Terry Leyden (Fianna Fail)

I welcome the Minister of State at the Department of Enterprise, Trade and Employment, Deputy Michael Ahern, and his officials. I wish also to place on record my appreciation that the Leader of the House, Senator O'Rourke, has provided time for this important debate so soon after the publication of the report. It is an indication of how seriously this House views the issue of insurance. The Minister and his colleague, the Tánaiste and Minister for Enterprise, Trade and Employment, Deputy Harney, have given this issue governmental priority and the Government's Cabinet sub-committee has dealt with it. We have made great progress in a very short time. I wish to place on record also my appreciation of the work of the Joint Committee on Enterprise and Small Business, of which I am a member. Last year this committee prioritised the issue of insurance and interviewed every sector of the industry. That committee is chaired by Senator Donie Cassidy who has been very active in this regard. I compliment him, Senators Coghlan, Hanafin, Ross and all the other members of the committee.

The report we published last year dealt with insurance brokers, which is the subject of this more detailed report. The joint committee recommended that there should be no production quotas established by an insurance company that might inhibit or prevent brokers from giving independent advice to their clients; that a scheme for licensed brokers should be established by the Irish Financial Services Regulatory Authority that would permit any broker to deal on behalf of clients with any insurance company without any restriction; and that insurance companies should not discriminate against competing brokers in making available renewal information. The joint committee also heard views expressed that brokers should operate on a fee basis rather than for commission. With commissions brokers apparently have a vested interest in higher premiums. The joint committee recommended that the Irish Financial Services Regulatory Authority should give consideration to the issue of whether brokers should operate only on a fee basis alone.

Before I say anything further, I am aware that we must declare vested interests in this regard. I am not sure whether the fact that my brother, Patrick Leyden, is a broker in New York means I have a vested interest because I do not have any business connection with him. He works with a company called Tick & Company in New York. From what he has told me about his business over the years, it is providing an excellent service for its clients. He goes into the city and fights to get the best possible deal for his clients. I therefore have much respect for brokers and the work they do. Nothing in this report should take from their work. We need to take account of what they have provided over the years. When insurance costs were low, brokers' fees were low. This is where the issue of brokers' fees arises. It must be borne in mind that the Professional Insurance Brokers Association has 700 members and the Irish Brokers Association has 600 members. They, in turn, employ a number of people. Insurance brokers are very important employers and we must bear that in mind.

The Competition Authority's preliminary findings on competition in the insurance industry were launched jointly by the authority and the Department of Enterprise, Trade and Employment in autumn 2002 and focus on motor, employers' liability and public liability insurance. The findings focus on barriers to entry and rivalry in the insurance market and have identified some specific issues that give rise to competition concerns. I am pleased to have this opportunity to speak to the House about this as I have been involved in promoting competition throughout Irish industry during discussions facilitated by the Joint Committee on Enterprise and Small Business. I agree with the findings of this report. I do not believe any Member of the House can argue against exploiting the potential for more competition in any industry or sharing relevant information among insurance companies.

The report is extremely well researched and deserves to be studied in detail and implemented. However, I have difficulties with many aspects of the report. The broker has emerged as a scapegoat for large insurance companies reeling in massive profits from sizeable clients. If the economies of scale with respect to insurance companies are examined it is easy to see that a broker who has a client spending €100,000 on insurance and is charging 5% commission, is coming out with substantially more in his pocket than the small-sized firm operating for a client spending smaller sums of money. It should be noted that brokers operate throughout the country and offer a decentralised service. They provide employment in rural towns and many would not have the client base available to larger brokers, so it is not a comparison of like with like. The Competition Authority's criticisms of how competition works at the broker end of the market bear little resemblance to brokers' day-to-day business. I further believe that this report may be more representative of the top business people in the country. This is because bigger businesses have seen their motor, employers' liability and public liability insurance premiums go through the roof. However, the broker is regarded as the handy whipping boy.

I heard a spokesman for the brokers speak on Pat Kenny's radio programme. It is easy to use them as the scapegoats for the increases in insurance. They are not responsible for the increases. They operate on a fee-based system like architects, engineers and many other professions, including lawyers. There are currently only one or two insurance companies which will even consider taking employers' liability and public liability clients and this explains the high premiums in these sectors. If there is no competition, then the solution must surely be to increase the number of companies in the market to drive the costs down. Progress is being made in that regard with the establishment of the PIAB. I have great confidence in Ms Dorothea Dowling and her team.

I recommend that instead of this heavy handed approach toward brokers, which may in turn lead to job losses, we as legislators concentrate on promoting an increase in the supply of insurance agencies thereby increasing competition. If insurance costs are reduced, then the brokerage costs will reduce. The current situation seems to be that insurers are cherry-picking the small businesses. However, it would then be realistic for a client to expect a quote for all insurance but this is not the case even though competition between insurers is practically non-existent.

The authority's report found there was little competition and a lack of transparency among brokers' commissions and noted the potential conflict between their obligations to provide best advice to clients and incentives from insurers to steer a minimum volume of business in their direction. I believe this is an unfounded statement. In my experience brokers do their utmost to achieve the best possible quote for their clients. There are so few companies in the industry that it is at times very difficult for brokers to get that type of quotation. Like any individual offering a service, brokers must look after the best interests of their clients or they will find that consumers simply do not return. The broker is available to negotiate cover for his or her client. When the client runs into difficulties with claims, be it a motor or a public liability claim, the insurance broker is also there for the client to help minimise their difficulties.

The majority of brokers look after clients very well and the majority of brokers are not in the big league. In my experience, most small brokers would refund some of the commission charged for a big account to the client. This is an admirable practice. As payment for sourcing the best motor insurance for a client, a broker might receive a 5% commission or €25 for a premium of €500, which is not exactly huge profit for the work involved. Most clients actually only pay €5,000 to €6,000 annually in insurance premiums and it must be understood that brokers have to make a living through commissions. There should be a sliding scale and percentages should be capped at a certain level. I cannot stress enough that it is the large insurance agencies which have brought up the average commission earned by brokers and, therefore, I feel this report may not be as representative as may be desired. There are 1,300 brokers' companies in the country and not all are large companies.

I admit that regulation of the non-life insurance market is not as stringent as it is for life assurance brokers but I welcome the Irish Financial Services Regulatory Authority's plans to converge the rules as this will put brokers on a level playing field with banks and insurers' direct sales forces. I further welcome the period of public consultation which is planned before the report is completed as I feel this will shed new light on some aspects of the insurance industry which were perhaps overlooked in the preliminary document. I have no doubt that the brokers' representatives will put their case on behalf of their clients. As in any other industry, transparency must be encouraged and the revelations in the Competition Authority's report will hopefully serve to shame the substantial insurance companies into reducing their commissions and, therefore, their premiums.

With respect to smaller insurance businesses, it is important to remember that fixed overheads vary only slightly depending on the size of the corporation. Not only are large firms paying relatively the same fixed costs as smaller firms, but they are charging higher premiums as their clients are bigger and their accounts larger. The economies of scale come into play here once again. Larger companies are benefiting by being bigger while smaller organisations are tarred with the same brush in reports such as the one presented today.

It is our duty to protect small businesses and therefore I cannot commend this report as much as other Members of the House. Aspects of it are to be welcomed but I cannot commend the approach in some areas. I have spoken to representatives of small companies. In Roscommon town one brokerage company employs three people plus the broker and the cost of new technology must be met from the commission charged. This report gives the impression that brokers are reeling in the money. That is the case in some instances and there is no doubt that the increase in premiums caused increases in fees as highlighted in the report. In my view a new relationship between brokers and clients will come about as a result of this report. Progress is being made in this regard. The subject has been examined in great detail, in this report and by the establishment of the PIAB and the report of the Joint Committee on Enterprise and Small Business. Action has also been taken through legislation and further legislation is required and promised.

I urge the Department of Enterprise, Trade and Employment and the Department of Justice, Equality and Law Reform to bring forward the necessary legislation which will make it more difficult for those who make fraudulent claims. The revelations in the "Prime Time" programme showed how fraud was being perpetrated on the public. There is a new realisation that costs are coming down for the first time in many years. The combined effort of the Competition Authority, the Minister of State and his colleague, the Tánaiste, the Cabinet sub-committee and the Joint Committee on Enterprise and Small Business will bring about a new cost benefit for consumers. I compliment all concerned with this excellent report commissioned by the Department of Enterprise, Trade and Employment and the Competition Authority. I commend the report to the House subject to the submissions made by the brokerage companies, which should receive a good hearing.