Marc MacSharry (Fianna Fail)

I welcome members of the Irish Brokers Association who are in the Visitors Gallery for this debate. I congratulate the Competition Authority on a comprehensive and informative preliminary report and consultation document. There is no doubt that an investigative report which highlights possible anti-competitive practice by elements of the insurance industry is both necessary and timely if we are to make informed recommendations for change to the insurance market which will benefit consumers, brokers and insurers.

Brokers are an essential part of the insurance market and many are of great benefit in assisting the consumer in their endeavours to obtain the best products and prices appropriate to their needs and wishes. The existing broker-consumer and broker-insurer relationships arereasonable. However, in considering aspectsof the Competition Authority's report, recommendations can be made which, if implemented, would greatly enhance the industry for all participants.

There is a stigma attached to all people involved in the sale of insurance products, whether these are companies, brokers or individuals, which has given rise to the public perception of being ripped off. This, in turn, has led to an increased lack of trust in brokers and insurance companies on the part of the consumer. This situation has been exacerbated over recent years by spiralling costs and the massive variance in quotations received by the consumer from different brokers and insurance companies. Appropriate regulation, administrative reform and increased freedom of information within the industry will help to increase consumer confidence and trust of brokers and insurance companies. This will improve the situation for everybody.

Under the current system, an insurance broker receives approximately 5% commission for motor cover and 9% for liability insurance. Any reduction in these fees from an insurance company may well discourage a broker from selling that company's product even though it might represent the best value for money to the consumer. Although brokers are statutorily obliged to give their client the best advice available to them, the fact remains that the system under which most of the country's 2,500 brokers operate means that the more expensive the policy, the more the broker will earn. Such a system will only serve to reduce further consumer confidence and trust and will not encourage competition.

Since the ceiling on brokers' commissions was lifted in 1999, the cost of insurance has risen by 94%. However, brokers' commission has increased by 126%. In motor insurance, average broker commission grew from 3% to 5% and broker income jumped from €35 million to €76 million. In liability insurance, commission dropped from 8% to 7% between 1998 and 2000 before increasing again to 9% two years ago. In that period broker income increased from €25 million to €58 million. These figures show that broker fees have been rising faster than the cost of insurance for most of the last decade. It appears clear, therefore, that the abolition of the cap on non-life insurance commissions in 1999 did not, as intended, introduce rate commission competition between brokers.

I am not opposed to broker commissions. On the contrary, I believe they are entitled to an appropriate rate of commission. Indeed, it is vital that brokers are appropriately remunerated to ensure they can offer optimum levels of customer service and professionalism to the consumer. However, there should be regulation which would oblige the broker, when preparing quotations for consumers, to state clearly the commission payable to them as a result of the sale of the product.

There should also be regulation which would oblige the broker to provide multiple quotes from various sources for the same product, thus giving the consumer a wider choice. This would greatly enhance consumer confidence. It would be of great benefit to the consumer as the broker is best placed to advise on which product is the best from the quotes offered, based on a product's features. Given the sometimes highly technical nature of the products, the qualified expertise of a broker is required to simplify the information for the consumer. In this area, brokers are of tremendous value to the consumer in helping to ensure they obtain the product most suited to their needs. It is also important to realise that the best option is often not the cheapest. If all the information is presented in the manner I have outlined, brokers, insurers and consumers stand to gain from a better regulated and more transparent and competitive system.

What I propose has been borne out in the life insurance industry over the past number of years. New measures introduced by the Central Bank, and implemented by IFSRA on its behalf, made it obligatory for life insurance brokers to do what is known as a "fact find" to ascertain the relevant needs of the customer and the products most appropriate to his or her needs before they quote a product. Then they must issue a recommendation incorporating what is known as a "reasons why letter" and this is followed by a quotation which includes commission disclosure.

There was uproar among life brokers when these measures were introduced and the measures were treated with scepticism. However, increased transparency, administrative reform and increased professionalism have had a huge effect on enhancing consumer confidence through better information and a greater consumer choice. For brokers, the measures meant an initial investment in their housekeeping procedures. They also flushed out cowboys operating in the industry who were doing nothing for the reputation of brokers. Research I have done into the life insurance industry found that the measures introduced actually increased brokers' income, as a result of better informed consumers with greater confidence in brokers. The measures have also enhanced competition. The financial services regulatory authority in the United Kingdom introduced similar measures in the past and the experience there has been equally positive.

Motor and liability insurance brokers should not fear the unknown when precedent tells us that better regulation, administration and transparency help both consumers and brokers. Competition can be enhanced by such measures and that augurs well for all of us. Increased competition remains one of the biggest challenges of the Irish insurance market. While some good work has been done, we need to do much more.

A recent survey commissioned by the Chambers of Commerce of Ireland found that 75% of Irish businesses cited insurance premia as the largest increase in costs in the past 12 months. Such a statistic will not stimulate the growth of indigenous industry and will certainly have adverse effects on foreign direct investment, which in turn will endanger jobs. It is for such reasons that we must redouble our efforts to improve all aspects of the insurance industry. We can do this through increased competition, greater transparency and more professionalism.

I welcome this report. Hopefully, its publication will help to remove elements responsible for hampering competition in the industry. I am confident the public consultation process will shed further light on the area. I look forward to the next stage of the report and congratulate the Competition Authority on its thorough investigations to date.