg. The Minister of State responsible is here now and I think he accepts that when drainage or flood alleviation is required, we need to get ahead of it. We need to do it beforehand rather than afterwards. Then we will not have so many visitations to the same spot over and over again. As I have often said in the past, there is no part of the country that cannot be drained if we have the will to do it. It is a matter of deciding whether we are going to do that or whether we are going to let the flood waters spread all over the country, which is what some people think we should do but it is not a good idea to my mind. There was a guy called Archimedes, who lived well before my time, and even before the time of the Acting Chair. He perfected this whole idea of drainage to such an extent that he made many things possible that were seen before to be impossible. Unfortunately, in the years since then, we have drifted back to thinking we cannot do anything and as a result of not being able to do whatever it is that we should have done, we increase insurance costs and make it difficult for people to live in certain areas.
Incidentally, and people do not really know this, the local authorities have actually encouraged people to build in low-lying areas in rural locations, to "countersink" the dwelling on the landscape. I do not know where that came from but I have an idea it has something to do with the visual impact on the scenery. That is fine, but if one lowers the level of a house sufficiently, the water will flow in. It does not matter where it is; that is a fact of life. Somebody should press the button that sets off the alarm bells and try to ensure that does not happen in future.
Reference has been made to medical insurance costs by previous speakers, including my constituency colleague. Health insurance is gradually creeping up and there are all kinds of reasons for this. Increasing awards are given as a result of the increases, but the whole concept of community rating was originally intended to ensure the insurance impact was spread across the insurance industry and to prevent cherry-picking.
A certain amount of cherry-picking is taking place at present and it is time to put an end to it. Let us call a spade a spade. It should not be happening. It is not supposed to happen. It is in breach of the law. The regulations are there and we should deal with it.
Medical negligence costs are on the increase as well. Some people say we are well placed in comparison with other countries. The United States is probably the leading example of where almost every case is challengeable and is challenged regularly. That is contributing heavily to insurance costs and we are heading in that direction here as well. Everybody pays, not only one sector.
I want to finish on one element that has come to my attention and to everybody else's attention as well over the years. It is the question of various insurance policies that have been sold to people on the basis that they are likely to have a grand little pot of gold at the end of the day, maybe €100,000 or €150,000 depending on what they pay into it and so on and so forth. It used to be a benefit related insurance but in many cases it has now turned into a contribution related benefit, for want of a better description, in which case the insured person will be given a minimum amount of €25,000 or €30,000 out of a €100,000 premium and the remainder will be paid to them on an annual basis - a minimum amount of €170 or €180 a month for the next 20 years or so, if they live that long and provided they can show they have a private pension of more than €12,700. I do not know who thought up that idea in the first place but it was not the insured. It was not somebody who contributed to an insurance policy for a period of 18 or 20 years in the hope that they were going to get some benefit from it afterwards. What really infuriates me is when one tries to intercede on behalf of the people who are thus affected, one is told that they must prove they have independent means. If one had independent means, one would not need an insurance policy at all. The reality is that if one had the €12,700 or whatever is required independently and separately - in the bank or whatever the case may be - one would not be asking for this at all in the first place. I congratulate the insurer who came up with the idea. It is a brilliant one because it is "heads I win, tails you lose" in so far as the insured is concerned. I ask that the Minister of State relate that to the relevant section in the Department because it has been a bone of contention for many years and it is one with which we have all had to deal over recent years and as time goes on to a greater extent.
I am not a contributor to any of these policies just in case anybody is looking at me suspiciously. I am not a contributor to any of these particular policies and I would not join them in a fit. I advise everyone else not to join them either. Unfortunately, a great number of our constituents have and have paid the price and suffered the anxiety, stress and trauma of having a considerable pot of money that is effectively theirs sitting in a pension fund somewhere that they cannot access unless they live to about 90.
They are just a few of the things that come to my attention and have come to my attention over a long number of years. I used to be a spokesman in this particular area years ago and the same things applied then. Nothing has changed. I can assure everybody that nothing has changed in the intervening period but one would hope that things will change as a result of the debate we are having now.
I welcome the opportunity to speak on this important issue. I want to focus on the cost of insurance, the problem of insurance for people living in areas that are at flood risk and for victims of flooding, and the cost of motor insurance. Over the past year in particular, insurance companies in this country have acted with impunity and rode roughshod over people. They have shown complete disregard for victims of flooding and they continue to do that even for those who are trying to insure motor vehicles. Throughout December 2015 and into the early months of the new year, many counties throughout the country were devastated by flooding. In my constituency of County Laois, some householders living in the Mountrath, Portarlington, Ballinakill and Graiguecullen areas were particularly affected by flooding. There was also flooding of large tracts of land and I want to mention it to the Minister of State with responsibility for the OPW. I mentioned to him here four months ago the flooding caused by the River Nore overflowing, in particular in the area of Castletown to Attanagh and the Shanahoe area. This requires a modest amount of money. Trees have fallen across the river and silt banks need to be removed. The county council has allocated around €20,000 in its budget but it needs a bit more than that. There is always flooding down there but this year thousands of acres were flooded which would not have been flooded if some drainage works had been carried out and obstructions had been removed from the river. I ask the Minister of State to come back to me on that.
To come back to insurance, for many of the people who had homes and businesses flooded, the injustice of having inadequate flood defences and drainage works was made worse by the actions of the insurance companies. In 2014, the memorandum of understanding between the OPW and industry, which the Minister referred to in his speech, was supposed to have led to greater levels of flood insurance in areas where improvements had taken place. Unfortunately, the industry's response to this has been mean with no real improvements for communities in the at-risk areas. Furthermore, insurance companies are refusing to cover households in areas that were zoned at risk of flooding under the first and totally inaccurate CFRAM study. There was a CFRAM study done which is now being redone. There is a new study being done at the moment. The first one was a desktop study. They did not even go out to the area. The ridiculousness of the process is shown by the fact that Garyhedder on the slopes of the Slieve Bloom mountains, the far side of Clonaslee in County Laois, is zoned to be at risk of flooding. The top of the Esker Ridge in Portlaoise is zoned to be at risk of flooding. If those two areas flooded, nearly all of Laois and Offaly would be under water. It would be a Noah's Ark job.
There is a new CFRAM study. Locally Sinn Féin has made submissions. I ask the Minister of State to bring this to the attention of the Minister for Finance, Department officials and the Minister for the Environment, Community and Local Government, Deputy Alan Kelly, and to ensure this matter is corrected before he leaves office. A recent report by the Oireachtas Joint Committee on Finance, Public Expenditure and Reform showed that even by 2020, after the improvements are finalised in Cork city, insurers will still refuse to guarantee insurance cover. The almost unique lack of State involvement in insurance in this State has led to private companies being able to pick and choose and demand that more taxpayers' money be spent on flood protection while keeping their hands in their pockets all the time. Insurance companies need to be shaken out of their complacency in this State. The British Tories have no qualms about direct state involvement.
Those trying to insure motor vehicles have also experienced difficulties with the industry over the past year. The CSO has stated that motor insurance has increased by 30%. I would say, given the representations I have had from constituents in Laois and south Kildare, that the figure is higher. Nevertheless, the situation is becoming unsustainable.
The cost of insurance premiums is rendering out of many people's reach the cost of owning and running a motor vehicle. It is unacceptable that working people who rely on cars to travel to work or who rely on vans for employment purposes are being crippled to breaking point by the insurance industry. This is a particular problem for people in rural areas. In cases where little public transport is available and a car is necessary for work, young people throughout County Laois and south County Kildare have told me they are basically being priced out of their jobs. Many of them are on low wages and need a car because there is no public transport. I refer to people in south County Laois who are trying to get into Portlaoise to work or to people from Monasterevin, Graiguecullen, Clonaslee or Mountmellick who need cars to get to work. Furthermore, the significant cost increases on commercial vehicles are often being offset onto small businesses and the result of this can be job losses and non-expansion of companies. The situation is viciously cyclical and affects drivers, transport and small hauliers.
I understand a review group is in place and is working on some of the issues raised in this Chamber. It should come up with some fair, imaginative, intelligent and workable solutions that also consider insurance models in other countries and it should find out what is best. Consideration should be given to what is happening in other countries such as New Zealand. The review group must come up with solutions that can be put in place to resolve this issue and to relieve the pressures on drivers, businesses and home owners because the current position is chaotic, unsustainable and unacceptable. I ask the Minister of State to report back to the Dáil on the outcome of this review as soon as its work is complete. Thereafter, Members must press ahead with the reforms and recommendations and must get a grip on this runaway, chaotic industry and must make insurance accessible and affordable for motorists, businesses and householders.
I will focus in particular on health and car insurance. One also could throw in flood insurance and other insurance issues. Insurance is one of the biggest rip-off scandals affecting ordinary citizens nationwide. It speaks to a fairly dramatic policy failure on the part of the current and previous Governments. As for what I mean by that, the problem is one of constantly rising premiums that cost people an absolute fortune and I refer to trying to understand how to deal with this problem, which is crippling many people who are paying out for private health insurance, the premiums for which have rocketed in recent years, or car insurance, the cost of which increased dramatically again last year by an average of 30%. When one cuts through all the chatter about it, what is at its base is profiteering by private companies. It is as simple as that.
The Minister, in his speech to which I listened and through which I have read, pretty much admitted this. To get to the bottom of this issue, instead of simply spouting hot air, an explicit acknowledgement is needed of what is at its base and how the reality of what is happening in insurance has debunked the ideological inclinations and prejudices of Fine Gael in particular but one possibly could throw in Fianna Fáil as well. The Minister said "healthy competition within the insurance industry should facilitate" reasonable insurance costs. He said it should, as that is the market belief. If one has competition between private insurance providers, such competition should, according to market theory, reduce premiums. Strangely, however, it does not. The opposite happens, premiums go up and it costs people a fortune. Why does the reality defy the theory consistently? A page or so further on in his contribution, the Minister gave the game away. He stated:
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.
Consequently, in layman's language, when the insurance companies are not making a profit, premiums go up regardless of how much competition there is in a market. The idea that there would be competition and that this would put downward pressure on premiums simply does not translate. This was further confirmed at the beginning of 2016 by Standard & Poor's, one of our favourite international players. These are the guys who tell us what is happening on the bond markets and who rate states and their bonds on their creditworthiness, and in January 2016 the agency stated that Irish insurance companies would need to hike the costs of car insurance if they were to return to profitability any time soon. This was a senior analyst for Standard & Poor's explaining why, to get to profitability, they would be obliged to hike up car insurance costs and boy, did they do that to ridiculous and obscene levels, such as increases of 30% and young people being asked for up to €9,000 to be insured in some cases. This is absolutely unbelievable and is simply all about them making money. If they are not making money, they must jack up premiums and crucify people.
Is it not obvious that Members must cut these gombeen men out? That is what they are: they are fancy, global, nicely branded gombeen men. The middlemen profiteering in the area of health, car insurance, flooding or whatever it is are the problem. Their hunger for profit and the fact they operate purely on that basis dictates everything and currently is dictating extortion in the area of insurance. They must be taken out of the equation and profit must be taken out of the equation, most obviously in health. Five years too late, the Government acknowledged this with the abandonment of the universal health insurance policy. The Economic and Social Research Institute, ESRI, hardly a radical think tank of the left, confirmed what some Members on this side of the House had been saying for five years, namely, that involving private health insurance companies and claiming one could deliver universal health using private insurance companies would not work because one was not factoring in their drive for profit. One could add to that all the other unnecessary costs that go with private for-profit companies in this area. I would love to know how much they waste on advertising. I do not have the figures to hand but it would be nice to find out because one hears and sees their advertisements every day on television, on billboards and on the radio advertising private health or car insurance. How much money is wasted on that totally needless expenditure? All this stuff like branding, public relations consultants, administration and billing is absolute waste and profiteering. That is why the ESRI finally concluded with regard to universal health insurance, and the Government finally was obliged to admit five years too late, that the universal health model was going to cost €600 million to €2 billion more than currently is being spent on health and the Government was obliged to abandon it.
However, the Minister of State should take the next step and recognise that the involvement of the private health insurance industry in health care at all is a disaster. It is not just that we need to abandon universal health insurance; we need to get the private health insurance industry out of health, full stop. All it is doing is leaching money out at the expense of people who are forced into private health insurance because of fear of what is happening in the public system.
This relates to the debate we had earlier. I have here a very interesting paper, called "Creating Two Levels of Healthcare," which I invite the Minister of State to read. It was produced by Claire Finn and Niamh Hardiman at the Geary Institute in UCD. There are a couple of interesting passages in it. They explain the relationship, if one likes, between the private system - private health in general and private health insurance - and the mess in the public system. They state:
... the quality of the public sector is kept at a level that induces those who are better off to leave the public sector and seek private treatment ... Waiting time induces patients with high waiting costs to choose private treatment...
In other words, no one would take out private health insurance if there were no waiting lists. The private health insurance industry would not exist and people would not have to pay out €2,000 or €3,000 a year - and those costs are rising all the time - were it not for the waiting lists. Why would one possibly do it? It is only because there are waiting lists and accident and emergency units are a mess, meaning people are frightened to go into them. That is the only reason one would possibly take out private health insurance. The viability of private health insurance depends on the existence of a crisis in the public health system. The private insurance companies need it. Without it, no one would go to them. Therefore, they leach money out of the system. Billions of euro are spent.
I will finish now. When the Minister and the Government spoke before Christmas about how we spend more than everyone else in Europe on health, what was not unravelled was how much of it is in private health insurance and charges. In fact, it is about 25% or 30% of overall expenditure. This is second only, probably, to the United States, where approximately 40% of health expenditure is on billing, profit taking, advertising and administration and is not going to the front line. What do we need? We need to get rid of private health insurance in the public health system and we need a State insurance firm that is driven not by profit but by the aim of having reasonable insurance costs and that is not profiteering at the expense of ordinary citizens.
I am glad to have the opportunity to speak on this very important issue. As this is my first time to address the Thirty-second Dáil, I would like to take a moment to thank my constituents for their support in the recent general election. I am extremely proud to have the opportunity to continue to represent the people of Dublin Fingal in this House.
As was mentioned by the Minister for Finance, Deputy Noonan, the Department of Finance is currently conducting a review of policy in the insurance sector. I welcome this review. It is absolutely necessary and urgent. As was noted by the Minister, Ireland's insurance industry has managed to come through the financial downturn intact and is still providing Irish jobs and contributing to our economy in a significant way. Yet it has faced many challenges over the past five years which cannot be ignored. We need only to look at the CSO figures to know that insurance costs have been rising steadily in Ireland for the past five years. Since 2011 there has been a 29.6% rise in insurance prices. Motor insurance, in particular, is an area of concern. Motor insurance prices have risen 33.5% since 2011. In the past 12 months, there has been a 26% rise. This rate of increase is not sustainable for consumers, businesses or insurance providers. These increases are killing struggling households.
The National Competitiveness Council has highlighted the need to address this issue so as to avoid stagnation in the insurance market and, therefore, less competition. Its research has found the Irish non-life insurance market to be relatively competitive, but the market remains unattractive for new entrants due to low levels of profitability. Both the National Competitiveness Council and Insurance Ireland have identified solutions to many of the problems faced by the industry here.
I would like to take few moments to bring to the Minister's attention just a few key issues which have to be addressed. There is a deficit of data surrounding insurance claims in Ireland. A lack of publicly available information has made it more difficult for the industry and ourselves to assess the factors driving up insurance costs. There is a need to comprehensively benchmark insurance costs and the drivers of costs in Ireland. This cannot be done until the causes of rising insurance costs are properly identified. Data needs to be collected from the industry. With regard to claims, more in-depth information would facilitate a better understanding of the problem. The National Competitiveness Council has recommended that this could be addressed by simply collecting data on claims assessed by the PIAB and claims settled through litigation. We are never going to find a long-term solution to these spiralling insurance costs if we do not collect the necessary information about their cause. The PIAB needs to be empowered to conduct this data collection.
Any new legislation on this matter needs also to address the challenges faced by the PIAB. One such challenge is the non-attendance of claimants at PIAB medical examinations. Just last week, Kevin Thompson of Insurance Ireland pointed to the right of claimants not to attend PIAB medical examinations as a serious stumbling block in the effectiveness of that body. If the board cannot mandate that those seeking insurance claims must do something as simple as attending a medical examination for assessment of their injuries, how can it be expected to be effective in its assessments of insurance going forward?
Another issue that must be addressed in light of rising insurance premiums is the simple yet crucial step of enforcing health and safety legislation. One example is the crucial area of motor insurance claims. As I mentioned previously, motor insurance prices have risen by 33.5% since 2011. We need to ensure that An Garda Síochána and the Road Safety Authority are fully equipped and supported to maintain an adequate level of enforcement of road safety laws. I am sure we are all aware of Garda figures released last week which show a drop in the number of drink-driving tests administered by gardaí. This, coupled with falling numbers of gardaí serving in the traffic corps, from 1,200 in 2009 down to 750 in 2015, is an issue that needs to be addressed and has become a point of concern for the Road Safety Authority. I am sure we all agree that prevention is better than cure, and the fewer road traffic incidents there are on Irish roads, naturally, the fewer insurance claims we will have to deal with.
The final concern I will raise on this issue is that of rising legal services costs associated with the insurance industry. The cost of legal services has been cited by the insurance industry as a contributing factor in the rise of insurance prices. While the Legal Services Regulation Act 2015 goes some way towards addressing the problem, work still needs to be done with regard to the cost of legal services, such as improving case management in the courts. A key contributor to this is the fact that almost all claimants through the PIAB are represented by solicitors. This is rather surprising, given that the board was established in the first place to reduce the need for legal representation for claimants, which was in part, at the time, an attempt to reduce legal costs in insurance claims. These costs associated with legal services in the insurance industry are resulting in a need for higher awards and, by extension, higher insurance premiums.
It is my hope that the concerns raised by all Members of the House who have spoken on this issue today are dealt with head-on by the Minister and his Department, and I welcome the ongoing policy review being conducted by the Department of Finance. However, this must be brought to a speedy conclusion and any recommendations implemented quickly. All of this will be driven by the need to have a Government. I therefore urge a speedy conclusion to that process so that the new Minister, whoever he or she may be, can begin to deal with the issues addressed in this House this week and last.
I welcome the opportunity to contribute to this debate. The last speaker finished his contribution by speaking on the need for a Government. Deputy Mattie McGrath, in an earlier contribution, bemoaned the vacuum caused by the absence of a Government and noted the need for certain Deputies in the House to show leadership.
I could not agree more with Deputy Mattie McGrath. He and his Independent colleagues have had an opportunity to show that leadership many times over the past seven weeks. In fact, on three occasions he had the opportunity to show that leadership and baulked at each one. The people are becoming frustrated, anxious and concerned about the slow progress that is being made.
It is not good enough to come to the House to make statements. This morning we had statements on the health service. While I did not contribute to the debate, I do not imagine many positive contributions on the state of the current health service were made. We are making further contributions on another issue that is causing major worry and anxiety to the people we are fortunate enough to have been elected to represent.
The outgoing Government turned a blind eye to the insurance industry over recent years, which is alarming. Today, The Irish Timespublished an article on the lack of Government action on the pressure on premiums caused by the €90 million collapse of the Setanta insurance business two years ago. It referred to the lack of action by the Government on the issue over recent years. Given that the Government has not prioritised the issue, it is little wonder that the percentage increase in motor insurance has been 50% since 2011.
Many young people are trying to start off in life. They buy cars and want to go to work, but the biggest impediment if they do get a job is how they will be able to afford to run their cars. I bought my first car in the late 1990s or early 2000s. The cost of insuring it was £3,000, while the car cost £2,900. Back then, the Government established the Motor Insurance Advisory Board. As a consequence, there was a genuine reduction in the cost of insurance in subsequent years. There is no point in people making statements in the House if nobody will listen.
There is an urgent need to re-establish the Motor Insurance Advisory Board. We need to examine how such a board will work. We also need to ensure we have full transparency and that exaggerated claims are tackled. Previous Governments did a lot of work on preventative methods, such as the introduction of penalty points, random breath testing and rigorous enforcement of road safety by An Garda Síochána. Unfortunately, in recent years gardaí have not been able to maintain their previous presence on the roads. We need to ensure such preventative measures are reintroduced. I appeal to the Minister of State to reconstitute the advisory board immediately with a view to review reducing the cost of premiums for hard-pressed people.
Another area on which I want to focus is flood insurance cover. I met the Minister of State in Athlone. He saw at first hand there and in many other areas the devastating impact of flooding during last winter. Flooding is a major issue, but the major concern is how people will repair and restore their homes when the floods recede. Major flooding originally occurred in 2009, and since then hundreds of families in Athlone - I am being parochial in regard to Athlone - were not able to avail of house insurance.
The one fortunate thing about the configuration of the current Dáil is that the Government will have to start listening to the Opposition and taking its proposals on board. Earlier this year, we published the Flood Insurance Bill, following extensive consultation with the Irish National Flood Forum, because we wanted to tackle the key aspects of this issue. In essence, the Bill provides that where the OPW has completed a flood relief scheme to the required European standard or where the flooding risk has been deemed to be extremely low by the OPW, an insurance company must offer flood insurance at a price that can be reasonably justified by the current risk profile associated with the property. The Bill sets out the respective roles of the Financial Services Ombudsman and the Central Bank to ensure that the purposes of the Bill are implemented.
Just because an Opposition party proposes something does not necessarily make it a bad proposal.
The Government did not adopt it. The Government did not facilitate a debate. One only has an opportunity to bring forward Private Members' motions once every three weeks. When there is an emergency, such as the recent flooding, it behoves the Government which, on previous occasions, set a timetable for what was and was not debated, to act.
The Minister of State said we did not debate the Bill. He is correct. The Government did not afford us the necessary time to debate it. It is unfortunate that was the case.
I hope the current discussions and negotiations come to a fruitful conclusion in the very near future. For the first time there will be a real opportunity for people on both sides of the House, rather than identify everything that is wrong in a particular area, to bring forward solutions in order that issues can be addressed. In that spirit, I hope the solutions that have been brought forward regarding flood insurance cover and how we can reduce motor insurance premiums mean that in the not too distant future we can reduce premiums for the hard-pressed constituents we are here to represent.
The pooling of everyday risk at a price that can be afforded by individuals and businesses is a practice that has been going on for over three centuries, and without this system of risk sharing, businesses and, indeed, economies could not function and individuals would not have the capacity to go about their normal everyday lives. Insurance has to be affordable, and for it to be affordable there has to be a relationship between what we are willing to pay in compensation for injuries caused and the cost of underwriting that risk.
Any cursory look at the newspapers demonstrates that this relationship has broken down. Injured parties must be compensated, but some recent awards suggest that in the assessment of damages, the need to have regard to proportionality is not always observed. The issue of proportionality in awards was addressed in the Court of Appeal by Ms Justice Irvine last week. In a judgment she concluded that damages can only be fair and just if they are proportionate, not only to the injury sustained by the plaintiff but also proportionate when assessed against the level of the damages commonly awarded to other plaintiffs who have sustained injuries which are of a significantly greater or lesser magnitude.
She said it was important that minor injuries attract modest damages, that middling injuries attract moderate damages and that more severe injuries attract damages of a level which are distinguishable in terms of the quantum from those that fall into the other lesser categories. This is a significant judgment in that it restates the principle that should govern the assessment of damages and, in fact, a number of personal injury awards by the High Court have been halved by the Court of Appeal, although not without some considerable cost to the defendants fighting the case.
In a judgment just last week, Mr. Justice Max Barrett referred to the flourishing cost of High Court litigation, which he said highlighted the need for a systemic solution. Clearly, we need lawyers to have access to a legal system but if the fees charged put recourse to justice beyond the reach of all but the very wealthy, which is what the judge has concluded, then surely it is high time we addressed the issue as a matter of urgency.
According to the insurance industry, fewer than 8% of policyholders make claims and, in most cases, those claims are entirely legitimate. We must make sure, through our regulatory system, that all such things are settled speedily and fairly, but it is also clear that, for some, claiming on insurance policies is a way of life. Let us be clear. It is the consumer who pays these costs through increased premiums. It is time we had a compensation system that deals fairly with the claims of the majority of decent, honest policyholders and is paid for out of the reserves that are set aside by the insurance industry. The idea that decent, honest policyholders should be asked to foot the bill for fraudulent claimants is a perversion of the original idea of insurance. It is our job, as legislators, to ensure this state of affairs is ended.
I am grateful for the opportunity to speak on this hugely important subject. The rising cost of insurance has affected every member of our society, both directly and indirectly. The rising costs reflect a combination of Government-imposed costs, poor regulation, mismanagement by the insurance sector and legislative failure. This applies right across the board to motor insurance, health insurance, public liability insurance and flood insurance.
Many people do not have a choice in regard to running a car because it is an absolute necessity. Regardless of whether it is a choice, everyone who runs a car is hit first with the cost of car insurance before they face into car tax, NCT costs or the ever-fluctuating and heavily taxed price of fuel. The rising cost of motor insurance is a major frustration and one of the biggest consumer issues facing motorists at the moment. Consumer bodies have reported an increase of close to 40% on average over the past 18 months and, for many individual drivers, the increases are even worse.
Information gathered from a number of sources would suggest there are several contributing factors. Figures from Insurance Ireland indicate motor claims costs are rising and the level of awards being made in the courts is at an all-time high. The average High Court award in 2014 was up 34% on 2013 and the average Circuit Court award was up 14% on 2013. In litigated cases, legal costs in Ireland account for more than 60% of the compensation awarded. A task force is certainly required to address the issues. Insurance companies, the courts, the Injuries Board, the Central Bank, the Government and the Garda Síochána must act together. Systems must be put in place in order that compensation is set at levels society can afford.
The Small Firms Association said insurance costs have increased by 29.6% since 2011, with the last year being particularly difficult. I know there are many small businesses in south Kildare that have managed to weather the storm of the recession and should now be in a position to expand and grow. However, they are being hit with insurance costs which have risen 29% since 2011.
Poor regulation and the collapse of Quinn Insurance and, subsequently, Setanta have left a legacy for the insurance industry. It will become impossible to do business in Ireland, both from a domestic and foreign direct investment perspective. Urgent action from Government is required to halt this trend which could have severe consequences for small businesses throughout Ireland. I agree with the SFA in calling for responsibility to address this issue to rest with a single Minister who can co-ordinate the actions needed by different Departments and the Central Bank. This must be prioritised by the new Government.
A particular challenge I want to refer to is the impact on the community sector. Throughout Ireland we have wonderful community groups which organise festivals and cultural and sporting events for the benefit of their communities. They are stymied completely by the rising insurance costs we have seen year on year. Again, this is an area which must be prioritised by the incoming Government.
I want to place on record the difficulties being experienced by the SME sector in regard to insurance cover. In the transport industry, some companies had their insurance increased by 100% last year and they face a similar increase this year despite having no-claims bonuses and having regular staff in place. There is no reason for this but the costs continue to go up. In some cases, courier companies cannot get cover, for some reason or another.
Whatever happens in the insurance industry, it has to be Government-led, it has to be regulated and we have to legislate for this. Every single cost that is put onto a small business, particularly in transport, goes right down the line to the consumer. That has to stop and the only way it can stop is to ensure that insurance companies do not get away with hiking the premiums in different sectors, particularly transport, which provides huge service to the country, employs a huge number of people and serves both individuals and businesses, which means everybody is affected by this.
My second point is in regard to those who cannot get insurance. I am glad the Minister of State, Deputy Harris, is present to hear this. Many people living by rivers in flooded areas cannot get insurance. As a substitute for that, we have the Red Cross scheme and funding through the Department of Social Protection. At Brett's Mills in Kilkenny, three business were affected and all three have closed. This is a family-run business that has been there for generations but it cannot get sufficient money from the Red Cross to go back into business. It is not being heard. The family is faced with a bureaucratic nightmare in terms of dealing with the businesses concerned. I hope the Minister of State and his officials will take the message back that something needs to be done.
On the same site on the Sion Road at Brett's Mills, a house was severely damaged by flooding. In the same way, the family used the compensation scheme because they had no insurance but they are now being told that, because their father owns the house, the contents cannot be covered and the family cannot be helped. However, it is a family home and it is in their name. There is no reason the Department of Social Protection should turn them down.
I ask the Minister of State and his officials to try to deal with these issues. I appeal to him also in regard to health insurance and public liability insurance. This all comes down on the self-employed, who cannot respond any more because they cannot cut that cost to their business. Where are they to turn but to the Government? Despite this, the Government has ignored them over the past five years. Similar issues have arisen in the UK but they have been dealt with by government. We have to be brave enough to take on the industry and to put in place the appropriate regulation that will ensure there is insurance for the SME sector and that it is not over-burdened by the substantial cost that is weighing it down.
I am grateful for the opportunity to speak on this issue. Everybody I talk to, whether they have a motorbike or a lorry, be it a farmer or an SME owner, tells me that, in all walks of life, the hikes in insurance are unbelievable at the moment. Today I spoke to a person employing 14 people in a business that has 11 trucks. Its insurance last year was €80,000 but the bill it has received for this year is for €125,000, which has to be paid within two weeks, and there is public and employers' liability to be paid on top of that. This concerns the haulage business, which provides jobs in places where there may not otherwise be jobs.
Today, it was checked out and in Bulgaria for the same 11 trucks the cost is €1,200 each. That is the reality of what is happening. There is no problem with it. At this minute Irish hauliers can move to Bulgaria because there are no major restrictions. They can go there and set up. We are going to lose those jobs. This is the reality, especially with trucks going to the Continent with fridges with meat and so on. That is what we are facing at the moment.
Last year in the budget the Government brought down the tax on the wagons with a large saving and I welcomed that. However, those in the industry are now being crucified by double that amount because of what the insurance companies are doing. I know the haulage industry. In the coming months we will see a vast number of people with lorries exiting this country because the insurance costs have gone out of control. We are all on about trying to create jobs but we have to keep the jobs we have at the moment as well. Whatever needs to be done, whether through legislation or whatever, this has to be reined in.
It is nearly impossible for youngsters trying to get insurance. I have said this before. The companies may be concerned about young people crashing or whatever. I cannot understand why we cannot put a speed restrictor in the vehicle to try to help them.
I agree with everyone who has spoken thus far about awards. We cannot keep paying out €5 million, €6 million or €8 million in awards. Whatever we have to do, we should do. Insurance companies seem to take the view that they will fix the car for their customer and then ask how the customer is feeling and offer €10,000. That is the reality. They will not fight cases. I have seen it myself because I am in business. If I ask insurance companies to fight a case, they will not fight it, although I might believe I could win it. If we do not address this we are going to lose left, right and centre. This applies to small businesses and people subjected to flooding. Deputy McGuinness spoke about them. Some people are being refused insurance at the moment. I have spoken to farmers and they say insurance costs have gone up considerably.
We could go through the entire insurance industry but I am not going to do it now. I am pleased that I got a few minutes to speak and I thank you for the opportunity, a Cheann Comhairle. We could talk about it all day in the House but the reality is that today companies are facing costs of €125,000 plus a further €25,000 for public and employers' liability. I have outlined the case of one company. If that company goes to Bulgaria, the cost is €1,200. That shows the difference. No one can stick that or put up with it.
I am pleased to be in the House. It is a great honour to be a Member of the Thirty-second Dáil and to have heard the contributions of many new and returning Members on all sides of the House. I hope this Dáil lasts for some period of time. It is a surreal experience to see everyone talking as though everything is normal when we are in a situation that is anything but normal. I share the views expressed during the debate by Deputies on all sides of the House to the effect that this period of political impasse can end in order that we can get on with tackling the many issues Deputies have raised about this important sector, the insurance industry and cost of the insurance industry. I wish you all the very best in your role as well, a Cheann Comhairle.
The insurance sector makes a vital contribution to the economy through employment, attracting global capital and, most important, through serving the needs of our consumers. Insurers play a key role in providing the stable long-term investment needed to drive sustainable economic growth. I look forward to seeing this sector continuing to grow and provide more employment. We are working closely with the sector through the IFS 2020 strategy in terms of attracting more foreign direct investment in this sector to our country, especially into regions throughout the country.
The discussion today has been about the cost and availability of insurance for people and businesses. The cost of insurance affects businesses in terms of their ability to price competitively, employ more people and innovate. Community and voluntary groups are affected in their ability to provide services and events that enhance community life. Motorists, householders and families are affected by the cost of motoring. The issue of flood insurance, an issue I am familiar with, has come to the fore again in 2015 and I will comment on that in a moment.
The Minister for Finance pointed out in his opening statement that the Department of Finance is close to completing its work on the review of the motor insurance compensation. It is carrying out this review jointly with the Department of Transport, Tourism and Sport. It should be remembered that this is a complex issue in respect of which it is important that any changes made do not result in unintended consequences for policyholders, the Exchequer or the industry. Taking this into account, the review, which started in January of this year, is being completed as quickly as possible, but it is also being done in a thorough manner. When it is completed in the coming weeks, the Department will continue its work in respect of the overall review of policy in the insurance sector. The cost of insurance will be an issue of particular focus. I believe we all agree that it is important for this review to have a successful outcome. In other words, we wish to see the cost of insurance reducing as a result. That is a shared objective of all Members. However, this is not straightforward. Insurance premiums cannot be directly influenced and the Government cannot interfere in how insurance companies price their insurance products. Moreover, insurance premiums have a renewal cycle, so whatever improvements can be generated will only be seen by individuals over time.
The Solvency II directive came into effect on 1 January 2016. It represents a substantial overhaul of the risk evaluations in European insurance regulation. It sets out new stronger EU-wide requirements on capital adequacy and risk management for insurers with the key aim of increasing policyholder protection, something that is important to achieve. It is expected that this new regime should reduce the possibility of consumer loss or market disruption in insurance. Solvency rules have a consistent application across the European Union.
I wish to focus on the issue of flood insurance because it is an issue that has particular relevance to me in my current role as Minister of State with responsibility for the Office of Public Works. The State is going to invest €430 million in putting in place capital flood defences in the coming five years. This means the country is going to spend more on flood relief projects in the coming five years than we have spent in the past 20 years. If taxpayers are to do that and fork out significant funds to put in place robust flood defences, clearly it is not acceptable that at the end of that process there are still people in towns and villages in Ireland who cannot access flood insurance. If we accept that as the starting point, the question is how we tackle the issues.
The Taoiseach had the chief executives of a number of insurance companies in and we had a good robust discussion with them. The Department of Finance is carrying out a review of best international practice and what other countries do. The relevant group is due to report to the Government in June and whoever is in government in June will have policy options.
People have spoken about the United Kingdom flood relief system. I am very interested in looking at it, but that system has only been in place for 16 days. It came into effect on 4 April this year in the United Kingdom. Let us see how that beds down. It does not include small businesses; it only includes householders. We have an open mind. I heard Deputy Troy refer to the Fianna Fáil Bill. No side of the House has a monopoly of wisdom on this. We have an open mind but we must ensure we do not have unintended consequences. We have no wish to put up the cost of insurance for a large number of insurance holders to ensure a small number can get it. We have to get this balance right and that will be the challenge.
Deputy McGuinness raised several cases. If he wishes to pass on those details, I will bring them to the attention of the relevant Ministers.
We have a great deal to do. On the issue of insurance as a whole, the Minister mentioned the lack of insurance data and statistics. This is an important point. The lack of data presents difficulties from a policy analysis and development perspective. It is important that data are gathered in a comprehensive format and presented in a standard format. As mentioned earlier, the Government is supportive of the industry trying to make progress on this point. We are speaking in terms of specific measures, targets and results. This means that whatever recommendations arise from the various reviews in the Department of Finance, we are going to need a whole-of-government approach and the collective wisdom of this House. Once we get beyond this political impasse I believe we can take many of the ideas that were garnered here this afternoon and make progress on them in the coming months.