Brendan Ryan (Labour)

The Senator should be worried. Everybody who applies the power of reason inevitably ends up on the left, because that is the only rational place to be.

The Senator was too gentle on the question of collusion. We all remember the change in mortgage interest rates when the Bank of Scotland arrived here. I do not believe the chief executives of the banks and building societies telephoned each other and decided not to reduce interest rates further. However, the level at which they competed was a comfortable one. Then a new agency arrived and defined a different comfort level and all the other rates dropped accordingly. I suspect that current mortgage interest rates are on average 0.5 or 0.75 of a percentage point lower than they were before the new entrant arrived.

It would be too easy if the problem were simply that people picked up the phone and agreed to fix prices. However, I suspect that in the deal that was done to rip off consumers during the period between the locking of currencies and the introduction of the euro, this was almost what happened between the banks. It took the intervention of the European Commission to sort out their dodgy practices. I do not think it is necessarily a question of collusion; it is to do with what is comfortable and when it becomes too uncomfortable. There is a tacit belief among long-term players in the market that a certain level is what will be tolerated, in the knowledge that their competitors are in the same business and will not rock the boat.

The current Minister for Agriculture and Food has a wonderful story, which I know is public knowledge, about his intervention in a cosy arrangement under which milk was sold in bulk to a big hospital in Cork. The Minister was the hungry young manager of a dairy which was outside the normal region which supplied Cork city. He put in a tender to supply milk in bulk in winter, when he was short of things to keep his people going. He ended up saving the hospital £40,000 per year. Whether there was a cartel involved is a matter of speculation; perhaps the arrangement had simply become too cosy.

Let us not imagine that because there is no formal collusion, the reduction in competition is anything other than inimical to the interests of consumers, particularly in poorly regulated areas of the market, in the sense that they are not regulated in a way that measures their efficiency in terms of information available to consumers. Even before the report of the Competition Authority, everybody knew that it is inimical to the interests of the consumers of any service if the return to the service provider is proportional to the amount of money it can extract from the consumer. If the service provider always earns 7% of what the consumer pays, it gets 7% of €50,000 if the consumer pays €50,000 and 7% of €100,000 if the consumer pays €100,000. Where is the incentive to minimise the cost to the consumer? There is none. The only way to protect consumers in such cases is to make the charges transparent in a way which is obvious to them before they take a step inside the door of the service provider's premises.

As Senator Ross correctly pointed out, inertia is a serious problem. How many of us will traipse around an area the size of Cork city, for example, looking for prices from various brokers if, once we get to the counter and explain our needs, all we obtain is a price? I do not accept that insurance is so complicated, particularly in the area of brokerage, that one cannot have scales of fees which are publicly available.

The expectations people have of the Competition Authority are enormous. The chairman is a person of considerable skill but unfortunately, he is an economist. The problem with economists is that they believe in economics. People who live in the real world do not. A large part of first and second year economics textbooks, including all the mathematics, is based on the assumption of perfect competition. All through the reports from the Competition Authority, a wistful wishing for perfect competition can be detected. If only we had more information, if only we had more market participants, if only we had lower entry costs — all the things that economists throw up as inhibitions — everything would be perfect.

In reality, there will never be perfect competition. It may exist in a couple of areas. I suspect that in the domestic heating oil business, in which there are 40 suppliers in Cork city alone, there is close to perfect competition. Although these businesses take prices from the major multinational corporations, in terms of their margins there is nearly perfect competition. There have been a couple of ups and downs — people have had problems with the quality of their oil which have sent them running back the oil company they dealt with. Nevertheless, in most areas of economic activity, perfect competition is an unattainable Holy Grail. The problem with the mathematical models of competition is that when one moves away from perfect competition one runs into all sorts of uncertainties. One does not move just a little bit away from the ideal — one runs into huge problems. That is what is happening here.

We can probably never aspire to having perfect competition in an area such as insurance. How can we have perfect competition in an area in which one must forecast liabilities that could stretch ten or 15 years into the future? One can use the famous law of large numbers, as the Competition Authority has done. I do not believe there are any laws in economics, only good ideas which are more or less useful in different areas. There is no law to which an immediate exception cannot be found.

As legislators, we have an important obligation to regulate to ensure that certain tendencies to make competition even less of an imposition on businesses are not followed through. Karl Marx suggested 150 years ago that big business had a tendency to move towards monopoly. In the USA, some of the toughest legislation in the world was introduced to attempt to prevent that happening. Left to their own devices, allegedly competitive large corporations will do the opposite of what the theory says. Instead of competing, they will collude. Adam Smith mentioned 200-odd years ago that when business people got together the first thing they talked about was not the competitive market but the possibility of fixing prices.

The idea of the perfect competitive market is an intellectual error. We must therefore consider a mixture of competition and regulation to protect consumers. It is astonishing that so far into an economic debate about insurance costs, we still seem to be reluctant to provide the essential market signal for consumers, an indication of how much they will be charged, in a way they can figure out. The provision of a plethora of market participants does not necessarily make the position of the consumer any easier. One can read the chart in today's Irish Examiner, for example, which attempts to inform consumers about the best telephone services. I am reasonably numerate and I consider myself reasonably intelligent, although there might be different views on that in the House, but I defy anybody to read that and figure out which is the best deal. One has to assume that all the deals are essentially working in the interests of consumers. However, if one is going to prevent consumers from finding out through the price mechanism what their choices are, one will not enable consumers to shop around.

Let us take the example of a married couple, both of whom go out to work at 7.30 a.m. and get home at 5.30 p.m., five days per week. If one is to imagine that they will have the time to overcome inertia and traipse from broker to broker seeking a quote for their house insurance, we are fooling ourselves and reverting to this innocent belief of the Competition Authority that everything will be fine with just a little more competition. There are things one cannot measure or quantify.

What purpose do insurance brokers serve? What do they do? Why is the consumer better off because they exist? Everybody says it is not fair to be too hard on them. Perhaps that is so. However, I have a simple view. When I see anything proliferating in any sector, for example, off-licences, I know it is because it has been identified as an area for making money. Nearly every corner shop in Ireland has a wine licence because people have developed a taste for wine and there is obviously a perception that there is money to be made. When I see insurance brokerages proliferating and people who have aspirations to be business people gravitating to the two areas of auctioneering and insurance brokerage, I do not need a Competition Authority to know there must be a perception that it is easier to make money in those sectors. Why are they not in the supermarket business? It is because they do not believe there is easy money to be made. These are the signals the market gives so we do not need the Competition Authority.

Other issues are raised in this interesting report. The more that is written about these matters, the more we understand them. However, that is all subordinate to the fact that if we wish to put the consumer first, he or she should have a simple way of working out what insurance will cost. If I go into Senator Quinn's supermarket, I know what every item will cost. He must sell thousands of separate items but I am entitled to know not only what the item will cost but what the unit cost of that item will be. How is it, therefore, that if I want to insure my house or my public liabilities, I cannot know, on any rational basis, what that will cost?

The other fascinating information in the report was the comparative information on other European countries, particularly with regard to motor insurance. Two matters caught my attention. There is a need for public education about one of them, the study on motor insurance across Europe. The variation in liabilities in different countries was intriguing. How many of us, when we take our cars to Europe, are aware of the variations in liability that arise in different European countries? We assume we have the same responsibilities and liabilities but according to this report we do not.

That is the reason one of the studies for the report discounted too much emphasis on comparative values, which is probably just as well. I took note of one. Road fatalities per million of the population in Portugal are 80% more than in Ireland on a comparative basis but motor insurance costs per vehicle in Portugal are roughly one third of the costs in Ireland. There would have to be a good rational basis, in terms of different liabilities, to be persuaded that this is not something to do with Irish consumers being ripped off.

There is some information in the supportive reports suggesting——