Paul Coghlan (Fine Gael)

To quote Senator Ross's words to me as we entered the Chamber, "Once a sinner, always a sinner." I am pleased today to have the opportunity to comment on the recent preliminary report and consultation document on non-life insurance published by the Competition Authority. The study began in autumn of 2002 and draws on the Competition Authority's research and that of various expert groups.

Given the steady increase in insurance premiums in recent years and the widespread dissatisfaction with the insurance industry, the report is long overdue. The Competition Authority appears to lack the spontaneity required to deal with this issue. Instead of tackling an ever-growing problem actively and with a sense of urgency, it appears to be satisfied with drawing up a basic report over a period of two years. That is simply not enough. A consumer-based approach, rather than an academic study, is desperately needed to solve the problem.

The report outlines the Competition Authority's investigations into the competitiveness of the insurance industry, with particular reference to motor insurance, employers' liability insurance and public liability insurance. The Competition Authority has invited submissions from all interested parties to provide further input into the issues raised in this report. It will then issue a final document outlining its recommendations and suggestions for future legislation or changes in the insurance industry to encourage competitiveness.

I will briefly elaborate on the main concerns regarding insurance brokers and suppliers mentioned in the report. As regards insurance brokers, the Competition Authority's report touches on a number of issues which need to be addressed. It states that the manner in which insurance brokers operate lacks a certain transparency, which affects the consumer in a number of ways.

Insurance brokers generally charge a fee based on commission or an ad valorem fee. This is typically 5% of what the buyer pays out on insurance. If the insurance broker achieves a lower insurance quote for the buyer, his or her commission is instantly reduced. The Competition Authority raises the concern that this reduces the incentive of the broker to shop around for the lowest price for the buyer.

The report also states that in many cases brokers come to an agreement with some insurance suppliers. The insurer may offer an incentive of extra commission to the broker if he or she provides the supplier's company with a certain level of business. This can lead to a lack of competitiveness on two levels, with consumers losing out because the broker does not provide them with the best advice possible, and other insurance suppliers missing out on extra business because they are not given a chance to quote a more competitive price.

Another issue raised in the report concerns the difficulties consumers experience in switching brokers. Many consumers have reported instances of their first broker essentially blocking them from switching policy. This happens when a broker approaches insurance suppliers before the renewal date arrives and asks for a new quote for the buyer's insurance requirements.

When the buyer asks a new broker to shop around for a better quote, the suppliers refuse to consider the case a second time. Insurance suppliers say this is because of the amount it costs to take a second look at a policy and also because the company very often does not want to risk damaging its relationship with the original broker.

The Competition Authority suggests that a greater level of transparency should be adopted in relation to the regulation of insurance brokers to ensure competitiveness in the industry. However, the report focuses far too much on the inadequacies of insurance brokers. It is almost as if the authority believes that the large suppliers of insurance have nothing to do with the way the middle men operate and the way customers are exploited in the market.

The real problem in the insurance industry is the limited number of insurance suppliers. The report does not fully explore the possibility of cartels and the general domination of the Irish market by a limited number of suppliers. In regard to insurance companies, the Competition Authority's concerns are largely focused on three main areas.

First, the report highlights the issue of data-sharing and publication. At present, insurance companies share information mainly based on loss statistics, that is, the amounts paid out in insurance claims and the characteristics of the claimants. This information is available only to existing insurers. Those wishing to enter the market are not allowed access to any of these statistics, which makes it difficult for a new supplier to calculate premiums. IFSRA has already agreed to compile detailed statistics pertaining to the motor insurance industry and the report suggests that this type of information is gathered in relation to public liability and employers' liability insurance. The Competition Authority also suggests disaggregating statutory annual returns so that detailed figures are made available to suppliers and not just an overall view of the industry.

Second, the report voices concerns about the practice of the declined cases agreement. The report states that the declined cases agreement basically provides that all licensed drivers should be able to purchase insurance despite the fact that they might be a high risk to insurance companies. The agreement states that if three suppliers have refused a person insurance, the fourth company they approach must give them a quote. The Competition Authority raises the point that this agreement might serve as a barrier to entry as new companies might be dissuaded by the fact that they would have to adopt this rule in a niche where they may have little or no expertise.

The report also disagrees with the fact that a board of existing insurers is given the responsibility of overseeing the implementation of this agreement. The Insurance Ombudsman and a member of the Consumers Association of Ireland are present on the board, but the Competition Authority maintains that this does not make the board an independent body and that perhaps the declined cases agreement should be put out to tender.

The third issue raised by the Competition Authority in the report has to do with solvency requirements. At present, solvency requirements are higher for new insurance suppliers than for those in existence for more than three years. The report states that this could be interpreted as a barrier to entry of new competition. However, as yet, they have not obtained any evidence that suggests higher solvency requirements are more than a hindrance to new companies.

The report also touches on a number of smaller issues, for example, the subject of renewal notices. At present, motor insurance legislation introduced in November 2002 requires the supplier to issue a renewal notice to the buyer at least 15 days in advance of the policy renewal date. The Competition Authority suggests that something similar be adopted in relation to liability insurance but with a longer lead-up time.

In general, the report is informative about the current inadequacies of the non-life insurance industry. However, as I already mentioned, the Competition Authority attributes far too much responsibility for the problems that exist to the insurance broker rather than tackling the big issue of insurance suppliers. Also, the report does not touch on the measures that could be taken at European level to tackle the difficulties that lie within the industry. Surely this issue could be dealt with on a Europe-wide basis by enforcing regulations that would prevent a small number of insurance suppliers dominating the insurance industry.

The report does not outline the Competition Authority's final recommendations. However, it gives us an insight into the issues that need to be addressed in the future. It appears that the MIAB has to some extent started to tackle the many problems that exist within the industry. However, it is important that the Government takes the Competition Authority's advice and final recommendations on board regarding the lack of transparency within the insurance industry. Moreover, it is imperative that something is actively done to try to make necessary, drastic changes, which will benefit the consumer. Insurance companies have been allowed to continue charging exorbitant prices for premiums without question until now. It is time for the Government to adopt regulations that force the insurance industry to give the consumer the necessary information required to make an educated choice.

The report demonstrates that insurance brokers and companies may have colluded in the past for their own benefit to the detriment of the consumer. The number of complaints from customers in the past number of years supports the findings of this report and the obvious need for change. People are not willing to continue paying higher rates of insurance than many other EU member states. The Government must tackle this issue head-on and without further procrastination.