Michael Ahern (Cork East, Fianna Fail)
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The Government welcomes the publication of the Competition Authority's preliminary report and consultation document on competition issues in the non-life insurance market. In the wider context, An Agreed Programme for Government includes tackling the high cost of insurance. It is the Government's firm intention to implement the measures in the agreed programme which relate to insurance.

The insurance reform programme, which was launched on 25 October 2002, contained a co-ordinated set of actions across a range of Departments and considerable progress has been made in implementing the programme. This includes the implementation of road safety measures such as penalty points by the Department of Transport; enactment of PIAB legislation, where it is expected that the board will be up and running in the near future; the preparation of legislation by the Department of Justice, Equality and Law Reform dealing with fraudulent and exaggerated personal injury claims — the Civil Liability and Courts Bill has been published and is expected to be before the Houses of the Oireachtas shortly; and the Irish Financial Services Regulatory Authority and the Irish Insurance Federation also have made progress in the areas of consumer information campaigns and codes of practice for insurers.

The insurance reform programme comprises the 67 recommendations of the Motor Insurance Advisory Board's report, which was the most comprehensive study and analysis of the Irish motor insurance industry ever undertaken and provided a sound basis for addressing the problems we are experiencing in the insurance industry. To date, 32 of the 67 recommendations have been implemented. A further three have been partially implemented and 21 are being actively progressed.

Three of the MIAB recommendations were directed to the Competition Authority. First, the MIAB recommended that the authority should review all further insurance mergers in the interests of the Irish economy with appropriate reference to IFSRA. The authority took over responsibility for mergers on 1 January 2003 and, to date, no mergers requiring review have taken place. Second, a consultation document on the authority's study of the legal profession is expected by mid-year. Third, there is the recommendation to carry out a study of motor insurance. In effect, the study also covers public liability and employers' liability insurance.

The Competition Authority undertook the insurance study jointly with the Department of Enterprise, Trade and Employment and the Department's involvement was mainly in the area of funding. The study commenced in the autumn of 2002. Following publication of draft terms of reference and an analysis of responses received, it was decided to limit the range of the study to motor, employers' liability and public liability insurance. The focus of the study, in line with standard competition analysis of a sector, is on barriers to entry and rivalry. In other words, it looks at whether firms have difficulty getting into the Irish market and whether those that have entered compete against each other.

The terms of reference of this study are as follows: to identify anti-competitive practices or other constraints on competition in the non-life insurance market in Ireland, with particular reference to motor insurance, employer's liability and public liability insurance; to highlight any anti-competitive practices or other constraints that are particular to the Irish market; to make recommendations for legislative and other changes to ensure that competition works well for consumers in the Irish market; and to make, in the case of any problems identified at EU level, recommendations for change at that level.

The authority has undertaken a considerable amount of research and analysis on the insurance sector since the start of the study. In addition, it has commissioned four substantial pieces of independent research, all of which are published on its website as a resource for anyone with an interest in this important topic. First, there is a report from Cass Business School, which is part of the City of London University, on the economics and regulation of insurance. Second, there is a paper from Vincent Hogan and Colm Harmon, of University College Dublin, on the prospects for empirical analysis in the non-life insurance market in Ireland. Third, there is a report from Europe Economics of an analysis of the state of competition in the Irish liability and motor insurance sectors. Fourth, there is an analysis from Dorothea Dowling of the 2002 statutory returns in the Irish insurance market and related matters.

The authority notes that competition is by no means the only factor leading to increases in the cost of premiums. However, based on the information that it has received through its own research and from its various consultancy projects, it identifies a number of issues that caused competition concerns. These are the basis of a public consultation period over the next two months, during which all contributions will be welcome. I am sure the authority would expect most submissions to be made towards the end of the public consultation period on 18 April, but Senators have a chance this afternoon to make an early input to the process. I assure the House that the authority will carefully examine all comments made here today in preparing its final report.

The issues that have given rise to preliminary concerns relate both to insurance brokers and insurance companies. In the case of brokers, the issues are as follows. First, there appear to be market-wide ad valorem, or percentage-based, commission fees, with little evidence of competition among brokers putting downward pressure on these despite basic premia rising sharply in recent years. For example, if a business paid €10,000 for a liability premium in 2000, this increased to €20,000 in 2002. If the commission payable to the broker in 2000 was €900, it would have risen to €1,800 in 2002. In other words, in 2002 the business in question would have had to pay its broker an extra €900 in commission for the same service it received in 2000. While the cost of assessing and placing liability risk may have risen in a tighter market, or as a result of general cost inflation, it would be a remarkable coincidence if the changes in broker costs for both motor and liability insurance were perfectly correlated with the changes in the underlying cost of insurance.

In some cases, insurance brokers enter into fee based arrangements with their larger clients. In doing so, the broker returns to the client the commission he or she would otherwise earn on that client's insurance business in exchange for a negotiated and normally lower fee. This fee is based on the extent and value of the services the broker provides for his or her client. However, the evidence of this practice the authority has received relates only to larger clients who are more able to exert countervailing power.

A second concern regarding brokers is that a conflict of interest is possible. Incentives from insurers, including overriding commissions related to the quantity of sales, and minimum thresholds can cause a conflict of interest between the obligation to provide best advice to the client and best return for the broker. Third, there is a lack of transparency in that buyers do not necessarily know what incentives and commissions the broker might receive, nor which insurers the broker has contacted on their behalf.

A number of preliminary concerns have been identified with regard to insurance companies. First, there are limitations in the sharing of data that could help to assess and price risk. To determine its premium, an insurer needs to get statistical data concerning the frequency and volume of claims made in the past. Often, insurers are not in a position to collect a sufficient volume of reliable data on the basis of their business alone. European competition law, therefore, allows such data to be shared. On the Irish market, however, there appear to be problems regarding the extent, timeliness, reliability and availability of relevant statistics. The authority wants to explore whether this can be improved.

Second, potential entrants to the motor insurance market have cited as a concern the system of handling and funding claims arising from uninsured and un-traced drivers. All companies selling motor insurance on the market are obliged to fund the payment of such claims in accordance with their market share. Companies which handle the claims are reimbursed from the funds collected from all other insurers. The concern raised is that this does not provide an incentive to minimise the cost and time of handling claims, which raises the costs of all companies in the market, irrespective of whether they handle claims. The authority is, therefore, inviting suggestions as to whether there are better ways to handle these claims, for example, by tendering out claims handling for a fixed period.

Third, with regard to the motor insurance market, some potential entrants to niche markets have indicated they would have difficulty participating in the declined cases agreement as it currently operates. The declined cases agreement is designed to enable people to obtain a quote for motor insurance, even if they cannot do so on the open market. Cases accepted by the declined cases committee are given to insurance companies on a rota basis. The procedure, whereby insurance companies then potentially assess whether a specific quote under this system is so high as to be tantamount to a refusal, raises competition concerns. A separate problem cited by potential entrants to niche markets is that they do not want to run the risk of getting a case outside their niche. The authority is consulting as to whether there are other ways to run this scheme, which would be less likely to cause competition concerns, for example, using a tendering system.

Fourth, solvency requirements are higher for new entrants than for established companies. The reason for this is that the likelihood of failure is greater in the first three years than in subsequent years. However, because this could put entrants to the market at a disadvantage, the authority is inviting submissions on whether these requirements have caused a problem in practice. It is also asking for input on whether a policyholder protection fund might be set up to deal with insurer insolvency.

Many external cost factors unrelated to competition help to explain the level of, and recent spikes in, insurance prices. The wide ranging set of insurance reforms in train has the potential to make the market generally more attractive to insurers and thus encourage entry to the market. The implementation of such reforms can be expected to reduce insurance costs, with resulting reductions in premia for consumers and business alike. Competition has a vital role to play in ensuring that these cost reductions are fully passed on to the buyers of insurance.

Paul Coghlan (Fine Gael)
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I welcome the Minister of State to the House again. He is having a busy day in the Seanad today but is more than able for it. I place on record my former interest in this matter as I was once a part-time insurance broker.

Terry Leyden (Fianna Fail)
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There is nothing wrong with that.

Paul Coghlan (Fine Gael)
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I combined that role with auctioneering.

Shane Ross (Independent)
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That is a double-whammy. If I were the Senator, I would not speak on the issue.

Paul Coghlan (Fine Gael)
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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.

Terry Leyden (Fianna Fail)
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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.

Shane Ross (Independent)
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I wish to share my time with Senator Norris.

Ulick Burke (Fine Gael)
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Is that agreed? Agreed.

Shane Ross (Independent)
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I welcome the Competition Authority's report but following on from the last three speakers' contributions I am somewhat out of sync with the views of the House. Senator Coghlan and Senator Leyden gave a robust defence of insurance brokers. Although they congratulate the Competition Authority, I am not sure what they said is in line with the report's message.

The Competition Authority has done a worthy and adequate job in highlighting the position of insurance brokers and the difficulties for them and consumers. It is due to give a fuller and final report on this issue in the forthcoming weeks. However, in light of the comments from the Minister of State and Senator Leyden and Senator Coghlan, the Competition Authority should not become a fig-leaf for the Government. I am concerned that when the Competition Authority, having thrown questions into the public arena, makes its recommendations on insurance brokers, it will be ignored because of strong political lobbying in this House and the Lower House.

Insurance brokers are a strong political lobby. In the past, they were even stronger as a large number of Members of both House came from the profession, making it a difficult task to tackle them head-on. The Competition Authority, so far, has not done that but hopefully it will do so in its final report. Let us hope that the Government does not listen to many of its backbenchers but to the report it commissioned and acts accordingly. This particular body must not be allowed to be a fig-leaf for the Government. It must not be a wastepaper basket where problems go and come out diluted. It must be allowed to be proactive and its recommendations responded to with vigour by the Government.

I noted the tactic of the last speakers when they rightly deflected much of the flak from the brokers and onto the large insurance companies. The large insurance companies are running a semi-cartel. They have behaved in a bullying fashion to the consumer for many years and have had it all their own way. It is an industry that behaves in a less moral way than the banks. However, if it is doing so, who is assisting it?

The report found that 80% of motor insurance went through insurance brokers, with an even higher percentage for liability insurance. If the large insurance companies are guilty of overcharging, they are assisted in this abuse of the consumer by insurance brokers. We cannot have it both ways. This is an industry and they are all in it together. The suspicion is that it is a conspiracy against consumers, as it is no accident that they are being overcharged by the insurance industry. There is a conspiracy, an understanding, a tick-tacking between the insurance companies and brokers at the expense of the consumer. I must be living in a different world from Senators Coghlan and Senator Leyden because the evidence tells me that this is what is specifically happening in the insurance industry. Every time I investigate an individual case of insurance abuse or malpractice, I find that the consumer is being hood-winked one way or the other, either by the broker, the company or both. This is from my experience of the industry and it is invariably true.

I understand the argument made by Senator Leyden and Senator Coghlan. However, is there any need for insurance brokers at all? Can we do without them? This is the fundamental question which the Competition Authority did not address. Senator O'Rourke last week told the House that she had telephoned various companies when renewing her car insurance. By doing so on her own, she managed to reduce her premium by €200. Do insurance brokers do this? Consumer inertia is the greatest benefit for the financial services industry. The average man on the street does not switch banks or insurance companies because it is too difficult with paperwork obstacles in the way. Part of the agreement between the brokers and the insurance companies is to make it difficult for the average man to switch, forcing him to stick with them and they can continue overcharging him. Anyone who has taken the trouble to shop around for their motor, house or employer's liability insurance will find a better deal than an insurance broker. It is an industry that lives on the inertia and sloth of the consumer.

The most tangible item in the report concerns the commissions from which brokers earn their money. A simple question must be asked. Why in God's name do brokers not put the commission charged on every bill sent to a customer? I was a stockbroker once and, by God, they are parasites. Not so long ago, I was a parasite.

Paul Coghlan (Fine Gael)
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An amazing admission for the Senator to put on the record.

Shane Ross (Independent)
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I am now poacher turned gamekeeper.

John Minihan (Progressive Democrats)
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He still is.

Shane Ross (Independent)
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In the days when I was a parasite, we charged far too much money for doing far too little, just like insurance brokers. Yet on every contract sent out, people were told how much we were ripping them off. People could at least see the amount paid on stamp duty, VAT and the brokers' commission. It also allowed them to complain. Insurance brokers are different types of parasites in that they are much better. Insurance brokers do not inform consumers how much they are charging and they get away with it. With so few complaints, that is the sort of parasite I would have liked to have been. It is indefensible, particularly with cosy payments from insurance companies to brokers, that large bills go out from insurance brokers that do not inform the person involved how much he or she is paying in commission.

It begs the question: what would happen if the brokers were not there? It is unarguable that, as commission would not have to be paid by the insurance companies, the cost to the consumer would be cheaper. Insurance brokers must justify what they are doing, but by refusing to let one know what one is being charged, they cannot do so. I had the recent experience where I telephoned the insurance company with which I have a policy for my house. I asked a number of questions which the company did not like. When I asked how much the insurance broker was getting out of the policy, the company told me to jump in a lake, as it was up to the broker to tell me. It was not its practice to give this information, yet all the company's business was done through brokers. The result is that the broker is a shield between insurance companies and the customer. Insurance companies are not accountable on this matter. The insurance broker does not seem to be accountable for anything either but if one turns to the company it refers one back to the broker although it is receiving the main and final benefit. This is a pretty rotten industry which has lived behind closed doors for a long time.

Almost all insurance brokers earn their money from percentages, not from fee-based commissions with the result that their incomes have rocketed as premiums rose, particularly in the house price boom. They are doing just as much or as little work as they ever did yet are benefiting by the increase in value of the assets and the penal premiums and doing nothing extra to earn that, which cannot be justified. I query whether it is right that auctioneers, stockbrokers, lawyers and insurance brokers should be paid on the basis of percentage commissions. The report highlights the fact that because insurance brokers benefit from commissions it is in their interests to see that premiums are high. How can they act in the interest of the customer if they receive money for a higher premium? It might be €10,000 or €20,000 for employer's liability, €1,000 or €2,000 for a house, or the value of car insurance. The higher the value of the commodity, the higher the premium and the higher the insurance broker's percentage. There is very little to stop an insurance broker who might be greedy and unscrupulous negotiating a high premium for the client. People who shop around can nearly always find a lower quote than that offered by the insurance broker, which reflects inertia on the part of the customer and a certain laziness on the part of the insurance broker.

I am very concerned about up-front fees. Many of us have had experience of an insurance broker, particularly one selling life or unit-based assurance, taking an up-front fee. Sometimes this is the whole of the first year's premium after which the broker receives a small amount ad infinitum so the effort goes into selling the package but not servicing it. The broker's only interest is a once-off sting of the consumer for which he or she receives a large commission but will not look after the customer afterwards. The Competition Authority should examine and make recommendations on that practice. The signs are that the Government will drag its heels on this but I look forward to it giving an active response to the report's findings, to making life easier for the consumer and much hotter for insurance brokers.

John Minihan (Progressive Democrats)
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I join previous speakers in welcoming the Minister of State to the House. It is nice to be following Senator Ross and his admission to being a former stockbroker and parasite.

Paul Coghlan (Fine Gael)
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The Senator should not make a meal of it.

John Minihan (Progressive Democrats)
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I presume that open confession is the main comment that will emerge from this debate.

Paul Coghlan (Fine Gael)
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It is good for the soul.

John Minihan (Progressive Democrats)
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We should read the full title of this report and acknowledge that it is a preliminary report and consultative document which is the start of period of consultation. I hope we will not be carried away by the contents of this report and the negativity in certain parts of it. Instead we should use it as a platform from which to move forward in an effort to improve the insurance industry. I am not a fan of the Competition Authority's approach as it deals only with pure economics and omits many other aspects of professional services offered by the professions it examines. I fully accept that the consumer must get value for money but that value cannot be measured only in retail terms; many other aspects of the service must be factored into the overall service. I support competition and the market economy but I am not a blind supporter of the economist's viewpoint; it is not possible to achieve a free market at any cost. There are instances when Government must intervene to protect the public interest, for example, in the provision of key social and health services. The overriding consideration must be what Government can do to improve services or ensure that quality services are available, whether directly or through the private sector on the Government's behalf.

Competition and economics are not the be all and end all of providing professional services. When is competition really competition? Do we have a situation whereby, in the name of competition, regulation can be used to boost the coffers of the one who holds the monopoly? There have been many changes in the market and the cost of insurance has become prohibitive for many consumers, be it car insurance or the examples of small industry we discussed earlier. The Government has dealt with this through the introduction of the PIAB and legal reform, etc. There have been examples of improvements on behalf of the consumer and I hope that, as a result of the Government's initiatives, there will be more. The Minister of State has highlighted some of this in his speech today.

It would be easy for me to attack brokers as soft targets but there are areas in need of change including a need for transparency, and for consumers to be fully aware of the service they receive for the broker's fee or commission. We should not be too quick to absolve the consumer of responsibility to examine the service for which he or she is paying. I have engaged and changed brokers and have been satisfied with the service I received. It is my choice to deal directly with an insurance company or to engage an agent on my behalf to negotiate the best deal for me. We often hear comments about the small print. How many consumers want to examine the small print? Some consumers out of choice hand over that responsibility to somebody on their behalf. I do not see anything wrong with that and I also feel such service should not be provided for free.

As insurance is about placing and taking risk, how can some insurance companies give various pricing structures for the same risk, for example a private car? Hibernian provides motor insurance to the market through the post office, One Direct, Hibernian Direct, Broker Line Direct, brokers and the banks. Someone giving the same details to all these outlets will get different terms from each of them. Questions must be asked in this regard. Up to 85% of those in the commercial area rely on brokers to do this work for them.

Up to three years ago many companies provided competition in the motor insurance market. However, company mergers have in effect reduced competition and reduced the number of companies we can access. It can be argued that by facilitating such mergers we reduce competition in the market. Brokers will not only seek quotations from companies in the Irish market, but will also do so outside the Irish market. Some of us have had experience of getting better insurance cover at a more reasonable cost from companies not based in Ireland.

There have been many examples of insurance companies giving quotations to clients who have in turn gone to a broker to see whether it can be reduced. The brokers have found that the quotation given by the insurance company was stacked for a variety of wrong reasons, for example by adding children to the policy. When the broker pointed this out, the insurance company reverted to the client trying to reverse its decision. This is the job of a broker. Too often we remove the responsibility from the consumer who engages the professional to ask the professional to fully explain what he or she is doing. It is far too easy for us to attack brokers.

In areas such as joinery and manufacturing the costs of public liability insurance have been huge over the years and must be reduced as too many small companies have gone out of business as a result of prohibitive costs. Insurance companies trade off risks and in doing so some of them refuse to quote to a small company. Some small companies that have been paying premiums of about €80,000 or €90,000 per year and suddenly after three or four years of not quoting they come back into the market and offer a quote at a far reduced rate. We need to understand why this is happening.

The same is true in the property market. With the increased cost of houses, those charging fees on a percentage basis such as solicitors have increased their fees dramatically. We need to consider what brokers do on behalf of their clients. The report seems to focus exclusively on commission. However, to bring balance to this debate we need to consider what a broker does. I am aware of cases where a broker not only prepares a prospectus for a client, but also outlines the different quotations and the differences in policies. This allows the client to engage the insurer he wants.

In the event of a claim, the same broker processes the claim, deals with the issues concerned, meets the solicitors and in the case of a company may deal with the builders, solicitor and insurer, and sets about negotiating the settlement figure. I am aware of a case of flood damage in which the insured had to produce accounts showing the change in trading in that period. The accountant in providing that service charged a fee of €3,500. The broker charged no fee. This service was provided as a result of initially engaging the broker to do the job required. It is not possible to look at the glass half full or half empty. We must consider this matter in its totality and some people choose to focus on only one area.

Where should we go from here? Senator Ross referred to the responsibility on the consumer to shop around. When comments were made by the Tánaiste recommending shopping around, the reaction was that the consumer should not have to shop around. There is a responsibility on individuals to shop around for the best value both in the retail area and in engaging professional services. It is a matter of personal choice. Brokers are obliged to give the best advice. This is particularly true of authorised advisers who have the ability to access all the markets. The brokers should take the opportunity to look at their own industry, to influence the changes that are coming about and to contribute to the debate about changes rather than having changes imposed upon them that may not enhance the profession overall.

Many different insurance products now exist. The implications contained in the small print must be made clear to clients. The consumer has the utmost responsibility in ensuring this. Companies must explain why it is possible to get different quotations for the same item from various different channels. Someone looking for insurance through three or four different channels will get three or four different quotations. Brokers have a responsibility to provide a professional service. They cannot work in cahoots with insurance companies as Senator Ross stated was the case, which is not a sentiment I share. While there may be isolated examples, this has not been my experience. Any such isolated examples should be exposed. It is not possible to pool a whole group of professionals into one category because of an isolated example.

Ultimately it is a matter of choice. There is no legal requirement for someone seeking insurance to go through a broker. That is a decision for the consumer. While some people may have the time and ability to read the small print, others choose to engage professionals on their behalf. The Competition Authority's report is not just about the retail side. There is a value on professional service and advice. This applies equally to the legal profession, the medical profession and insurance brokers. The consumer makes the choice to quantify and pay for that service. In coming weeks I hope the insurance industry, brokers and the Competition Authority will unite in bringing clarity to the issues highlighted by this initial consultative report.

Brendan Ryan (Labour)
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I agree with a good deal of what Senator Minihan said.

John Minihan (Progressive Democrats)
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I am worried now.

Brendan Ryan (Labour)
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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——

John Dardis (Progressive Democrats)
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The law of the inelasticity of time has come into effect.

Brendan Ryan (Labour)
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I do not believe in any of these laws but in deference to the clock, I will cease.

Marc MacSharry (Fianna Fail)
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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.

David Norris (Independent)
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I wish to share my time with Senator Quinn.

John Dardis (Progressive Democrats)
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Is that agreed? Agreed.

David Norris (Independent)
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I congratulate Mr. Fingleton and the Competition Authority on the excellent work done. I am glad Mr. Fingleton is moving on now to investigate the legal profession which richly deserves his attention. We are lucky also to have the services of people such as Dorothea Dowling. Theirs is the kind of incisive intellect needed to look into the uncompetitive practices of this industry. Senator MacSharry more or less gave the impression that it was a perception that people were being ripped off. It is not a perception but the reality and I will focus on some of the striking comments made in this regard in this preliminary report.

There have been huge increases in insurance costs over the past couple of years which are not justified by the internal circumstances of the Irish market. We hear much rubbish about how it is related to the events of 11 September 2001, which are blamed for everything. I do not believe the increases are justified.

When I got my insurance renewal notice last year the insurers appeared to think my house was worth €2 million and that its contents were worth €790,000. I rang the insurers and told the young woman who answered that I would like to know when they wanted to move into the house. She replied that she thought I had a wrong number. I said I thought she had a wrong number, that she seemed to think my house and contents were worth €2.79 million, that I was prepared to move out the following day, taking only my underpants and toothbrush, and she could have the whole thing. I am not mean or grasping and €2.5 million would suit me perfectly.

I ask the Minister to examine the issue of loadings on policies. These exist, I have been told on reliable authority, and there was certainly a blacklist of particular areas of Dublin. This is not acceptable. If we want to get people to move into an area and restore houses, they should not be penalised on account of the area in which they live.

Motor insurance is another area needing examination. I received a huge quote for motor insurance which was related to the horse power of the car and not its value. The quote was huge despite the fact that I was only getting third party fire and theft insurance under the Trinity group scheme. When I checked the market I got a quote €400 cheaper for full comprehensive insurance. This is the sort of thing that happens regularly.

Terry Leyden (Fianna Fail)
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The Senator did well with the old car he has.

David Norris (Independent)
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Brokers are a mixed bunch. I had a broker who was a decent old school friend who did as much as he could for me. Brokers are convenient for people like myself who are phobic about forms. However, there are sometimes problems on the structural side of things as they are sometimes tied to a particular company and one does not know how much commission is being charged because they do not inform customers. Sometimes the renewal notice goes to the broker who holds onto it for so long that the customer cannot go to the market for an individual quote. The customer never actually knows what is being charged. I would like to receive a statement showing all the charges involved and which would also include the number of companies from which quotes were received. Sometimes they only get quotes from one or two companies which is unacceptable. Customers are entitled to a fair deal from these agencies but they are not getting it at the moment.

Senator Leyden mentioned that some large companies get concessions and write-offs in terms of brokerage fees. Bully for them. However, I am not bothered about large companies. I am much more bothered about the unfortunate individual who must scrape together an insurance premium. It appears that, as with all industry, if a business is a large commercial concern, it can use its financial might to bargain. However, the individual is in much greater danger of not being allowed access to information which would give a proper rational view of the market.

Two striking statements are made early in the report. Page 8 states that the conclusion of the preliminary report was that both regulation and industry practices gave rise to serious concerns with regard to competition in the insurance broker market. It could not be clearer from this that it has been found that there are concerns about the lack of competition. The second statement went on to say that a lack of market transparency, particularly vis-À-vis the operation of the broker market, results in buyers of insurance lacking crucial information that would enable them to make more proactive and informed choices that would benefit them and drive greater competition in the market. That is the conclusion of the report. I cannot see how anybody can suggest that the whole insurance industry has been exonerated by the report because it certainly has not.

I do not believe that either household or motor insurance reflect the reality of the internal Irish market. There are external forces operating here but we do not get a balance in the market and do not have European companies entering the market in any large way. The report examines this issue and draws some conclusions on it.

I wish the report was written in more accessible language. There is too much gobbledegook and too many tongue twisters in it. I will leave it to Senator Quinn to make further comment.

I draw the Minister's attention to the fact that seven or eight questions are asked on pages 26 and 27 which the Department and insurance industry should examine and for which they should produce the answers for the next report.

Feargal Quinn (Independent)
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It is difficult to follow some people and certainly not easy to follow Senator Norris. I will try to squeeze a lot into my five minutes. I too congratulate the Competition Authority on its report. However, it is important to point out that the report deals with only one aspect of the problem.

I wish to touch on four particular aspects of the report. Four interlocking factors apply to the high cost of insurance. The first is the number of claims, whether genuine or false. We have done something about this through road safety and safety in the workplace campaigns and through attacking the "compo" culture. I congratulate those responsible on the actions taken in this context, particularly against fraud which will shortly be a criminal offence and the recent decisions by a number of judges to award costs against claimants, which did not happen previously.

My company had a case where somebody claimed against it and the judge decided to award costs against the claimant. The judge felt it was not worthy of allocating costs which has not happened before.

The second issue is the cost of settling claims, about which we can do something. However, the legal profession has come to rely so much on the compensation culture that it has a vested interest in maintaining it. We have to do something about that. It is almost a case of a gravy train that has to be derailed if we are to be successful because so many lawyers have come to depend on it to a large extent.

In a recent case we had 11 people representing us in defending ourselves. They were not all legal experts, some were engineers and doctors. On the day the case was due to be heard, they arrived at the High Court at 10 a.m. to find they were 46th in line. The case was not heard and they left at 4 p.m. The claimant had a similar number of people representing him. The case came closer to being heard, but the same thing happened the following day and this went on until the fifth day. This group of people stood around for five days from 10 a.m. until 4 p.m. There were ten or 20 others waiting for the case as well, which eventually took place on the sixth day. The State should provide more High Court judges as they are badly needed.

The third issue relates to the insurance industry itself. As the report points out there are many niche markets within the overall industry where there is only one supplier. There is no competition in a number of areas. Many people think insurance companies make excessive profits and their protests to the contrary have little weight in view of the secrecy in which insurance companies indulge and, to some extent, the way they have been caught out misrepresenting the true facts of the situation. We must do something about this.

Reference was made to brokers' commission. I have a hang-up in regard to my own business about the way architects are encouraged to spend more on buildings. If an architect has a choice between a wooden or gold door handle, he gets paid more if can manage to coax the client to choose the gold one. My approach to this is to negotiate with the architect, which is not easy, to try to convince him that the less he spends on the building the more he will get paid. That is in contrast to what normally happens. As Senator MacSharry stated in regard to insurance, the more expensive the policy the more commission the broker gets. Let us see if we can introduce a "wooden door handle" policy in this area. It will not be easy to achieve all that is set out in the report, but we need to tackle it.

The fourth part was referred to by a number of people, which is the part the customer can play in terms of increased personal responsibility. As Senator Norris indicated, no matter how difficult, it is up to the customer to raise issues and we have to ensure this happens. The emergence of insurance customers as a strong lobby group is a good thing, as exemplified by the setting up of the Alliance for Insurance Reform. I am a member of this group so I know something about it. This lobby group has achieved results in the past two years and will probably not be needed in future if it achieves what it set out to do. If nothing else, it sent a clear message to the insurance industry that it has squeezed the customer far enough and for long enough and now it must put its house in order so as to avoid the consequences.

I commend the report of the Competition Authority, but I stress that this is a problem with many facets. The insurance sector is bedevilled by problems and we must resist the temptation to rush off in one direction or another. It is vital to attack the problem on a number of different fronts. In that way alone can we succeed in removing what has become a real cancer in our economy and a barrier to future economic growth. This has gone on for far too long, but it has been tackled in the past couple of years as the Government listened to what was said. I commend the report because I believe we can do far more than we are doing.

John Gerard Hanafin (Fianna Fail)
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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.

Joe O'Toole (Independent)
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I wish to declare an interest. As vice chairman of the PIAB, I have taken a deep and abiding interest in this area. There are a number of issues regarding the whole area of brokerage and insurance on which we need further information. One of the recommendations of the report is that the client should be aware of the fees and commissions being paid. This should be made clear from the beginning. Brokers need have no apologies for charging fees. If one visits a dentist or doctor, one will pay a fee for work done. A broker doing his or her job properly is entitled to be well paid for it. I would be the last person to pull back on this point. That it is unclear or in some way clouded does not help matters and leads people to draw the conclusion that everyone is being ripped off. That is not necessarily the case.

I would like to see brokers taking an interest in two areas, one of which they have no involvement whatever in and while they have a tangential involvement in the other, they could do much more. The first issue relates to the subrogation clause in insurance claims. This clause does not allow the client to insist that a claim be fought. This is a huge problem in many areas and Senator Quinn has referred to claims being fought on his behalf. I recently spoke to two business people about this issue. They decided that they wanted a claim fought. To do this, they had to write to the insurance company and accept liability if the case went wrong. They did not want the insurance company to do a deal, even though money would be saved, because of the wrong impression it would give and the attraction it would provide to other people. I am referring to circumstances where insurance companies conclude that it is cheaper to settle a claim rather than going to court for two or three days and winning a case against a person who has no funds. In these circumstances, insurance companies will calculate that three days in court may cost €30,000 while it will only cost €5,000 to settle the claim. This is fine until the person is buying a round of drinks in the pub that evening and tells everybody else about it. This sows the seeds for future claims.

The insurance companies do not pay the cost of this and instead put it down to "claims experience". The claims experience for that person, street or town is then dependent on it. As we well know, insurance companies are not in the risk business; they are in the profit business. We need to focus more on insurance companies than on brokers. The companies will add the claims experience on to the costs and charge premia accordingly. There is no incentive for the companies not to settle and to fight claims. Brokers negotiating with the insurance companies should at least begin a negotiation in allowing the client or broker to have some input to the decision on whether a claim will be fought.

The other issue I wish to raise is probably a little outrageous. However, it is a role in which brokers could have a high profile and insurance companies could almost be taken out of the equation. I am referring to circumstances where people feel they are being overcharged for insurance cover. People could enter a tontine arrangement where those who felt this way could form a mutual group. This group would develop a fund over a number of years to cover itself. Let us say that 20 people invested €5,000 per year. At the end of the first year this group, now with €100,000 in the fund, would simply seek insurance for amounts greater than €100,000. After the second year it would seek insurance for amounts greater than €200,000 and so on. There would eventually come a time when the group would simply deal with re-insurers rather than insurance companies. I feel such an arrangement is legal, attractive and possible. However, such an arrangement could not be administered or developed by someone in another line of business and this is where brokers can bring their expertise to bear. They can do a real job, produce a real product and make a real development in something while ensuring they collect their annual fee in the same way as an accountant.

I would trust brokers to develop products along this line. I would like to see more development in this area. There is no reason that this should not happen. It is not like car insurance — people are not required by law to have certain types of insurance. It only requires someone to take a creative approach. While I understand that this is done in a number of places, it is not widespread.

Under this arrangement, brokers would be able to develop a product and use their expertise to establish a new profile. This profile would have more value than that which currently seems to pertain. I would like to hear the view of the Department on this matter. While I am sure it will find 24 problems arising from it, 24 problems are easily dealt with by 24 solutions and that is the business in which we are engaged. Instead of being critical of the work brokers do, we should look at their role and seek ways of enhancing, progressing and developing it. Brokers are important in this and it is important that someone should bridge the gap between insurance companies and the client. Despite what is in the report, I feel a local person is better protected with a local broker than dealing with a direct insurer.

It is not like buying an airline ticket. These are people to whom one will have to go again if there is ever a claim. These people will know their clients and say they are trustworthy. It gives added value and is preferable to lifting the telephone and speaking to somebody in India to get insurance for a property in Dingle. That arrangement does not suit the Irish psyche and I am not attracted to it.

The brokers themselves should take the lead on some of these issues. The great problem with professional groups in Irish society is that they are always under pressure. For instance, it was interesting to hear Mr. Fingleton from the Competition Authority state this morning that his next target was lawyers. I was so relieved because I have been the target of lawyers since I got involved in the Personal Injuries Assessment Board and I am losing votes by the day. Now that they have Mr. Fingleton to deal with, maybe they will take less of an interest in the Personal Injuries Assessment Board.

We should recognise that brokers are the important local link, that it is worth protecting them and that they themselves should take a stand. Lawyers have a problem because everybody saw the problem developing and did nothing about it. This House is currently looking at reform possibilities because we know that if we do not do something about it, it will be taken out of our hands. The same is the case with every professional group such as legal people and doctors.

Brokers should now say they recognise the position and every time there is a meeting of the brokers of Ireland, half of those at the back of the hall will say that they will fight this and get on to the politicians to ensure nothing happens. That is not the way the world works. Change will happen. It is better for the brokers to ask what will happen if they do nothing and find themselves in deep water shortly. It is better to make a few proposals, do their business which adds value, show that they are important to the people of Ireland and to the industry and show that people can have confidence in them.

I ask that it be put to the brokers that in all cases they simply set out their commission and fees. If clients do not like it, let them go somewhere else. At the end of the day, it is a cleaner way to proceed. They are entitled to their fee and should make no apologies for it. Perhaps the Minister of State could give some indication as to whether my idea of a mutual society — I also called it a tontine society but a mutual society would probably be the best description — could be used by people to develop their business protection.

Eamon Scanlon (Fianna Fail)
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I welcome the Minister of State, Deputy Michael Ahern, back to the House. The Competition Authority's report has been critical of insurance brokers. This is a little unfair because it takes the spotlight off insurance companies which have increased premiums at the rate of 100%, 200% and 300% over the past number of years. In fairness, the Government has done everything in its power, through the Motor Insurance Advisory Board report and the Personal Injuries Assessment Board Bill which has passed through both Houses, to reduce the number of claims and the number of accidents occurring.

The brokers' association must take a little responsibility here. Despite the fact that premiums have risen considerably over the past number of years, the commissions paid on these premiums to brokers stands at 5% for motor insurance and 9% for public liability insurance. Brokers should do more to show greater transparency in their dealings with the general public. People are concerned because there seems to be secrecy about the commissions paid. When they issue renewals there are obligations on the brokers to show the products and the companies for whom they work, but I agree with Senator O'Toole that the brokers could do much to improve their position in the insurance market and to make it more transparent.

The brokers do a good job. As I stated at the outset, I would not like to see the insurance companies get off the hook here. Reading the report, one would think that all the problems lead back to the brokers. They do not. However, the brokers could do much more to improve their own position.

Mary Henry (Independent)
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I also welcome the report. Of course I had to look at it from the point of view of medical negligence claims and so forth. Some really spurious arguments have been brought forward regarding the effectiveness of litigation in reducing medical errors, for example, and there is absolutely no evidence of this. On a recent edition of "Prime Time" the director general of the Law Society stated that some 2,000 people die from preventable medical errors in Irish hospitals every year and it is likely that 14,000 people are injured or killed in Irish hospitals every year. This is really just information which has been taken crudely from the estimated extent of hospital errors in American hospitals and transposed into an Irish setting without anyone producing evidence that this is the case.

What has been particularly resented was the claim made on that television programme that the courts have contributed hugely to the safety of our hospitals. There is absolutely no evidence to show that at all. Medical errors in general are due to people being over-tired or undertaking work in which they do not have adequate experience in many cases. I strongly support the Government's efforts to bring in a consultant-provided service. To date, we have had a consultant-led service and this certainly has been a problem with people having to undertake duties for which they were not perhaps qualified.

Sometimes the legal profession compliments itself on things it is not doing. There has been a much better system in areas where we have had more open reporting of faults rather than in areas where people have been running to litigation immediately. Any way in which we can remove litigation from the centre of court processes and claims can only be to the advantage of everyone within our society.

Michael Ahern (Cork East, Fianna Fail)
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I thank all Senators who contributed to this debate. Many of them were reasoned and some were slightly excitable but it made for an interesting afternoon.

In my closing remarks, I will highlight the pertinent points of my opening address. The Government welcomes the publication of the Competition Authority report on competition issues in the non-life insurance market, which is a preliminary report and a consultation document. The undertaking of a study on competition in the insurance market is one of the recommendations of the MIAB report and is a key element of the reform programme.

The insurance reform programme comprises 67 recommendations of the MIAB report and 32 of these have already been implemented. The MIAB action plan and a ministerial committee monitors the progress of the implementation of these 67 recommendations.

The MIAB action plan covers a broad spectrum of activities which impact on the insurance market. It includes measures aimed at improving the law on personal injuries. The Civil Liability and Courts Bill has been published and is soon to be before the Houses of the Oireachtas and the legislation to establish the Personal Injuries Assessment Board was signed into law in December 2003. Significant progress has been made on the logistics with a view to the PIAB hearing cases by the middle of the year.

On implementing and enforcing the Road Traffic Acts, penalty points have been introduced by the Minister for Transport and a new road safety strategy statement is expected shortly. On providing greater transparency and protection to consumers, IFSRA set up a one-stop website on 26 November 2003 and published its code of practice for insurers in December 2003. On the provision of greater information to the consumer, IFSRA published the first set of its three monthly comparative tables showing motor insurance quotations in December 2003.

It is the Government's firm intention to continue to implement the measures in An Agreed Programme for Government which relate to tackling the high cost of insurance, and to implement any recommendations which result from the final findings of this study by the Competition Authority. The authority has identified some specific issues which give rise to competition concerns with regard to barriers to entry and rivalry in the insurance market. These concerns are being explored further in a public consultation process which will last for two months.

As regards insurance brokers, competition concerns for further consideration include the existence of ad valorem or fixed percentage fees which do not appear to have been computed downwards despite rapid increases in underlying premiums; the possibility of conflicts of interest arising from, on the one hand, the obligation to provide best advice to the client and, on the other, incentives from insurers, including overriding commissions related to quantity of sales and minimum thresholds of business; and a lack of transparency in that buyers do not necessarily know what incentives and commissions the broker may receive or which insurers the broker has contacted on their behalf.

As regards insurers, several issues of concern for further consideration have been identified. With regard to data sharing on lost statistics which helps to assess risk and calculate premiums, questions have arisen about the extent, timeliness, availability and reliability of data, all of which need to be explored further. With regard to the funding and handling of claims arising from uninsured and untraced drivers and the method of operation of the declined cases agreement, suggestions are being sought as to whether changes could be introduced which would deal with competition concerns. On solvency requirements for insurance companies, the policy of setting higher margins for new entrants than for existing companies is being examined further to ascertain whether it acts, in practice, as a barrier to entry.

The comments of Senators are welcome and will be taken into account by the Competition Authority in the public consultation process. This process will conclude on 18 April next, after which the authority will prepare a final report and recommendations which it aims to conclude during the summer.