Thursday, 21 January 2016
Department of Finance
Motor Insurance Regulation
54. To ask the Minister for Finance if the insurance industry has explained the increased cost in car insurance to him; if the insurance industry is profiteering; and if he will make a statement on the matter. [2587/16]
As Minister for Finance, I am concerned that there should be a stable insurance sector and that risks to policyholders and to the wider financial system are limited. I am aware of reports on the increasing cost of motor insurance. However, the ability of the Government to influence insurance pricing is limited as insurance companies are required under European law to price in accordance with risk and neither I, as Minister for Finance, nor the Central Bank of Ireland, have the power to direct insurance companies on the pricing of insurance products.
I raised the issue of the cost of insurance, and particularly the rising cost of motor insurance premiums with representatives of the insurance industry, at a meeting in my Department on 3 December 2015. They indicated that a number of issues are feeding into increasing insurance costs. The insurance industry view is that High Court awards have increased and that the Personal Injuries Assessment Board (PIAB), which it believes is a very good mechanism, does not appear to have the same influence on claims awards that it used to have. The industry is also of the view that legal costs are generally up with approximately 60% of the cost of claims being apportioned to legal expenses. Furthermore, it was indicated that as economic activity speeds up claims activity also increases. Finally, the industry is estimating that that recent Setanta/Motor Insurance Bureau Ireland court ruling could add further to insurance costs.
The Central Bank advises me that competitive conditions within the insurance market intensified in recent years and that many firms focused on maintaining market share which provided impetus to lower premiums. Competition on premiums was subsidised by investment income and other measures. Recent reversals in investment markets have generated investment losses that are a drag on profitability. In the view of the Central Bank, the recent premium increases are aimed at restoring core underwriting profitability and securing the financial position of the firms concerned for the longer term.
While the provision and the pricing of insurance policies is a commercial matter for insurance companies, this does not preclude the Government from introducing measures that may, in the longer term, lead to a better claims environment that could facilitate a reduction in claims costs.
The question of the cost of insurance is a complex one involving a number of Government Departments, State Bodies and private sector organisations. I have asked my officials to examine the factors which contribute to increasing costs of insurance. This work is part of an overall review of the insurance sector which my Department will undertake in consultation with the Central Bank and other Departments and Agencies. This work will continue over the coming months and will involve engagement with a number of parties, both public and private.
55. To ask the Minister for Finance his views that the insurance industry is within its rights in disproportionately increasing the cost of car insurance to younger adults and in excluding cars that are over 12 years old from insurance quotes; and if he will make a statement on the matter. [2588/16]
As Minister for Finance, I am responsible for the development of the legal framework governing financial regulation. I am aware of reports on the increasing cost of motor insurance. However, the ability of the Government to influence insurance pricing is limited as insurance companies are required under European law to price in accordance with risk and neither I, nor the Central Bank of Ireland, have the power to direct insurance companies on the pricing or the provision of insurance products.
The EU framework for insurance expressly prohibits Member States adopting rules which require the prior approval or systematic notification of certain matters, including general and special policy conditions and scales of premiums. Furthermore, the EU framework provides non-life insurers with the freedom to set premiums. This has been acknowledged by the European Court of Justice.
Insurance companies consider a number of risks when determining the premium for a proposed insurance policy, whether that is a general insurance policy such as motor or home insurance, or a life assurance policy. A premium is based on the actuarial calculation of risk.
I have again consulted with the Central Bank of Ireland on this matter. The Central Bank confirmed that it has no remit over the pricing of insurance policies or the practices of insurers in relation to underwriting particular risks. These are commercial decisions for the various insurers themselves and the Central Bank cannot force an insurer to accept particular risks.
Insurance Ireland has informed me that motor insurers make their own individual decisions on whether to offer cover and what terms to apply. They use a combination of rating factors in doing this, such as the age of the driver, the type of car, claims record, driving experience, number of drivers, how the car is used, etc. Insurers do not all use the same combination of rating factors, prices vary across the market and consumers are free to choose. Insurance companies price in accordance with its own past claims experience and, for example, where the age of a car is a factor, different insurance companies would use different age thresholds.
In the event that a person is unable to obtain a quotation for motor insurance or feels that the premium proposed or the terms are so excessive that it amounts to a refusal to give them motor insurance, they should contact Insurance Ireland (telephone +353 1 6761820) quoting the Declined Cases Agreement. Under this Agreement, the Declined Cases Committee of Insurance Ireland deals with cases of difficulty in obtaining motor insurance.