John Gerard Hanafin (Fianna Fail)

I welcome the Minister of State, Deputy Browne. I wish to raise a few points as a member of the Oireachtas Joint Committee on Enterprise and Small Business. A severe lack of competition is evident in the insurance industry. Hearing some of the harrowing tales of the high cost of insurance that have nothing to do with brokers leads me to conclude that the consumer is paying for the cost of re-insurance that many of the companies undertook in Europe where they are based. The ones that are not based in Europe appear to be able to give better value, such as FBD and Quinn Direct. This is a pointer for the future. We need to attract more insurance companies to get competition into the marketplace.

I welcome the publication of the Competition Authority's preliminary report and consultation document into competition within the Irish insurance industry. I compliment its chairman, Mr. John Fingleton, on the extensive study undertaken by him and his staff in preparing the report.

As a member of the Joint Committee on Enterprise and Small Business, I was extremely interested in the publication of the report which dovetails with a report published by the committee last July reviewing the insurance market. Representatives of the Competition Authority attended some of the joint committee's oral hearings and gathered a considerable amount of valuable information.

The report focused on the competitive aspect of the non-life insurance industry and investigated whether any anti-competitive practices or other constraints existed which led to higher costs for insurance. Competition is one factor which influences the cost of insurance and any reform deemed necessary should be carried out in order to reduce costs.

The Competition Authority's report appeared to put more emphasis on the role of brokers rather than insurance companies. It found no evidence of price collusion among insurance companies and focused on brokers' commissions. The report may lay too much blame at the door of the brokers for the high cost of motor and liability insurance. Many brokers do their best for their clients while trying to make a living. Brokers must do the best for their clients or they will lose them. They are also in competition with direct selling by insurance companies and with tied agents or authorised advisers of insurance companies. Brokers must obtain agencies from insurance companies to enable them to sell the products of the insurance company. The procedures behind the granting of agencies to brokers merit examination.

I agree with the report's recommendation that production quotas should not be established by insurance companies that might inhibit or prevent brokers from giving independent advice to clients. Such a quota may exert influence over some brokers to give advice in order to retain the agency of the insurance company on whom they depend for a living.

A scheme for licensed brokers should be established by the Irish Financial Services Regulatory Authority in order to bring about a level playing field. That would permit any broker to deal with any insurance company on behalf of clients with no strings attached. In addition, any licensed broker should be able to obtain renewal information given to the broker currently dealing with the client. Competing brokers should not be at a disadvantage. This would benefit the customer and allow free and fair competition to take place.

Insurance companies rely heavily on brokers to bring them both motor and liability insurance business. Recent figures show that some 80% of the €1.6 billion motor insurance market is broker-driven, while 95% of the €600 million liability market is also broker-driven. The broker's dependency on insurance companies is greater than the other way around due to the large number of brokers that operate in the Irish market compared to the relatively small number of insurance companies. There is little incentive for insurance companies to bring about changes in the commission structure as this could lead to a loss of business if other insurers do not follow suit.

The abolition of the cap on non-life insurance commissions in 1999 does not appear to have introduced rate competition among brokers. Commission levels have remained static at 5% for motor business and 9% for liability business, while the total value of commissions paid by the industry rose by 51% in motor vehicle insurance and by 126% in liability insurance. Insurance companies are not innocent parties to the rise of brokers' fees since they go along with the commission-based system.

Brokers should not be unfairly apportioned with blame. Insurance companies, in commenting on the profitability of markets, have not satisfactorily explained insurance increases in recent years. Insurance companies hold the key to reform and I call on them to reduce commission costs which could in turn be passed to the consumer.

I welcome the report's call for the up-to-date publication of data that underwriters need to be able to price risk in a given market. The availability of this information would be helpful in attracting more insurance companies and, therefore, competition into the market. Reforming brokers' commissions cannot be seen as the only answer to reducing costs. We must endeavour to reduce costs in the insurance market. There are currently not enough insurance companies in Ireland providing a whole range of cover. If one is seeking employers' or public liability cover, there are at most two insurance companies that will even consider it. All steps need to be taken to allow new insurance providers enter the market and give the customer as wide a choice as possible.

As the Competition Authority notes, competition issues within the insurance market are only one aspect of the problem. Legislative reform is also important in reducing insurance costs. I draw attention to the importance of three elements of legislation which will reduce the cost of insurance. The Personal Injuries Assessment Board Act is designed to reduce legal costs with regard to employers' liability claims. I agree with the recommendation of the Joint Committee on Enterprise and Small Business that the PIAB should be permitted to deal with motor injury claimants as soon as possible. In addition to this legislation, the recently published Civil Liabilities and Courts Bill, in tandem with the Health and Safety Authority Bill will, upon enactment, also help reduce the significant insurance costs that currently exist.

The Government is committed to addressing the high cost of insurance and I am confident that this legislation will help bring down the cost of insurance premiums being paid by the hard-working people who helped develop our economy into a prosperous and resilient one which is admired by many countries throughout the world. I welcome this report into the Irish non-life insurance market and I hope that its publication will be of use in the fight to reduce high premiums. For too long the consumer has been losing out to insurance companies and even a 7% or 8% cut in commissions could result in savings of €10 million for purchasers. I keenly await the next stage of this insurance report and I praise the Competition Authority on its thorough study of the economics and regulation of the non-life insurance industry.