Committee Reports > List of Committees > Joint > 2004 > Committee on Enterprise and Small Business > Report No. 02 - Second Interim Report on Reforms to the Irish Insurance Market

Tithe an Oireachtais

An Comhchoiste um Fhiontraíocht agus

Mionghnóthaí

An Dara Tuarascáil

An Dara Tuarascáil Eatramhach maidir le hAthchóirithe ar Mhargadh Árachais na hÉireann

Iúil 2004

Houses of the Oireachtas Joint Committee on Enterprise and Small Business

Second Report

Second Interim Report on Reforms to the Irish Insurance Market

July 2004

Chairman’s Foreword

The Joint Committee on Enterprise and Small Business on establishment immediately identified the issue of insurance as being to the forefront of the issues to address, due to the crippling effects of increases in premiums on business and consumers and due to the impact that this had on competitiveness and employment.

Having issued our First Interim Report in August 2003, the Joint Committee, as we promised, returned to the issue in late 2003 and 2004. Our objectives were to monitor progress being made both by government and by the industry.

To this end we must express our appreciation for the support given by the Tánaiste and Minister for Enterprise, Trade and Employment, Ms. Mary Harney T.D., the Minister for Transport, Mr. Seamus Brennan T.D., the Minister for Justice, Equality and Law Reform, Mr. Michael McDowell, T.D., the Minister of State with responsibility for Labour Affairs, Mr. Frank Fahey T.D., and all of their Departmental officials. We also wish to express our thanks to those in the insurance industry and business and consumer groups who made presentations to the Joint Committee or who made submissions. A full list is available at Appendix A.

The Joint Committee wishes also to thank O’Reilly Consultants, who were appointed to assist the Joint Committee in its evaluation and analysis of the evidence given, and the Committee secretariat for their support throughout this project.

In adopting this Second Interim Report, the Joint Committee wishes to announce that it will be returning to this issue at an early date, particularly as many of the improvements promised by Government come into effect over the next few months.

Donie Cassidy T.D. Chairman

15 July 2004

CONTENTS

Chairman’s Foreword

Membership of the Joint Committee on Enterprise and Small Business

Abbreviations

CHAPTER I

   Overview

CHAPTER II

   Summary of recommendations and issues under review

CHAPTER III

   Introduction

CHAPTER IV

   Developments since 2003 report

CHAPTER V

   Motor Insurance Advisory Board’s Recommendations

CHAPTER VI

   Personal Injuries Assessment Board

CHAPTER VII

   Civil Liability and Courts Reform

CHAPTER VIII

   Road Safety

CHAPTER IX

   Health and Safety in the Workplace

CHAPTER X

   Competition in the insurance market

CHAPTER XI

   Insurance Companies

CHAPTER XII

   Insurance regulation

CHAPTER XIII

   Insurance Brokers

CHAPTER XIV

   Further reductions in insurance premiums

Appendix A

   List of Attendees

Appendix B

   List of First Interim Report Recommendations

Appendix C

   Summary report on MIAB recommendations

Appendix D

   First Interim Report Recommendations Index

Membership of the Joint Committee on Enterprise and Small Business

Deputies

Joe Callanan (Fianna Fáil)

Donie Cassidy (Fianna Fáil) (Chairman)

Tony Dempsey (Fianna Fáil)

Phil Hogan (Fine Gael)

Brendan Howlin (Labour)

Conor Lenihan (Fianna Fáil) (Vice Chairman)

Kathleen Lynch (Labour)

Paddy McHugh (Other)

Gerard Murphy (Fine Gael)

M.J. Nolan (Fianna Fáil)

Ollie Wilkinson (Fianna Fáil)

Senators

Paul Coghlan (Fine Gael)

John Gerard Hanafin (Fianna Fáil)

Terry Leyden (Fianna Fáil)

Shane Ross (Independent)

Abbreviations

AIR – Alliance for Insurance Reform

IBA – Irish Brokers Association

IBEC – Irish Business and Employers Confederation

IFSRA – Irish Financial Services Regulatory Authority

IHF – Irish Hotels Federation

IIF – Irish Insurance Federation

MIAB – Motor Insurance Advisory Board

PIAB – Personal Injuries Assessment Board

PIBA – Professional Insurance Brokers Association

SFA – Small Firms Association

CHAPTER I

Overview

This Second Interim Report of the Joint Committee on Enterprise and Small Business on “Reforms to the Irish Insurance Market” provides a general review of the implementation of the recommendations made in the First Interim Report, published in August 2003.

Since the First Interim Report was published, there have been a number of significant developments. Among these have been the enactment of the Personal Injuries Assessment Board Act and the Civil Liability and Courts Act. Perhaps, most important of all, the cost of insurance for consumers and for businesses has started to fall.

This review has found that, although many of the recommendations in the First Interim Report have been accepted, few have been completely implemented at this time. Three Bills are due for enactment before the end of 2004. These cover driving school registration, general road safety measures and health and safety in the workplace. When these are enacted and brought into force, substantial changes to the environment in which insurance companies and policy holders operate will have taken place. There is no reason now why any insurance company should not have full confidence in operating in the Irish market.

There are other recommendations which require action by Government. The actions are listed in this report. This review makes further recommendations and amends some existing recommendations.

In the Overview in the First Interim Report, the Joint Committee’s objective was stated to be that “insurance costs should be no greater than those applied in the year 1999, adjusted for inflation”. The Joint Committee considers that this is an achievable objective if its recommendations are implemented.

CHAPTER II

Summary of recommendations and issues under review

The First Interim Report of the Joint Committee made 40 recommendations. Many of the recommendations have been accepted and are due to be implemented. A number of other recommendations have not been accepted. In addition, in this report, there are a number of new recommendations arising from the public hearings.

This chapter is divided into the various sections outlined below.

1. New recommendations.
2. Recommendations not yet accepted.
3. Recommendations implemented
4. Recommendations accepted but awaiting implementation.
5. Recommendations to be reviewed in future.
6. Recommendations not required or replaced.
7. Issues for future review.

1. New recommendations

The Joint Committee recommends that:

2. Recommendations in First Interim Report not yet accepted and now reiterated by the Joint Committee

2. The provisions of the Court Bill 2001, in relation to the financial limits of the courts, be brought into force and that the Courts Service bring forward proposals to reform the courts as a matter of urgency.

4. The 2% levy, which is now merely a source of tax revenue, should be abolished.

6. An arrangement be entered into between insurance companies and hospitals that would refund hospitals for the costs of treating injured persons at normal health insurance rates but that would avoid the pursuit of individuals to make claims on insurance companies.

7. The Government establish an expert group who would consider the information now published by PIAB on the levels of awards in the Irish courts, the levels of UK awards and the levels of awards in other jurisdictions. This group would recommend a level of awards that would be appropriate to Ireland. The recommendations of the group should be published in draft form to allow all interested parties, including representatives of victims, to make submissions on the proposals

16. All speed cameras should be operated by An Garda Síochána.

19. The Irish Financial Services Regulatory Authority review the Irish solvency regulations to ensure that they are in the best interests of policyholders, existing insurance companies operating in Ireland and potential entrants.

20. The Government permit insurance companies, as part of their solvency requirements, to invest in public/private partnerships and infrastructural projects on a basis to be determined annually by the Minister for Finance

23. The Irish Financial Services Regulatory Authority give effect to the IBEC/Insurance Industry Federation Communications Guidelines by statutory order, so that the guidelines have the power of law.

24. Where a policyholder objects to a settlement of a claim by an insurer, the insurer should not be able to settle the claim unless, having asked for an arbitrator to consider the issue, the arbitrator finds in favour of the insurer. The losing party should pay for the arbitration.

25. Policyholders should see clear evidence of the benefit of being claim free. Accident-free policyholders or those with low levels of accidents should be seen to be rewarded.

26. All policyholders should, on renewal, receive information on the basis on which the premium is calculated.

28.All regulatory barriers or regulatory impositions on insurance companies that make entry to the Irish market (for Irish or other EU companies) more difficult than to any other EU country should be removed by the Irish Financial Services Regulatory Authority immediately.

30. The Taxing Master should not be, nor have been, a member of the legal profession. The decisions of the Taxing Master should be subject to appeal to a lay appeals body.

31. In-house barristers should have a right to appear in court in defence of claims against the insurance companies that employ them.

32. There should be no production quotas established by any insurance company that might inhibit or prevent brokers from giving independent advice to their clients.

34. Insurance companies should not discriminate against competing brokers in making available renewal information.

40. Organisations, meeting certain financial criteria, should be able to self-insure for all motor risks.

3. Recommendations implemented

8. The proposed Civil Liability and Courts Bill to contain a provision that would require judges, on making decisions in relation to the level of awards, to have regard to the Book of Quantum applied by PIAB.

11. The measures in the proposed Civil Liability and Courts Bill to eliminate fraudulent and exaggerated claims be adopted.

14. The Government immediately bring in legislation for the regulation of driving schools.

21. An annual review of the insurance market should be carried out by the Joint Committee to consider whether its expectations of reform are being realised.

27. The Competition Authority publish at least an interim report on the insurance market before the end of 2003.

35. IFSRA, the Irish Financial Services Regulatory Authority should give consideration to the issue of whether brokers should operate only on a fee basis.

39. The Bill to make new provisions for health and safety be introduced immediately.

4. The recommendations below have been accepted and will be kept under review by the Joint Committee to ensure that they are implemented

3. The Government negotiate a common European market protection for insurance policy holders against the insolvency of an insurer.

9. PIAB, as soon as possible and certainly within six months of its establishment, should deal with public liability and motor accident claims, as well as employer’s liability claims.

13. Legislation should be introduced to permit the keeping of central records on claimants by insurance companies, subject to appropriate safeguards.

15. Penalty points be extended to all motoring offences affecting road safety as quickly as possible and that the necessary infrastructure of IT systems be put in place to achieve this.

17. A dedicated traffic corps within An Garda Síochána be established at the earliest opportunity with a view to increasing the enforcement of road traffic regulations and reducing deaths and injuries on the roads.

18. The Minister for Transport publish a detailed set of proposals to deal with young driver licensing and training, so as to reduce the wholly unacceptable level of deaths and injuries among young drivers.

29. The Government establish an Inquiry, composed mainly of non-lawyers, into the present levels of legal fees in personal injury actions. The Inquiry would undertake a study of the costs and would consider whether the current level of fees being awarded by the Taxing Master are reasonable in relation to the work being undertaken by solicitors in preparing cases for trial. This Inquiry would also consider the necessity for the extensive use of barristers in personal injury actions in the Irish courts.

36. An annual awards scheme be introduced to recognise the companies that have had no accidents for several years and those that have made a significant effort to improve safety.

37. The Health and Safety Authority and the insurance companies should specify appropriate health and safety standards with a view to offering premium reductions for companies that comply with such standards.

38. The Health and Safety Authority be properly resourced so that Irish safety performance levels become among the best in the EU and that they meet the target of 8,000 inspections per annum.

5. The recommendations below will be monitored by the Joint Committee and will be subject to review in the future

10. Where, not having accepted a PIAB award, the court award is equal to or less than a PIAB award, legal costs should not be allowed to the claimant.

12. Specific judges should be allocated to deal with personal injury cases and they should be required to undertake training in relation to insurance issues.

6. Recommendations not required or replaced

5. The Irish Financial Services Regulatory Authority facilitate the placement of Irish motor insurance business outside the jurisdiction by amending existing regulations.

22. The Irish Financial Services Regulatory Authority, in the interests of transparency, should publish the justification given by insurance companies for changes in their premiums.

33. 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.

7. Issues for future review (on which no recommendations have been made)

1. The continuing expansion of Irish tort law. (Chapter 10)
2. Consideration of competition issues arising from final report of the Competition Authority. (Chapter 10)
3. Compulsory Employers’ Liability Insurance. (Chapter 12)

CHAPTER III

Introduction

The Joint Committee on Enterprise and Small Business published its First Interim Report on reforms to the insurance market in early August 2003.

The First Interim Report made 40 recommendations. A list of the recommendations is contained in Appendix B.

The developments since the publication of the First Interim Report are given in the next chapter.

The Joint Committee appointed O'Reilly Consultants (11 Hume Street, Dublin 2) in October 2003 to provide further support during its series of oral hearings and to draft its next report.

The Joint Committee held a series of oral hearings with invited organisations, commencing on 12 November 2003.

A list of the organisations and individuals who attended hearings of the Joint Committee at the Committee’s request is included in Appendix A.

Following each hearing, a report was circulated to the Members of the Joint Committee. The full transcripts of the hearings are published by the Editor of Debates. Video and tape recordings of the hearings are also available.

This report is the Second Interim Report of the Joint Committee on “Reforms to the Irish Insurance Market”. It is the Joint Committee’s intention to continue to monitor developments in relation to insurance reform.

The Joint Committee invites comments on this report.

Each of the First Interim Report recommendations is shown in italics throughout the report and is reviewed. An index to the chapters where the First Interim Report recommendations are reviewed is contained in this report in Appendix D.

CHAPTER IV

Developments since 2003 report

The principal developments have been as follows:

1. PIAB is now up and running since 1 June 2004 and dealing with employers liability cases. (See Chapter 6).
2. The Minister for Justice, Equality and Law Reform published the Civil Liability and Courts Bill to radically reform the law on personal injuries actions. The Bill was passed by the Dail on 15 July 2004. (See Chapter 7)
3. The Minister for Transport, Mr. Seamus Brennan, T.D., has published the Driver Testing and Standards Authority Bill 2003 and will shortly publish a Bill relating to road safety issues. (See Chapter 8)
4. The Minister of State with responsibility for Labour Affairs, Mr. Frank Fahey, T.D., published the Safety, Health and Welfare at work Bill 2004. (See Chapter 9)
5. The Competition Authority published five reports on the insurance sector. (See Chapter 10)
6. Insurance companies returned very substantial profits in the year 2003. According to the Insurance Industry Federation, the 20 non-life insurance companies operating in the Irish market made a combined operating profit of €747m in 2003. (See Chapter 11)
7. IFSRA published comparisons of quotations received from motor insurers on its website. This comparison showed the benefits of obtaining quotations from a number of different sources. IFSRA published its most recent motor insurance cost survey on 24 June 2004. (See Chapter 12)
8. The Minister for Justice, Equality and Law Reform undertook to establish an enquiry into the level of legal fees. (See Chapter 7)
9. The Committee on Court Practice and Procedure published its report relating to personal injuries litigation.
10. The Tánaiste reported that, when the Civil Liability and Courts Bill is enacted, she expects at least one substantial new entrant to the Irish insurance market.
11. IBEC and ICTU agreed a voluntary code of practice on workplace safety. This code envisages that some accident claims will be settled between employer and employee without recourse to PIAB or insurance companies.

Changes in premiums

Insurance Companies

Since the publication of the Joint Committee’s First Interim Report, the Committee has met with Allianz, Axa, FBD, Hibernian and Quinn Direct on two occasions. On each occasion, the insurers were asked to provide the Joint Committee with evidence of reductions in insurance premiums, with particular reference to motor insurance, employers and public liability insurance. This evidence is summarised below.

Allianz

November 2003

At its meeting with the Joint Committee in November 2003, Allianz outlined the following year-to-date reductions to premiums.

Table 4.1– Changes in Premium

(Source – Allianz)

April 2004

The following reductions were reported by Allianz at its meeting with the Joint Committee in April 2004.

Table 4.2 – Changes in Premiums

(Source – Allianz)

Allianz stated, in relation to motor insurance, that;

– Further reductions will follow if the improving claims trend can be sustained and improved on.”




– The upsurge in road fatalities in ‘04 to date is a cause for concern.”

In relation to liability insurance, Allianz stated;

– The numbers of reported accidents declined in ’03 ”




– Claims costs stabilised in 2003. ”




– Individual reductions of over 30% have applied. ”

AXA

November 2003

AXA provided the Joint Committee with the following data on premium reductions.

Table 4.3 – Changes in Average Premium

(Source – AXA)

AXA does not offer employers’ liability or public liability insurance.

April 2004

The average AXA customer renewing their premium in April 2004 would experience a 17% reduction. “In addition to … rate reductions, we (AXA) have enhanced policy benefits for many of our customers…such as … ‘no claims bonuses’.”

“The cost of claims will be key to further rate reductions.”

FBD

FBD provided the Joint Committee with the following data on premium reductions.

November 2003

Table 4.4 – Changes in Premium

(Source – FBD)

FBD stated;

“The improving underwriting results in motor has enabled significant premium reductions to be implemented; reductions commenced in May/June of this year.”

“Employers liability and public liability losses are beginning to reverse and we are currently analysing the business sectors where these trends are emerging. We anticipate finalising our analysis and implementing premium reductions at an early date for those sectors where reductions are warranted.”

April 2004

“Average reductions have varied from 10% to 20% depending on policy type.”

“If the current favourable trends are maintained, we plan on implementing further reductions.”

Hibernian

Hibernian made the following comments in relation to premium reductions at its meetings with the Joint Committee.

November 2003

Table 4.5 – Changes in Premiums

(Source – Hibernian)

Hibernian offers a number of schemes which offer policy holders reductions including RiskAsyst (applies to commercial insurance), Ignition (applies to motor insurance) and a 10% reduction for penalty point free drivers. Citing an example, in relation to the benefits of these schemes, Hibernian stated;

“Where the customer availed of the RiskAsyst and Commercial Excess Discounts, the premium was reduced by 23%.”

April 2004

Hibernian stated that they will “focus on further reductions for responsible customers”.

Quinn Direct

Quinn direct provided the Joint Committee with the following information in relation to premium reductions.

November 2003

Table 4.6 – Changes in Premium

(Source – Quinn Direct)

April 2004

Table 4.7 – Changes in Premium

(Source – Quinn Direct)

Quinn stated that reinsurance premiums have increased in general. Quinn Direct has mitigated this increase by reducing the level of premium passed on to reinsurance companies by taking a higher reinsurance entry point.

Lloyds

May 2004

“More recently rates have tended to stabilise or to fall, reflecting recent developments in the Irish legal environment.”

Brokers

Marsh

May 2004

Marsh cited the following recent examples of reductions in premiums;

– A construction sector client – 40% on their Liability cover.”




– A food sector client – 50% on their motor and property covers.”

Coyle Hamilton

May 2004

“Over the past six months significant premium reductions were achieved, ranging from 15% up to 50%.”

“The relative weakness of international insurance and reinsurance companies’ balance sheets will mitigate against continuing rate reductions.”

Business and Consumer Groups

Irish Hotels Federation

April 2004

From April 2003 – October 2003, premiums continued to increase. Between November 2003 and February 2004, there were signs of change in the market. Recently, there have been significant reductions. March saw reductions in some premiums of over 40%.

IBEC

April 2004

“IBEC will consider carrying out a survey of members in the early autumn to establish the current trends in insurance costs.”

The Joint Committee hopes to review the results of this survey in the next phase of its investigations.

The Construction Industry Federation

April 2004

Since July 2003 (date of CIF’s last appearance before the Joint Committee), there has been a significant turnaround in the availability and cost of employers liability and public liability insurance in the construction sector. The reasons for this include:

• reduction in site accidents,
• reduction in the cost of settling claims,
• increased underwriting capacity,
• anticipated impact of PIAB and
• anticipated impact of the Civil Liabilities and Courts Bill.

Firms are generally experiencing 25% reductions in renewal premiums. Firms who were having difficulty getting a quote last year are now able to get three or four quotes. However, premiums still remain higher than they were two years ago.

The reductions in premiums experienced by CIF members have, in some cases, been as a result of accepting higher excesses

Conclusions

The insurance companies and major brokers who have come before the Joint Committee all document reductions in premiums for policyholders over the last twelve to eighteen months.

The insurers promise further reductions, provided favourable market conditions prevail and the Government delivers on its promised insurance reform programme.

CHAPTER V

Motor Insurance Advisory Board’s Recommendations

Information at 9 July 2004 regarding progress in implementing the recommendations of the Motor Insurance Advisory Board (MIAB) is enclosed in Appendix C.

The Joint Committee’s First Interim Report included a detailed chapter, and a section of the appendices, on the MIAB recommendations. The table below summarises the progress of the implementation of the 67 recommendations since July.

Table 5.1 –

Considerable progress has been made in the intervening months to advance many of the recommendations. Over half of the recommendations are now fully implemented, many others are almost implemented, with only ten being under consideration or unable to be progressed further at this point.

In the recent weeks, PIAB was established, the Civil Liability and Courts Bill was enacted and the Safety, Health and Welfare at Work Bill was published.

Recommendations Relating to the Department of Transport

The MIAB report made seven recommendations to the Department of Transport. Of

these:

– Two are fully implemented,




– Three are “in progress”,




– One cannot be further progressed at present, and




– One is under consideration.

The enactment of the Driver Testing and Standards Authority Bill 2004 will address many of the remaining MIAB recommendations.

The MIAB recommendations relating to the Department of Transport also address the issue of uninsured drivers. On this issue, the Joint Committee recommended that:

The Department of Transport since announced that uninsured vehicles are being confiscated by the Gardaí. However, the Joint Committee was informed by the Minister for Justice, Equality and Law Reform that few uninsured vehicles have been confiscated due to the cost penalties for already constrained Garda budgets.

The Joint Committee recommends that:

41. The Departments of Finance and Justice, Equality and Law Reform, remove any impediment to the impounding of uninsured vehicles by the Garda.

Recommendations Relating to the Department of Justice Equality and Law Reform

Fourteen of the MIAB recommendations relate to the Department of Justice, Equality and Law Reform. Of these;

– Two are fully implemented,




– Eight are “in progress”,




– Three cannot be further progressed at present, and




– One is under consideration.

On a comparison of the progress of the implementation of the MIAB objections relating to the Department of Justice it appears that little progress has been made since the publication of the Joint Committee’s First Interim Report. However, the enactment of the Civil Liability and Courts Bill deals with six of the recommendations, in particular, the recommendation “that stringent measures be introduced to tackle fraudulent and exaggerated claims”.

Recommendations Relating to the Department of Enterprise, Trade and Employment

Five MIAB recommendations relate to the Department of Enterprise, Trade and Employment. Of these;

–Five have been implemented.

With the commencement of PIAB on 1 June 2004, all MIAB recommendations relating to the Department will have been implemented.

Recommendations relating to IFSRA formerly relating to Department of Enterprise, Trade and Employment

There are seven MIAB recommendations which fall into this category. Of these;

– Two have been implemented,




– Three are partially implemented and




– Two are under consideration.

Recommendation relating to the Department of Finance

The MIAB report included only one recommendation aimed at the Department of Finance. A similar recommendation was also included in the Joint Committee’s First Interim Report. The Joint Committee recommended that:

The Department of Enterprise, Trade and Employment’s review of the progress of implementation of the MIAB recommendations states that this recommendation “cannot be further progressed at present”. The Joint Committee, however, continues to recommend that the 2% levy be removed.

Recommendations relating to the Department of Finance in relation to the IFSRA’s Legislation

Two MIAB recommendations fall into this category. One is implemented and the other is “in progress”.

The MIAB recommendation that an Insurance Ombudsman be appointed is provided for within the Central Bank and Financial Services Authority of Ireland Bill 2003 next IFSRA Bill, which is currently before the Oireachtas. The Bill provides for the establishment of an office of Financial Services Ombudsman.

Recommendations relating to IFSRA

Of the eleven MIAB recommendations relating to IFSRA, ten have been implemented and one is partially implemented.

Significant progress has been made on the MIAB recommendations relating to IFSRA since the Joint Committee’s First Interim Report. The recommendation partially implemented relates to “the central gathering of statistics on motor insurance premiums and claims costs by driver profile…to ensure that reliable information is available to inform public opinion in future years”.

Recommendations Relating to the Department of Health and Children

Only one MIAB recommendation relates to the Department of Health and Children. At the time of publication of the Joint Committee’s First Interim Report the recommendation was under consideration. However, it now “cannot be further progressed”. The recommendation relates to the Health (Amendment) Act 1986. MIAB recommended that the Act “be reviewed to the extent that it represents a discriminatory charge levied only on those involved in motor accidents at multiples of the rate charged to providers of health insurance”.

On this issue the Joint Committee recommended that:

The Insurance Industry Federation states that it recognises the sense behind this proposal, and would support a system for direct payment of hospital charges. Whether normal health insurance rates are appropriate – as opposed to lower rates, subsidised rates which apply to the public health service outside of the Road Traffic Accident injury cases – is less clear. The Insurance Industry Federation do however support the concept that some level of discount from the full economic cost of treatment should be allowed in recognition of the discriminatory nature of the existing charging structure and of administrative savings which direct settlement by insurers would generate.

IBEC states that it considers this to be an important issue. A fundamental concern with hospital charges related to injury cases is that people who may otherwise not make a claim are forced to do so because of being pursued for significant medical charges, which are not provided for under normal medical care or private insurance.

The Joint Committee believes that, given the costs to the Exchequer and to insurance companies of processing claims in court, a better system might be arranged between insurance companies and hospitals whereby hospitals are refunded on the basis of a form completed by the patient.

The Joint Committee will continue to urge that its recommendation on this issue be adopted.

Recommendations Relating to the Irish Insurance Federation

All of the recommendations relating to the Irish Insurance Industry Federation have been implemented.

Recommendations relating to the Competition Authority

Of the three recommendations relating to the Competition Authority, two have been implemented and one is “in progress”.

The Competition Authority’s study into the legal professions has not yet been completed.

Conclusion

Significant progress has been made in advancing the MIAB recommendations since the publication of the Joint Committee’s First Interim Report.

The Joint Committee notes the implementation by the Insurance Industry Federation of all the MIAB recommendations relating to it.

The Joint Committee also notes the significant progress made by IFSRA in implementing its MIAB recommendations since the publication of the Joint Committee’s First Interim Report.

The establishment of PIAB has led to many of the MIAB recommendations relating to the Government being implemented. The enactment of the Civil Liabilities and Courts Bill will further add to this list.

CHAPTER VI

Personal Injuries Assessment Board

In the Joint Committee’s First Interim Report, the draft scheme of the Personal Injuries Assessment Board (PIAB) Bill was examined. The Heads of the PIAB Bill were subsequently published, and the PIAB Act was passed by the Oireachtas in December 2003.

The Act provided for the setting up and operation of the Personal Injuries Assessment Board to consider personal injury cases.

PIAB began operation on 1 June 2004. The Book of Quantum, which contains general guidelines as to the amounts that may be awarded or assessed in respect of specified types of injury, was subsequently published on the Board’s website. (See PIAB’s website (www.piab.ie) for more information).

PIAB’s main objective is to reduce the cost of delivering compensation to genuine claimants while reducing the cost of insurance for consumers and business alike. PIAB will initially deal with employer liability cases. Its remit will subsequently be extended to public liability cases and claims involving motor accidents.

PIAB will have the following features:

– Liability will not be determined by PIAB.




– A claimant shall make an application to PIAB for assessment.




– The system is paper based; there are no oral hearings.




– The assessors may request information relating to the claims from third parties.




– Having made their assessment, the assessors will put their assessment in writing to both the claimant and respondent.




– The assessment is non-binding.




– If an assessment is not accepted, it will go to court.




– The Board shall contain no more than 11 members.




– Of the Board members, 2 will be from the Irish Congress of Trade Unions (ICTU), 1 from the Irish Business and Employers Confederation (IBEC) and 1 from the Irish Insurance Federation. The Director of Consumer Affairs and the Consumer Director of the Irish Financial Service Regulatory Authority shall also be members.




– The chief executive of PIAB shall manage the administration of the Board and perform functions as determined by the Board.

Extension of PIAB’s Remit

In the Joint Committee’s First Interim Report, it was recommended that:

PIAB will initially deal with employers’ liability claims only. By 1 September 2004 it will also deal with public liability cases and claims involving motor accidents.

In its First Interim Report, the Joint Committee stated that “it will be essential that PIAB operates in a claimant-friendly way and that those who are poor or disadvantaged in any way will be satisfactorily accommodated in the procedures being introduced”

The Joint Committee is pleased to note the Tánaiste and Minister for Enterprise, Trade and Employment’s assurance that “PIAB’s customer service centre will provide good, clear advice to claimants so that they will not require a lawyer. It will be claimant-friendly”.

Conclusion

The Joint Committee warmly welcomes the establishment of PIAB.

PIAB will significantly impact on how personal injury claims are settled. It should lead to a less adversarial and more efficient method of dealing with such claims.

CHAPTER VII

Civil Liability and Courts Reform

The Joint Committee made the following recommendation in its First Interim Report:

The Insurance Industry Federation states that this Bill will be crucial in helping streamline procedures and reducing the incidence of fraudulent and exaggerated claims.

IBEC supports this recommendation. IBEC states that it is vitally important with the introduction of the PIAB that effective measures exist to remove fraudulent and exaggerated claims in tandem.

AIR considered that judicial freedom should be removed from the Bill. The terms “may” should be removed and replaced by “shall”.

The Courts Service stated that the overall thrust of the Civil Liability and Courts Bill 2003 is to be welcomed.

The Civil Liability and Courts Bill was passed by the House of the Oireachtas on 8 July 2004.

Some of the measures included in the Bill are given below:

Reduction in time to make a claim

The Bill provides an amendment to the Statute of Limitations Act so that claims have to be made within two years rather than in three years. Furthermore, if a letter of claim is not sent within two months after the injury, the delay can result in no costs being awarded to the plaintiff.

Reduced delay in coming to trial

The parties to personal injuries actions are required to comply with the relevant rules of Court so that the trial will take place within a reasonable period of the commencement of the action.

Details of Claim

The Bill provides for the issue of a “personal injuries” summons and specifies the information that this must contain. Full particulars of all items, including special damage and the wrongful acts of the defendant must be given.

A defence must specify those elements of the claim of which the defendant does not require proof and the elements of the claim of which the defendant requires proof. All pleadings are required to contain full and detailed particulars.

Swearing of Affidavit

The parties are required to swear an affidavit verifying the contents of any pleading or further information requested. Such affidavit must be lodged in the relevant court within seven days of the service of the pleading.

Mediation Conference

The Court may direct the parties to personal injury actions to discuss an attempt to settle the action. Where a party fails to comply with a direction to take part in mediation, the Court may direct that party to pay costs incurred after that direction.

Offence of False and Misleading Evidence

The Bill makes it an offence to give evidence that is false or misleading, which the person knows to be false or misleading.

Where a plaintiff gives false or misleading information, the Court shall dismiss the action unless the Court considers the dismissal will result in an injustice. A similar consequence arises if the plaintiff has sworn a false verifying affidavit.

Income

For the purpose of a claim, the Bill provides that only income which has been returned in accordance with taxes legislation or notified to the Revenue Commissioners shall be regarded by the Court in assessing damages.

Penalties

The Bill provides for a fine not exceeding €100,000 or imprisonment not exceeding ten years or both upon conviction on indictment of bringing a fraudulent or exaggerated claim.

Views of Joint Committee

The Joint Committee is satisfied that these measures should substantially eliminate false or exaggerated claims and should speed up the process of hearing cases in the Courts.

Meeting with the Minister for Justice, Equality and Law Reform

The Minister for Justice, Equality and Law Reform, Mr Michael McDowell, T.D., met the Joint Committee on 1^st April 2004.

Allocation of specific judges to deal with personal injury cases

The Insurance Industry Federation states that it supports the concept of training judges for personal injury cases. The emphasis on training should be on the assessment of personal injury cases as opposed to “insurance issues”.

IBEC supports this recommendation stating that it had previously called for a panel of trained judges to hear personal injury claims in its fourteen-point plan.

The Minister expressed the view that, while it may be a good idea to appoint a panel of judges to hear personal injury cases, he was concerned that it might fragment the court system too much so there would not be enough “general practitioner” judges.

However, he undertook to discuss the issue of further judicial education on the economic implications of personal injury awards with the Presidents of the Courts.

Having considered the Minister’s views and taking into account the presentation by the Chief Executive of the Courts Service to the Joint Committee, the Joint Committee is not recommending in this report that specific judges should be allocated to deal with personal injury cases. However, this is an issue that the Joint Committee will keep under review.

The Joint Committee notes that the Minister for Justice will meet with the Presidents of the Courts to discuss further judicial education in relation to personal injury awards. This issue will be kept under review by the Joint Committee.

Amendments to Data Protection Legislation

The Minister stated that the Joint Committee recommendation would be favourably considered.

The Joint Committee will keep this recommendation under review.

PIAB Awards

The Insurance Industry Federation believes that the Book of Quantum established by PIAB will have a positive effect in encouraging consistency in negotiated settlements, PIAB recommendations and court awards, but it is self-evident that the database/book of quantum must be applied consistently by the courts and PIAB.

IBEC states that it recognises the objective and benefit of this recommendation but is concerned as to whether it is possible at the present time.

The Minister stated that he was sympathetic to the Joint Committee’s recommendation that the judiciary “should have regard to PIAB’s Book of Quantum” and he proposed to bring forward an amendment to the Civil Liability and Courts Bill.

The Joint Committee is pleased that the Oireachtas adopted this amendment.

Financial Limits of the Courts

Quinn Direct stated that this recommendation could have the effect of increasing professional costs. It was stated that, if the court limits are increased, awards, and as a result, professional costs will increase, which mitigates against insurance premiums.

The Insurance Industry Federation believes that this recommendation will have the effect of promoting inflation in both damages and costs, which would mitigate against the overall objective of controlling/reducing claims costs.

IBEC has concerns with this recommendation. It states that at the announcement of the Bill it outlined its concerns to the Minister for Justice with the result that, while new limits remain provided for in the Bill, they have not yet been given effect, but have been deferred.

IBEC states that the new limits could have a significant increasing effect on the technical reserves based on the estimated value of claims not settled.

AIR strongly disagrees with this recommendation. AIR disagrees with the Joint Committee that the enactment of the Courts Bill 2001 will result in more cases being heard in the lower courts. AIR believes it would only lead to increased award amounts being given to unworthy claimants – eventually to the maximum of the limit of amounts in both the district and circuit courts.

The Courts Service welcomes this recommendation. The Courts Service believes the measure will lead to reduced costs and greater local access to the courts.

The Joint Committee has recommended that the provisions of the Courts Bill 2001, in relation to the financial limits of the Courts, be brought into force. At the meeting on 1^st April 2004, the Minister stated that the Committee’s recommendation was different from that of MIAB. The Minister was unsure as to which measure is appropriate. He said he would review the position when PIAB and the Civil Liability and Courts Bill have been up and running for a while as he did not want to make a costly mistake.

The Joint Committee continues to believe that the financial limits of the Courts should be revised upwards and reiterates this recommendation.

Award of Costs

IBEC agrees with this recommendation. It suggests that, if the “final offers” provision of the Civil Liabilities and Courts Bill is strengthened, this would achieve the Joint Committee’s objective.

The Minister in the April meeting stated that it may be difficult, due to the provisions of the Civil Liability and Courts Bill, for a claimant who appeals a PIAB award to recover costs in the court if the court award is equal to or less than the PIAB award.

Again, the Joint Committee will keep this recommendation under review. When some of the PIAB awards are rejected by claimants and heard in the court, this issue is likely to arise.

The Insurance Industry Federation welcomed this recommendation. The Insurance Industry Federation stated that it would like to see early action taken to moderate the level of legal costs allowable for personal injury cases. The Insurance Industry Federation states that, as in the District Court, there should be no reason why a fixed scale of costs (related to the level of award on a sliding basis) should not be established and implemented in both the Circuit and High Courts.

IBEC supports this recommendation. However, IBEC adds that it has some concern that another study will merely establish what is already known to be the case and further delay action.

AIR welcomes this recommendation.

At the April meeting with the Joint Committee, the Minister for Justice, Equality and Law Reform stated that he was now considering the Joint Committee’s recommendation that an inquiry should be held into legal costs. He hoped to bring a proposal to Cabinet within the next four to six weeks. The taxation system and the appeals system would also be looked at.

The Joint Committee welcomes this decision of the Minister. The Joint Committee reiterates this recommendation.

The Insurance Industry Federation states that it would not insist that the Taxing Master should never be a member of the legal profession, but believes that there is plenty of scope for introducing lay interests into the fee-setting process. It supports the view that the Taxation Master’s decisions should be subject to appeal to an independent body with lay members.

AIR welcomes this recommendation.

This recommendation will be considered by the inquiry to be established by the Minister for Justice. The Joint Committee reiterates this recommendation.

IBEC supports this recommendation and suggests that it also be extended to self-insured businesses employing barristers.

The Joint Committee has received no other response to its recommendation that in-house barristers should have a right to appear in Court in defence of claims against the insurance companies that employ them.

The Joint Committee reiterates this recommendation.

Reform of court practice and procedure

The Joint Committee met with Mr P.J. Fitzpatrick, Chief Executive of the Courts Service, on 10 March 2004.

Mr Fitzpatrick stated in the course of his presentation or in response to questions from Members:

– The Courts Service was established to manage the courts and support the judiciary in the administration of justice. Since its establishment, the Service has engaged in major programmes of reform and modernisation to improve the support services and resources available to the courts.




– A significant proportion of the costs of prosecuting a claim arise in the early stages of a case or prior to the institution of proceedings.




– Feedback from stakeholders indicates dissatisfaction in relation to the hearing of personal injury cases relates to three main areas –



• • The time which elapses between the claimants instructing solicitors and the case being listed for hearing.
  • Lack of certainty that a case will proceed on the allotted trial date and the consequent difficulty and expense in ensuring the attendance of expert and professional witnesses.
  • Costs.

– Fifty percent of cases are set down within one year of the issue of summons, it is the other fifty percent which cause delays. Most of the delays in getting cases into the Courts are outside the control of the Courts.




– The average waiting time for a hearing of a personal injury case in the High Court in 2003 was 10 days in Dublin and between 3 to 6 months in the provincial courts, where the High Court sits on average for eight weeks each year, with the exception of Limerick and Cork where there were delays of approximately one and two years respectively.




– There is very little delay in the hearing of personal injury cases once they have been set down for hearing. Any perceived delays between an applicant going to their solicitor and the court office being notified that the parties are ready to go to hearing is caused largely by the parties and their representatives.




– It is estimated that less than 20% of cases go forward for hearing in the Circuit Court and only approximately 5% of cases in the High Court. Therefore, a reduction in the number of civil bills in the Circuit Court or summons in the High Court would not materially affect the time required for the hearing of these personal injury cases by the Court.




– The establishment of the Personal Injuries Assessment Board will free up court administrators time, but probably not that of judges, as the majority of cases which end up in court are ones in which liability is contested.




– The overall thrust of the Civil Liability and Courts Bill 2003 is to be welcomed.




– In the High Court Dublin Personal Injury List, 30 or more cases are scheduled each day by three or four judges. The price for high volume throughput can be uncertainty of trial date for those who don’t settle. A system of case management might “front-load” costs.




– In the provincial Circuit Court, priority has to be given to criminal cases.




– A system of guaranteed trial dates for all cases could necessitate additional judges, courtrooms and support staff. What is also needed is a cultural change




– if practitioners could be convinced to see judicial time as a scarce and valuable commodity, they might use it more prudently. Parties appearing before the High Court in Scotland are required to pay a fee (calculated per 15 minutes) for the use of the court.




– The prompt exchange of expert reports and the expansion of the use of video-links have the scope to reduce litigation costs by reducing the need for the attendance of such experts in person.




– If the PIAB is successful, it will undoubtedly reduce significantly the work involved in issuing thousands of summonses each year and in bringing cases to the stage where they are ready for hearing.




– All High Court personal injury cases can be accessed by the public or legal practitioners. As the Circuit Court computerisation programme evolves, its personal injury cases will also be accessible by computer. Eventually, a central registrar of personal injury cases will be available electronically.




– Only four county town court houses have not been refurbished recently. Each now has a minimum of three/four court rooms.




– The Courts Service is providing information to the Department of Education in relation to the operation of courts to form part of the secondary schools civics programme.




– Justice Susan Denham recently issued a paper which showed that the number of judges per head of population in Ireland is below that of other EU states and countries with common law systems such as the USA, Australia and New Zealand.

The Joint Committee welcomes the considerable progress being made by the Courts Service in improving the operation of the Courts.

Court practice and procedure

The Committee on Court Practice and Procedure published its report relating to personal injuries litigation on 22 June, 2004. The Committee reviewed all aspects of justice and procedure relating to personal injuries litigation in the High Court, the Circuit Court and the District Court.

The Committee recommended that:

• case management of personal injury actions be introduced in the High Court
• there should be early and full disclosure of information by both sides to litigation
• there should be no significant change in the practice and procedure of the Circuit Court and District Court
• there should be a two year period of limitation for the commencement of a personal injuries claim in the courts, rather than the current three year period
• there should be more published information on the court awarded sums in general damages in personal injury actions

On the specific issue of costs, the Committee recommended that:

• Judges should be given the powers to determine the amount of costs in appropriate cases
• Costs of unnecessary expert witnesses should be disallowed
• The taxation of costs should be modernised
• The Minister should establish, as a matter of urgency, an independent study, to include all claims, not just those litigated, as to the legal costs in personal injuries actions and as to how costs could be reduced.

The Joint Committee welcomes the publication of this report and looks forward to its implementation.

CHAPTERVIII

Road Safety

The Joint Committee’s First Interim Report made four recommendations regarding road safety. Each of these is dealt with below.

The Minister for Transport, Séamus Brennan T.D., at the official opening of a new Driving Test Centre at Castlemungret, Limerick, on 31 May 2004, said that the legislation establishing a new Driver Testing and Standards Authority would be before the Government for approval within a matter of weeks. The Driver Testing and Standards Authority Bill 2004 has since been published.

The Minister has accepted recommendation 15. The roll-out of the penalty points system is continuing and the Garda computer system is being updated to facilitate this. The Minister for Justice, in his evidence to the Committee on 1 April, stated that the penalty points system will have full computer back up by the middle of 2004.

The Minister has not accepted recommendation 16. He plans to outsource the operation of some speed cameras to a private sector contractor. The Committee continues to strongly believe that the Garda should be responsible for this activity and that it should not be subcontracted to a private operator. The Joint Committee is deeply concerned by the slow rate of progress in introducing the additional cameras.

Dedicated Traffic Corps

The Minister has accepted recommendation 17, but with certain reservations. He does not believe that the corps should be staffed exclusively by Gardaí. The Minister stated that the challenge was to get the balance between civilian and Garda members of the corps right. Legal issues need to be resolved, including whether civilians can arrest motorists etc. The Minister stated that he wants to see the corps handle traffic congestion matters. This was seen as the more suitable job for civilians.

Representatives of the Joint Committee discussed this issue in some detail with those responsible for road safety in New York State and New York City. As a result of these discussions, the Joint Committee is convinced that a traffic corps should be part of the Garda Síochána. The Corps should include civilians in uniform who would have responsibility for certain activities such as parking, traffic management, insurance checks etc. The civilians would not have any power of arrest.

The Corps should also include uniformed Gardaí. It is essential that all Gardaí would continue to be responsible for the enforcement of traffic rules. If this was not to apply, there might be insufficient resources to provide a service for all areas of the country at all times.

The existence of a dedicated corps should assist in keeping a Garda focus on the issue of road safety. The head of the traffic corps should report to the Garda Commissioner.

In New York City, the traffic corps consists of uniformed police and civilian members. Civilian members wear uniform but do not carry guns. The 76 patrol precincts are also responsible for traffic. According to the Chief of Transportation’s Office, if New York did not have dedicated traffic officers, the system would not work. At one time New York City had a separate traffic operation but this was disbanded.

The traffic corps assists in crime prevention because it is:

• Omnipresent,
• In radio contact, and
• Mobile – radio cars, scooters.

Enforcement initiatives by the traffic corps improve police visibility on streets.

The Traffic Corps in New York City has 2800 civilians and 600 uniformed police. There are 12,000 other uniformed police in New York, as well as anti-drugs units, anti-terrorist units etc.

Civilian members of the traffic corps deal mainly with issues such as:

• Parking,
• Spill backs and
• Clamping.

Civilian members do not make arrests and generally do not go to Court. They issue summonses.

Traffic Corps is also concerned with keeping traffic moving as well as road safety. The traffic corps has a weekly statistics meeting where the numbers of accidents, accidents with injuries and fatalities are examined. Fatalities have fallen from 494 in 1997 to 344 in 2003 a reduction of 30.3%. During the six years, the number of accidents has fallen by 8.7%, accidents with injuries by 21.2% and injuries by 21.7%.

The reduction in fatalities is due to:

• Increased use of seat belts. 90% of persons killed five years ago, who were not wearing seat belts, would not have died if they had been wearing seat belts. Seat belts prevented ejection and being run over by another vehicle.
• Focus on tailgating.
• Changes in law relating to tinted windows. These can now only reduce visibility by 33%.
• Reduced left turns.
• Targeting of driving while intoxicated.

The Corps concentrates on the enforcement of laws that affect accidents and traffic. They do not favour summonses that do not reduce accidents. They had found that 60% of all summonses, which were in respect of defective headlights and taillights, had almost no effect on accidents.

This set of proposals has not been published. Given the level of deaths and injuries among young drivers, the pace of reform in this area is unsatisfactory. However, a number of provisions concerning training and licensing are contained in the Bill for the Regulation of Driving Schools. It is hoped that the Road Traffic Bill, in which many safety and enforcement measures will be dealt with e.g. the ban on using mobile phones while driving, the outsourcing of speed cameras, random drink-driving tests, the outlawing of the sale of cars to under-16s etc, will be published during the next Dáil session.

The Joint Committee will keep these recommendations under review until they are implemented.

The Insurance Industry Federation believe that, given the high level of deaths and injuries amongst young people, special attention needs to be given to the training of learner drivers. Both the training requirements and the testing and licensing systems need to be examined.

Drink Driving

As part of the strategy of targeting drink driving, random breath tests are to be introduced. Gardaí will no longer have to form the opinion that a driver may be under the influence of alcohol. It is hoped that this will raise the number of tests from the current level of 13,000 per annum, which means that only about one person per public house per annum is tested.

The Joint Committee recommends that:

42. Random breath tests for drink driving be introduced.

Road Safety Strategy

The new road safety strategy 2004-06 will target pedestrian safety, motorcyclists and drink driving among others. The Minister stated that 40% of all road deaths were drink related and 20% of those killed were motorcyclists. He stated that such policies were designed to save lives as well as to cut the costs of insurance. He pointed out that motorists with no penalty points were now being offered lower insurance premiums by some insurance companies. He called on all insurance companies to do so.

Other Issues

Other safety related policies being pursued by the Minister include the following:

– The Minister plans to increase speed limits on some roads and to cut the limit from 60mph to 50mph on other roads. He hopes to do this in conjunction with local authorities, though has not ruled out the possibility of centralising the decision making if consensus cannot be reached with local authorities.




– Over the next 5 years, the NRA will be investing over €8 billion on the roads network. Much of this money will be spent on improving old roads, where most accidents take place.




– The Minister expressed his support for introducing driving instruction at Leaving Cert level. He stated that the National Curriculum Council is planning to introduce such a programme.

The Joint Committee recommends that:

43. The National Curriculum Council introduces road safety instruction to the second level school curriculum as a matter of urgency.

44. The Government give priority to the speedy enactment of the Road Traffic Bill and the Driver Testing and Standards Authority Bill.

The Joint Committee considers that insurance companies could provide incentives/penalties that ensure the use of governors or cruise control limits in cars or other ways of limiting speeding for young drivers.

The Joint committee recommends that:

45. Insurance companies should provide significant incentives/penalties to young drivers between 17/25 to use governor or cruise control limits in cars.

CHAPTER IX

Health and Safety in the Workplace

The Joint Committee’s First Interim Report made four recommendations regarding health and safety in the workplace. These are reviewed below.

The Insurance Industry Federation state that existing awards schemes cover this area, notably the annual awards of the National Safety Organisation (NISO), which is supported by the Insurance Industry Federation and by State agencies such as the Health and Safety Authority.

In his evidence to the Joint Committee on Wednesday 18 February 2004, Mr Frank Fahey T.D., Minister of State with responsibility for Labour Affairs, stated that he accepted the recommendation contained in the First Interim Report.

The Minister stated that the National Irish Safety Award Scheme should be expanded. The prestige of this award system should also be raised.

The Joint Committee will continue to urge that this recommendation by implemented.

The Insurance Industry Federation state that discussions have already begun with the Health and Safety Authority on this topic.

In his evidence to the Joint Committee on Wednesday 18 February 2004, Minister Fahey stated that he accepted this recommendation.

The Minister reported that the Health and Safety Authority is in formal talks with the insurance industry:

– to discuss ways of linking a company’s good performance on health and safety issues with reductions in their insurance premiums.




– to put in place a risk reduction model that would be recognised by all insurance companies and would lead to a reduction in insurance premiums for those companies participating.




– with regard to insurance companies taking a more proactive approach to tackling fraudulent and exaggerated claims.

The Joint Committee will monitor the implementation of this recommendation.

In his evidence to the Joint Committee on Wednesday 18 February 2004, Minister Fahey stated that he accepted this recommendation contained in the First Interim Report.

The Joint Committee will monitor the implementation of this recommendation.

Recommendation 39 has now been implemented. The new Safety, Health and Welfare at Work Bill 2004 was published on 24 June 2004.

The Bill repeals the 1989 Act and will provide a new code of health and safety law for the next 10 – 15 years as well as bringing Irish legislation in line with EU Directives.

The main provisions of the new Safety, Health and Welfare at Work Bill are set out below.

• The National Authority for Occupational Safety and Health will be renamed the Health and Safety Authority (which is the more usual name by which it is known).
• For a limited range of clearly defined situations where employers or employees are found to be in clear breach of safety regulations, they will be liable for an on-the-spot fine. If the fee is paid within a defined period, no prosecution will ensue. The amount of the fine will start at €100. The amount of the fine may be increased over time to €1,000.
• The Health and Safety Authority will be allowed compile and publish a list of the names of persons
  

  – on whom a fine or other penalty was imposed by the Courts,

  
  

  – on whom a prohibition notice was served, and

  
  

  – in respect of whom an interim or interlocutory order was made by a Court.

  
  
• There are two levels of prosecution for offences under the Bill:-
  

  – summary prosecution in the District Courts for relatively minor offences, and

  
  

  – prosecution on indictment in the Circuit Courts for very serious offences.

  
  

The maximum fine in the District Court on summary conviction is €3,000, 6 months imprisonment or both. In the case of conviction on indictment in the Circuit Court, punishment involves the imposition of a fine of up to €3 million or imprisonment for up to two years, or both.



• In general, employees must
  

  – comply with relevant safety and health laws,

  
  

  – not be under the influence of an intoxicant at the place of work; and in that regard submit to an appropriate test, if reasonably required by their employer,

  
  

  – not engage in improper conduct or behaviour,

  
  

  – wear personal protective clothing where necessary,

  
  

  – cooperate with their employer and look out for one another, and

  
  

  – not do anything which would place themselves or others at risk.

  
  

• Testing for intoxicants will be regulated by the Minister and must be carried out by a registered medical practitioner.
• It will continue to be the duty of every employer to do everything he or she can, as far as reasonably practicable, to ensure the safety, health and welfare of his or her employees. The list of specific duties and responsibilities on employers will include responsibility for ensuring adequate instruction and training, without loss of earnings to employees.
• Employers must also ensure, as far as reasonably practicable, that others at the place of work, not being employees, are not exposed to risks to their safety, health or welfare.
• Every employer must identify the hazards in the place of work, known as a Risk Assessment.
• It will continue to be a requirement on every employer to have a written Safety Statement, which identifies the risks and hazards in the place of work. Under a new requirement it will have to be reviewed annually.
• Employees will continue to be entitled to select and appoint Safety Representatives, who will have wide powers to,
  

  – inspect,

  
  

  – investigate accidents or dangerous occurrences,

  
  

  – accompany a HSA inspector on an inspection

  
  

  – make oral and written submissions, etc

  
  
• An employer must consider representations from a Safety Representative.
• Where an inspector comes across work activities which involve risk to safety, health or welfare he or she can give written direction requiring the submission of an improvement plan.
• Where an offence under the Bill is proved to have been committed with the consent or connivance or can be attributed to any neglect on the part of a director, manager or other officer of a company that person as well as the company will be guilty of an offence and liable to be proceeded against.

The Joint Committee recommends that:

46. The new Safety, Health and Welfare at Work Bill be passed by the Oireachtas as soon as possible.

Other issues

In his presentation of 18 February, the Minister made the following points:

– The principal sectors where accidents occur are in the agriculture and construction sectors.




– The Health and Safety Authority and FBD Insurance are conducting a safety initiative with schools.

Accidents at work

The EU recently released statistics on accidents at work in the EU. They showed that Ireland had an increase in the number of serious accidents per 1000 employees in 2001 compared with 1998, but a substantial fall in the number of fatal accidents.

Index of the number of accidents at work per thousand persons in employment in 2001, 1998=100

Source: Eurostat * 2000

p Provisional

b Due to a break in series, this data should be considered with caution

i Low significance due to small number of fatal accidents at work

w Excludes the victims of the 9/11 terrorist attacks

CHAPTER X

Competition in the insurance market

The Competition Authority published five reports on 18 February 2004. The five reports were as follows:

– Competition Authority - Preliminary Report and Consultation Document




– CASS Business School, City University London - Economics and Regulation of Insurance




– Europe Economics, London - Competition in the Irish Non-life Insurance Market




– Vincent Hogan & Colm Harmon, Department of Economics, University College Dublin -Prospects for Empirical Analysis on Non-Life Insurance Markets.




– Dorothea Dowling - Analysis of the 2002 Statutory Returns and Related Matters

The executive summary of the Competition Authority report is given below:

Executive Summary

The Competition Authority’s Insurance Study was commenced in Autumn 2002 at a time of sharply increasing premiums and, in some cases, extreme difficulty in obtaining cover. This raised questions about key underlying causes relating to the number of accidents, the cost of claims, and competition in the market, the last of these being the focus of work in this study.

This report and consultation paper outlines the preliminary findings based on the Authority’s own work and on work done by independent consultants on behalf of the Authority.

The study focuses on barriers to entry and rivalry. The Authority has identified some specific issues that give rise to competition concerns and we are now exploring these further in a public consultation, which will last for two months.

The Authority’s principal preliminary concerns and findings regarding Insurance Brokers relate to:

– Ad valorem (fixed percentage) fees, with very little commission-rate-based competition

– The system of regulation, which could be made more buyer-focused

– Incentives from insurers (including over-riding commissions related to quantity of sales) and minimum thresholds, which can cause conflict of interest between obligation to provide “best advice” to the client and best return for the broker

– There is a lack of transparency in that buyers do not necessarily know what incentives and commissions the broker receives, and what insurer he seeks quotes from
In relation to Insurance Companies, the preliminary concerns are:

– Problems with the lack of data sharing and publication – there are questions to be explored regarding what data should be collected to facilitate entry and rivalry, who should collect it, and how widely it should be disseminated.

– Obligations and practices in relation to the Declined Cases Agreement and the funding and handling of claims arising from untraced or uninsured drivers.

– Solvency requirements, which are higher for new entrants than for established companies.

Interested parties were asked to respond to the Competition Authority report by 30 April, 2004. Having considered the responses, the Competition Authority will issue its final report. The major representative bodies of brokers and of insurance companies have responded to the report.

The Competition Authority raised important issues in relation to insurance brokers. These are addressed in Chapter 13 – Insurance Brokers. The Competition Authority’s view on solvency requirements is dealt with in Chapter 12 – Insurance Regulation.

The Competition Authority’s interim report posed 31 questions and invited market recipients to respond to these questions.

Questions 1-8 deal with data sharing among insurers. Question 9 with the minimum scale required in order to pool risk. Questions 10-12 with solvency. Questions 13-15 deal with market entry. Question 16 deals with the single European market for insurance. Question 17 and 18 deal with the Motor Insurance Bureau of Ireland and the Declined Cases Agreement. Questions 19-21 with renewals and the possibility of swapping insurers. Question 22 – Countervailing power. Questions 23-30 with insurance brokers. Question 31 – price dispersion in motor insurance and refusals to quote.

The Competition Authority has asked many interesting questions and the Joint Committee looks forward to the publication of the final report of the Competition Authority.

Segmentation of market

The Joint Committee stated in its First Interim Report on page 38:

“The Joint Committee is not satisfied that the level of price increases suffered by policy holders is entirely due to adverse market factors”.

The possibility of cartel activity in the Irish and European markets was noted by the Joint Committee.

Essentially, the Competition Authority study of insurance did not find any evidence of a cartel among insurance companies. The Competition Authority concluded that there are no restrictions on the number of suppliers that can exist in the market. The Members of the Joint Committee were somewhat surprised by this conclusion.

Cartel

In particular, the Joint Committee notes that there are only two competitors in some important sectors of the insurance market and that some companies only deal in some segments of each market. For example, there is only one insurance company offering insurance to taxi drivers.

One of the reports issued by the Competition Authority “The Non-Life Insurance Market in Ireland; Prospects for Empirical Analysis” addresses this issue in Section Eight. The report notes that, on a general level, there are two possible rational explanations for the segmentation of the market; collusion and asymmetric information. The report notes that gathering evidence for collusion is difficult, whereas, it is possible to ensure that competing companies are provided with the asymmetric information that they need to enter segments of the market.

Information on the insurance market

Apart from its examination of competition issues, the publication by the Competition Authority of its five reports adds substantially to the body of information available on the Irish insurance market. Many interesting points emerge in the course of an examination of the reports. Some of these are given below.

1. Vincent Hogan and Colm Harmon, Department of Economics, University College Dublin – Prospects for Empirical Analysis on the Non-Life Insurance Markets

This report (33 pages) essentially forms a background to the study by Europe Economics.

1. The report draws attention to the segmentation of markets such as the motor insurance market. The report states (p. 16) “there may be collusion between firms who deliberately avoid ‘treading on each other’s toes’ i.e. firms have agreed to allow each other to act as monopolists in different segments. This type of collusion need not be the result of a form of conspiracy – it could be tacit.”
2. “There is anecdotal evidence that the Irish regulatory requirements are more stringent than the European average. The Irish authorities have chosen to have more stringent reserve ratios in general.” (p.18)

2. Analysis of the 2002 Statutory Returns – Dorothea Dowling

Ms Dorothea Dowling examines in great detail the “Blue Book” returns to the Department of Enterprise, Trade and Employment. In her report, Ms. Dowling draws attention to the following points, among many others.

1. The increases in total premium income for motor insurance and liability insurance are partly due to the increase in economic activity that took place over the past five years or so.
2. The provisions made by insurance companies at the end of each year include provisions for claims not yet received by the companies. Historically, the provisions for claims have been settled for less than the provision made. Ms. Dowling finds it difficult to justify the recent levels of top-ups.
3. One significant recent event was the requirement of the Solvency Supervisor that all outstanding provisions be certified as to their adequacy by an actuary. It is likely that the actuary was more conservative in his/her provisions than the companies.
4. The rate of inflation for medical treatment is a significant factor in the cost of personal injury claims. Since a Supreme Court decision in July 2001, insurers have been required to fully reflect an enhanced rate of hospital charges levied on patients, many of whom would have been entitled to free medical care.

In general, Ms. Dowling’s report (45 pages) is required reading for anyone who wishes to understand the statistics included in the Blue Book. Ms. Dowling’s report is an invaluable analysis of these statistics. It is also a further part of the background to the reports prepared as part of the Competition Authority examination of the sector.

3. Europe Economics Study of the Irish Insurance Market

This is a very detailed examination of competition in the Irish insurance market. The findings of Europe Economics are included in the preliminary report from the Competition Authority.

The report contains many useful statistics. Many other statistics are, however, deleted from the published report. This report forms the basis of the Competition Authority’s preliminary findings.

On page 74, the report states “some parties suggested that solvency requirements muted price competition, having the most damage, in effect, during periods when the insurance market is ‘hard’. When payments are high, some insurers that want to price aggressively, quickly find themselves capacity constrained because solvency requirements depend on premium income”.

“There is some sentiment that insurers are withdrawing from employers’ liability markets internationally. The reluctance to offer this product is not confined to the Irish market.”

“Some parties suggested that the unlimited liability in the Irish market (there is no cap on awards) is a deterrent to entry.”

Overall, the Europe Economics report provides a very detailed and useful analysis of aspects of competition in the Irish insurance market. In general, while it makes a number of recommendations, it does not find evidence of cartel activity among insurers.

4. CASS Business School, City of London – Report on the Economics and Regulation of Insurance

This report provides a detailed comparison of the insurance market in Ireland with many other countries.

Employers’ Liability – Not normal insurance risk

On page 60, the report states that “in many countries, including a number in Europe, some, if not all, compensation for work injuries is provided through a state social insurance scheme. As a result, concepts such as employers’ liability and workers compensation have become almost redundant, because the injured employee has hardly any special rights.”

Workers’ compensation models vary a great deal but have two characteristics. First, they provide compensation on a no-fault basis. Secondly, workers’ compensation systems rarely, if ever, provide “full” compensation for injuries.

Employers’ liability insurance is rarely written as a separate line of insurance business in Europe. Separate employers’ liability policies are found in only a few European countries such as Ireland, the UK and Cyprus. Only in the UK, of the European countries, is employers’ liability insurance compulsory.

In part three of the report, “Summary, Outlook and Conclusions”, CASS summarizes its findings. Some of these are given below:

Irish Accident Rates

On page 92, as workplace injury rates in Ireland are already very low compared with the rates in comparable countries, and road accident rates (although close to the European average) are quite low in absolute terms, the scope for further improvement must be limited.

Expansion of Legal Liability

On page 94 the differences in the scope of Irish tort law and that of other jurisdictions and evidence of the continuing expansion in its scope might serve to discourage foreign insurers from entering the Irish market.

High Awards in Ireland

On page 95, there is strong empirical evidence that damages awarded in Ireland are now high by European standards and far higher than those awarded in the UK. There is no doubt that the high cost of motor and liability insurance in Ireland is at least partly attributable to the relatively generous awards for personal injury that are a feature of the Irish system.

Solvency/Capacity

The report states that the falls in equity markets over the past few years have substantially reduced the capital base of the insurance industry. This has reduced its capacity to absorb business, because the solvency margin which regulators require for general insurers under Irish law (which is largely based on European directives) is effectively expressed as a percentage of the premium. There is also a curious effect whereby the same solvency regulations can also effectively limit the capacity of insurers to accept business at a time of high rates. It follows that insurers are able to write less business when rates are highest – and often when profitability is highest – but more business when rates are lowest, even though the possibility of insolvency is greatest.

The ultimate consequence of reductions in capacity is pressure for insurance prices to increase, with insurers that remain in the market being able to carry the premium increases that are necessary to restore profitability.

Re-Insurance Costs

On page 111, the report states that the cost of re-insurance has risen sharply. The typical increase in the cost of re-insurance for major UK liability insurance has been 60-80% over the last year or two. The size of the World Trade Centre loss, and because it was caused by an action which had never before been seen, has caused a fundamental reappraisal of risk and exposure by re-insurers. Re-insurers have undoubtedly become more cautious about the risks they will accept.

Effect of Insolvency of Independent Insurance Company

On page 112, the report deals with the insolvency of the Independent Insurance Company. It states that it has been suggested that the insolvency of the Independent has resulted in stronger demands from shareholders to restore profitability across all lines of commercial insurance, forcing insurers to increase premiums. It is probable that the presence of the Independent Insurance Company in Ireland, as in the UK, helped to keep liability insurance rates down and that its subsequent insolvency in June 2001, contributed to the dramatic increase in rates in the Irish market at this time.

Increased Irish Regulation

On page 114, the report points out that the effect of the EU single market program for insurance was to deregulate the industry in countries such as France and Germany but to increase regulation in countries like Ireland, the UK and Netherlands, where the level of regulation had previously been light. As a result of all this, the Irish market can no longer be regarded as one of the most liberal in Europe in terms of Government supervision.

Unfamiliarity of Irish Insurance Cover

On page 117, “insurers may be reluctant to enter a market where the product or insurance practices are unusual or unfamiliar.” For example, many European insurers have little experience of employers’ liability insurance, which is not written as a separate line, or simply, does not exist at all in many countries of continental Europe. The effort and expense necessary to acquire the necessary expertise may not be worthwhile, particularly if the market is small and unprofitable.

Unattractiveness of Irish Market

On page 118, CASS includes a table prepared by Datamonitor giving a perception of the attractiveness of European liability insurance markets in 1995. Ireland came last of 16 countries. Ireland scored poorly in respect of the legal environment and profitability as well as market size.

The report states that little can be done to alter most of the factors mentioned in the Datamonitor study, that, allegedly make the Irish market unattractive to insurers, but the legal environment is something that the Government does have power to change.

Reduce awards to reduce costs

The report suggests that very significant reductions in insurance costs are unlikely to result unless levels of damages, especially for minor injuries, fall to a level that is closer to the European norm.

Cyclical Factors

There is likely, in the near future, to be some easing in the cyclical factors and adverse market conditions that contributed to the recent steep rises in Irish motor and liability insurance premiums. (Page 119)

Overview of the Five Reports

Although the Competition Authority did not find evidence of significant anti-competitive practices in the Irish insurance industry, nevertheless, the reports prepared for the Competition Authority are very useful indeed.

Some of the competition issues highlighted such as the Motor Insurance Bureau of Ireland and the Declined Cases Agreement as well as some of the practices in relation to brokers, would, if addressed, have an effect on the market. However, the other information provided on the market is also of very considerable value.

In particular, Ms. Dorothea Dowling’s analysis of the provisions being made by the insurance companies means that if there is any significant reduction in the awards being paid by the Courts and if there is a reduction in the number of claims due to the enactment of the Civil Liability and Courts bill, the insurance companies could have “windfall” profits which hopefully could be passed on to consumers.

The CASS report’s conclusions that, because Irish accident rates are not excessive by international standards, there may not be appreciable gains by improving performance in these areas, is also of interest.

Capping Award Levels

The CASS Report suggested that continuing expansion of Irish tort law could discourage insurance companies from entering the market.

The Joint Committee will consider this view in its next review of the insurance sector.

Most Significant Points

However, it seems that the two factors that gave rise to the very sharp increases in premiums in employers and public liability insurance may have been:

1. The demise of the Independent Insurance Company and the reaction by the shareholders of Irish based insurance companies that returns from the market had to be improved.
2. A shortfall in capacity because of the cumulative increases in GNP (leading to a higher number of motor vehicles on the road, much greater numbers in employment) and the withdrawal of some insurers from the market as well as the charging of higher premiums.
   As prices have risen, insurance companies have been unable to take on additional business due to capacity constraints and this has lead to further increases in prices.

Conclusion

On the basis of these reports, it would seem that one of the most important issues to be addressed is the improvement of the capacity of insurance companies trading in Ireland so that the capacity/solvency issues do not become a restraint on competition between insurers.

The issue of capacity is dealt with in Chapter 12 – Insurance Regulation.

The Joint Committee recommends that:

47. The Competition Authority publish its final report on the insurance market as soon as possible and not later than the end of October 2004.

When the Joint Committee receives the final report of the Competition Authority, it will address issues that may be affecting competition in the Irish insurance market.

CHAPTER XI

Insurance Companies

Profit Levels for 2003

In 2003, the five largest insurance companies operating in Ireland, Allianz, AXA, FBD, Hibernian and Quinn Direct, made profits of €573 million. Allianz made a net profit of €118 million. AXA increased its profits by 237%, to €123 million. FBD’s profits rose by 257%, to €89 million. Hibernian increased its profits by 183%, to €130 million and, Quinn Direct made a profit of €113 million, an increase of 332%.

Table 9.1 – Insurance Company Profits for 2003

(The profit level figures were supplied by the insurance companies to the Joint Committee)

These companies, in appearing before the Joint Committee in the Summer of 2003, outlined many complaints regarding the structure of the Irish insurance market and the difficulties they encountered in operating in this market. However, the companies made record profits in 2003 despite many of the measures outlined in the Government’s insurance reform programme not having been introduced during the period.

Insurance Industry Federation Publish Non-Life Insurance Results for 2003

The Insurance Industry Federation published the results for the non-life insurance market for 2003 on 30 June 2004.

According to the Insurance Industry Federation, in 2003,

• the 20 non-life companies operating in the Irish market made a combined operating profit of €747m
• the net underwriting profit was €397m
• gross written premiums increased to €4,239m (up 2.9% on 2003)

Blue Book 2002

The Blue Book for 2002 was published in December 2003. According to IFSRA, the Blue Book for 2003 will be published by the end of the third quarter of 2004.

According to the Blue Book, 433 Non-Life undertakings, with Head Offices predominately in EEA Member States, had the authority to write business in Ireland on a Freedom of Services (FOS) basis.

€6.42 billion worth of gross premium income was written by Non-Life companies operating in Ireland in 2002.

The following table summarises the motor and liability insurance results for 2002. These markets made an overall profit of €122 million, which is made up of an underwriting loss of €107 and a profit on investment of €229.

Table 9.2 – Summary of motor and liability insurance results for 2002

(Source – Blue Book 2002)

The underwriting losses which occurred in 2002, and in previous years, would appear to have been reversed by some insurance companies in 2003. The turnaround in underwriting fortunes, made necessary by falls in investment income, is a positive development for the insurance market.

FBD, for example, recorded an underwriting profit for motor and liability insurance of €34.1 million (made up of €23.1 million for motor insurance and €11 million for liability insurance). In 2002, FBD made an underwriting loss for motor and liability insurance of €23.8 million (made up of -€9.9 million for motor insurance and -€13.9 million for liability insurance).

The Blue Book for 2002 shows that insurers made a profit of €187 million from motor insurance. The table below outlines the individual results of some of major motor insurers. AXA made the greatest profit on motor insurance, followed by Quinn Direct, a relatively new entrant to the market, and Hibernian.

Table 9.3 – Motor Vehicle Insurance Irish Risk Business, 2002 Total (including all

(Source – Blue Book 2002)

Insurers operating in the liability market (which includes employers’ liability and public liability) in 2002 made an overall loss of €74 million. Of the major players, only Quinn Direct and AXA made profits on their liability business, of €6 million and €1 million respectively. Major losses of €20 million were recorded by both Allianz and Royal and Sun Alliance.

Table 9.4 – Liability Irish Risk Business, 2002

(Source – Blue Book 2002)

Trends in Insurance 1998-2002

The Insurance Industry Federation published a Fact File for 2002, in July 2003. The data for the following section has been sourced from the Fact File for 2002.

In 2002, according to the Fact File, Insurance Industry Federation members’ non-life premiums increased by 22.5% to €3.9 billion. Over the period from 1998-2002 the annual increase in non-life premiums was 18.4% p.a.

Table 9.5 – Insurance Industry Federation Members’ Gross Premium Income 1998-2002

(Source – Insurance Industry Federation Fact File for 2002)

Non-life gross earned premium (GEP) increased by 25.3% in 2002, amounting to €3.6 billion. GEP increased by 17.4% p.a. from 1998 to 2002.

In 2002, gross incurred claims costs (claims payments plus increase in reserves for outstanding claims) increased by 9.4%, reaching €2.9 billion. During the period 1998 to 2002, claims costs increased by 12.8% p.a.

Table 9.6 – Non-Life Insurance Premiums & Claims 1998-2002

(Source – Insurance Industry Federation Fact File for 2002)

Per head of population in Ireland, in 2001, we spent $2,466 on insurance premiums. This exceeds the European average figure of $918 and the average world figure of $393.

Over the period 1997-2001 spending on insurance premiums increased from $1,714 to $2,466, an increase of 9.5% p.a.

Table 9.7 – Insurance premiums spent per head of population for Ireland, EU and the World in 2001 (US $)

(Source – Insurance Industry Federation Fact File for 2002)

Lloyds

Lloyds has been operating in the Irish market for over one hundred years. Representatives of Lloyds made a presentation to the Joint Committee on 28 April 2004.

All Lloyds business from Ireland is carried out by Lloyd’s syndicates.

The Table below illustrates Lloyds direct premiums from Ireland.

Table 9.8 – Lloyds Gross Premiums (in €000s) from Ireland

(Source – Lloyds)

Lloyds also accepts reinsurance business from Ireland. Reinsurance premiums from Ireland in 2003 amounted to €65.3m.

Total premiums from Ireland in 2003 (including reinsurance) amounted to 1.6% of Lloyds aggregate global income.

Within the EU, Ireland, in 2003, was Lloyd’s fifth most important source of business, behind the UK, France, Germany and Italy, all of which have substantially larger populations.

Lloyds is commonly regarded as “the last resort for difficult risks”. Lloyds also

– provides cover to




– the construction industry,




– manufacturing, medical and pharmaceutical risks,




– bloodstock risks, and




– sports, leisure and entertainment risks, and,




– energy risks

Lloyds underwriters, like most London market insurers, do not write insurance for small business due to economies of scale, unless via a scheme.

Employers’ liability makes up 46% of the total liability premiums written by Lloyd’s for the Irish market.

Lloyds estimate that they have an 8% share in the Irish market. In the liability market, Lloyds estimate that their average market premiums account for approximately 20% of the market share in 2002.

Lloyds business from Ireland is normally generated through Irish brokers and agents. Lloyds deals with over 90 Irish brokers in Ireland.

As Lloyds is a global market, underwriters are presented with a range of opportunities for writing business from around the world and capacity can be switched at short notice from one market to another.

Lloyds considers the Irish insurance market to be “a challenging territory in which to underwrite and some underwriters are not prepared to accept liability business from Ireland. Lloyd’s liability business therefore tends to be written by a relatively small number of syndicates which have good knowledge and experience of the business.”

Capacity

In coming before the Joint Committee, the five main insurance companies (Allianz, AXA, FBD, Hibernian and Quinn Direct), were asked – “Has your company’s ability to compete been constrained by capacity over the last two-three years?”. Their responses are outlined below.

Allianz

Yes. Every business is constrained by the amount of capital they have – including Allianz.

The market experienced a squeeze on capital post Independent Insurance collapse (2001) and equity market falls.

During 2001/2 transient capital left the market. Capital will move to where it will be best rewarded.

In order to reward capital invested or attract new capital, adequate profits are required. This is only happening now.

AXA

No, not over the last two years. However, in 2000 and 2001, as a result of severe losses, our solvency position was close to the minimum acceptable to the Regulator and our capacity to write business was constrained at that time. As the business has now become profitable, we now have spare capacity within our balance sheet.

FBD

No.

Hibernian

No response received.

Quinn Direct

Ability to compete has not specifically been constrained by capacity or solvency requirements.

Broker View on Capacity

Dolmen Insurance Brokers Ltd stated that:

“Insurers must maintain adequate capital levels in order to underwrite. In the last few years, capital investors left the insurance market for more profitable areas. This restricted insurers’ ability to underwrite, thus reducing the supply of insurance, which led to increases in premiums. Ireland suffered badly as global/European insurers maintained capacity for more profitable markets.”

New Entrants

The Tánaiste and Minister for Enterprise, Trade and Employment stated to the Joint Committee that potential new entrants are considering entering the market but are waiting to see the impact of the Civil Liability and Courts Bill. Of these potential entrants, one major company would provide competition in all insurance product areas.

Conclusions

Insurers operating in the Irish market made substantial profits in 2003 following a number of years of losses. During the same period the cost of motor and liability insurance increased substantially for policy-holders. However, as reported in Chapter 4, insurance premiums have now begun to fall.

CHAPTER XII

Insurance regulation

The Irish Financial Services Regulatory Authority (IFSRA) was established on 1^st May 2003.

The Joint Committee met with Ms. Mary O’Dea, Consumer Director, on 20^th November 2003 and with Dr. Liam O’Reilly, Chief Executive, on 7^th April 2004.

The Consumer Director (in a survey conducted just prior to 1^st May 2003) reported that over 70% of those surveyed stated that insurance costs were an important issue of concern to them. Almost 30% indicated that insurance costs were the single most important area of financial concern. Almost 40% of the 4000 enquires to the IFSRA consumer helpline related to insurance matters.

In November 1993, IFSRA commenced a review of best practice in the area of insurance supervision. This focused on comparing Irish solvency requirements and practices with those in comparable countries with a view to making any necessary changes.

The Consumer Director stated that much of the work in the solvency area was driven by developments at European level and IFSRA was preparing for the implementation of the EU Solvency II directive. This may lead to an increase in our current solvency requirements. Allianz stated that there will be higher solvency requirements from 2007 onwards. Solvency II will hopefully equalise standards throughout the EU. It will not, however, be implemented prior to 2007.

IFSRA published surveys on comparable costs of motor insurance on their website. This comparison revealed the extent of differences in insurance costs and shows the benefits of “shopping around”.

IFSRA had introduced new statutory codes to implement some of the recommendations of the Motor Insurance Advisory Board (MIAB). IFSRA stated that they would undertake a review during 2004 to:

– put in place codes to provide the same level of protection to consumers who buy financial products regardless of the delivery channel they choose;




– introduce statutory codes which will create a level playing field for all financial services, thereby fostering competition.

In his address to the Joint Committee on April 7^th 2004, the Chief Executive stated that IFSRA was working to assist consumers in making their own financial decisions by providing them with clear relevant information, by monitoring competition and by developing and enforcing industry codes of practice.

IFSRA protects the funds, investments and policies of consumers through having a regulatory system that fosters safe and sound financial institutions while operating in a competitive market of high reputation. The setting up of solvency requirements is central to this latter work. Dr. O’Reilly stated that solvency requirements were all about protection for consumers.

IFSRA had commenced a number of best practice reviews as to how it did its job and it believes that the outcome of these reviews will give rise to greater efficiencies in the regulatory process. IFSRA was examining, among others, the processes of regulators in Australia, Canada, Denmark, Hong Kong, the Netherlands, Norway, Sweden and the UK with a view to applying best practice.

Solvency

In relation to this recommendation, IFSRA stated that there may be some information gaps or asymmetry of information in the Irish insurance market which act as barriers to entry. IFSRA is working on improving the information and data available on insurance.

IFSRA quoted the Competition Authority in its interim report on the subject of the additional requirement for new entrants.

IFSRA stated that most companies maintain solvency levels well in excess of IFSRA’s requirements and that Ireland is not the only Member State that requires companies to maintain solvency levels in excess of the required minimum. IFSRA has no evidence that companies have been dissuaded from pursuing an application for an Irish licence because of the solvency requirements. IFSRA noted that 400 companies are entitled to sell business in Ireland under EU rules. These are not subject to Ireland’s solvency requirements but rather to the requirements of their own Member State. However, only a handful are actually undertaking business here which would suggest it is not the issue of solvency requirements that is shaping their decision. IFSRA does not want solvency rules to be used to restrict entry. Rather, the solvency rules protect customers from the disastrous consequences that would arise from the failure of an insurance company.

Views of Joint Committee

The Joint Committee is concerned that there should be any regulatory barriers that make entry into the Irish market more difficult than to any other EU country.

The solvency/capacity issue was one of the most significant reasons for the substantial increase in insurance costs. This problem has now eased. However, the Joint Committee is not convinced that we need higher solvency requirements than in any other EU country.

Given the importance of this issue in relation to entry to the insurance market and given that solvency requirements influenced the capacity available in the market, the Joint Committee calls on IFSRA to urgently amend the regulations in relation to solvency.

The Joint Committee recommends that:

48. The Irish solvency requirements for new entrants be exactly the same as for existing market participants.

49. Irish solvency requirements be no higher than the norm required by EU regulation.

The issues that brought about the lack of capacity in the Irish market may never reoccur. Nevertheless, IFSRA, as the regulator, should be prepared to intervene to ensure that Irish insurance premiums do not rise excessively.

The Joint Committee recommends that:

50. IFSRA should monitor the level of insurance capacity in the Irish market and, where there is a lack of capacity, should draw attention publicly to the difficulty.

Investment in public/private partnerships

IFSRA stated that, under the EU insurance directive, public/private partnership investments cannot be included as part of the technical reserves of an insurance company. IFSRA’s concern is that that the assets can be tied up for a long period of time and cannot be liquidated if required. However, assets held against the solvency margin could include a public/private partnership investment where the assets in question were readily realisable in order to meet capital requirements.

The Joint Committee continues to believe that this proposal should be adopted by the Government. The Joint Committee reiterates the recommendation

Transparency

The Insurance Industry Federation states it is not opposed to increased transparency in the pricing of motor insurance, and would be happy to discuss with the Joint Committee how perceived shortcomings in the existing system could be overcome. The Insurance Industry Federation stated that, if an insurer makes significant changes in its rating system it will publish the fact and the reasons in the form of either a general media release or in communications with its intermediaries. At the same time, the collection and publication of statutory information by the regulator will give an indication as to the position of each insurer in terms of premium and claims growth and overall profitability.

In IFSRA’s view, transparency is best served through independent cost surveys.

During the course of meetings with witnesses, it became clear that insurance companies do not predetermine their prices and make adjustments to those prices in the light of prevailing conditions. Instead, it appears that cost of insurance premiums is a matter of negotiation, in many cases, between the insurers and the insurance company or broker. The Joint Committee was told of cases where consumers or businesses were quoted a price for insurance by their existing insurer and, when they shopped around, they were able to find a much lower price. On telling their existing insurer the price at which they were able to obtain insurance, their existing insurance company then met the price or substantially reduced the price originally offered.

The Joint Committee is very concerned with this practice. On the one hand, it shows that there is a level of competition in the market but it also shows that insurance companies are quoting excessive premiums to existing policy holders and may be hoping that the policy holders will renew.

IBEC/Insurance Industry Federation Guidelines

The Insurance Industry Federation does not believe it is appropriate for the guidelines to be made mandatory through their adoption by IFSRA.

IBEC acknowledges the purpose of having the IBEC/Insurance Industry Federation guidelines underpinned by statutory provision but are not sure this would be a positive development for policyholders in all cases.

IFSRA stated that it was undertaking a full review of the Codes of Conduct and, after comprehensive consultation, it would examine how to incorporate appropriate aspects of these guidelines into the revised codes.

The Joint Committee reiterates this recommendation.

Regulatory barriers

In relation to this recommendation, IFSRA stated that there may be some information gaps or asymmetry of information in the Irish insurance market which act as barriers to entry. IFSRA are working on improving the information and data available on insurance.

The Competition Authority found that the regulatory barriers that made entry to the Irish market more difficult were:

1. the higher solvency requirements for new entrants
2. the asymmetry of information available to existing insurance companies and new entrants.

The Competition Authority also considered that the declined cases agreement and the Motor Insurance Bureau of Ireland may be having anti-competitive effects.

European Regulation/Competition from insurers regulated in other countries

IFSRA, in defence of the solvency requirements for Irish insurers, pointed out that there are over 400 insurers regulated in other countries who are free to do business in Ireland but who choose not to do so. IFSRA argued that regulation was not the issue but that there were other factors influencing the decision on whether a company that is regulated outside of Ireland will do business in Ireland.

A report commissioned by the Competition Authority identified the collapse of the Independent Insurance Company as being one of the reasons for the substantial increase in premiums in 2001. The collapse led, on the one hand, to the remaining insurers deciding that they were not prepared to accept underwriting losses any longer and that they needed, therefore, to increase their premiums and, on the other hand, to substantially reduced competition in the market.

However, in addition, there was widespread concern expressed to the Joint Committee that the Irish policy holders of the Independent Insurance did not receive any compensation from the regulator of the Independent Insurance. The Independent Insurance was regulated in the UK and, because employers’ liability in the UK is compulsory, all policy holders in the UK were fully compensated. However, in the Republic of Ireland, employers’ liability is not compulsory and none of the policy holders were compensated. The collapse of the Independent Insurance and the substantial losses incurred by many policy holders makes intermediaries and policy holders wary of dealing with insurance companies outside of Ireland. The Joint Committee considered in its First Interim Report that there was need for common European protection for policy holders.

IFSRA stated that they were pursuing this objective in discussions at European level. A Solvency II directive was presently being discussed and IFSRA had tabled proposals to bring about common protection for policy holders.

It is wholly unreasonable to require policy holders to investigate the solvency of insurance companies regulated in another Member State. It is similarly unreasonable for brokers or other intermediaries to be required to do the same.

Only if policy holders are protected will they be likely to insure with insurance companies outside the Republic of Ireland and thereby bring about increased competition to existing insurers.

The Joint Committee accepts that IFSRA is pursing the objective of common European projection. In these circumstances, the Joint Committee proposes to continue to review the achievement of a common European protection of insurance policy holders. Only if the protection is afforded can there be a true single market in insurance.

Placement of Irish Motor Insurance Business outside the jurisdiction

IBEC support this recommendation.

In its presentation to the Joint Committee, IFSRA stated that they were not aware of any barrier to the placement of Irish motor insurance business outside the jurisdiction. When this matter was further discussed with IFSRA they stated:

“…the requirement on insurers to provide insurance disks, and on motorists to display those disks, is contained in SI No. 355 of 1984 as amended by SI No. 227 of 1986. These regulations are implemented by the Department of Transport. The regulations do not prevent a non-Irish insurer, who is permitted to write business in Ireland, including “passporting” EU insurers, from issuing insurance disks that would meet the requirements of the regulations.”

The Joint Committee notes that the response from IFSRA will be beneficial for commercial vehicle drivers. Such drivers, who spend a lot of their time outside the Republic of Ireland, may wish to have their insurance placed in other countries.

Self insurance

In relation to self insurance for all motor risks Section 60, Road Traffic Act, 1961 as amended by Section 54, Road Traffic Act, 1968 provides for an “exempted person” to self insure for motor insurance purposes. The Act defines an exempted person as;

1. a board or other body established by or under an Act of the Oireachtas…,
2. a company… in which the majority of the shares are 'held by or on behalf of a Minister of State,…,
3. a company … in which the majority of the ordinary shares are held by a State-sponsored company…,

in respect of which the Minister has issued a certificate that such board, other body or company is for the time being an exempted person for the purposes of this Act.

At present, only CIE has been granted this status.

The Joint Committee calls for its recommendation to be implemented.

Assessment of claims by insurer without reference to policy holder

Quinn Direct stated that this recommendation could have the effect of increasing professional costs.

The Insurance Industry Federation believes that the concerns of policyholders in relation to consultation before settlement of third party claims is addressed under the Insurance Industry Federation/IBEC guidelines and that arbitration would thereby generate unnecessary extra legal and administrative costs. The Insurance Industry Federation state that the insurers have the necessary expertise to asses the evidence of liability.

The Joint Committee received no other significant response in relation to this recommendation. It may be that, with the enactment of the Civil Liability and Courts Bill, the tendency of insurance companies to settle claims that are considered by policy holders to be exaggerated or false will end. However, given the experience in the years leading up to 2003, it is entirely possible that, in time, insurance companies will again take a short term view and settle claims that should be contested. The Joint Committee believes that there should be a requirement on insurers to consult with policy holders prior to the settlement of a claim.

The Joint Committee urges this recommendation be adopted.

Benefits of being claim free

The Minister of State with responsibility for Labour Affairs stated that he wished to see companies that had no accidents or few accidents receive rewards in reduced insurance premiums.

One of the effects of the very high employers’ liability and public liability insurance premiums of recent years has been to bring about an increased emphasis by employers on safety in the workplace and in public areas. With the enactment of the new Health and Safety Bill and the benefits to workplace safety that will ensue, Irish workplaces should become amongst the safest in Europe. Apart from the effects of accidents on the individuals, accidents lead to payment of compensation and higher insurance costs and thus become a competitiveness issue.

Many Irish policy holders expressed their frustration and concern to the Joint Committee that their low accident rate or lack of accidents seemed to have no impact in any decision made by their insurance company on the level of premium to be charged. In order to encourage employers to be aware of workplace safety issues, there should be a clear link between the premiums being charged and the safety record.

Information on renewal

The Joint Committee heard complaints that policy holders were receiving renewal reminders much too late for them to obtain alternative quotations.

It was pointed out by one witness that policy holders for employers’ liability and public liability are businesses that should be aware of their renewal date and should be seeking alternative quotations without the need for reminders. Nevertheless, the Joint Committee considers that insurers should be required to remind policy holders of the date of renewal two months prior to the renewal date. Insurance companies should be required to submit a quotation to the policy holder one month prior to the renewal date. These proposals would facilitate the policy holder “shopping around” for better quotations.

These proposals would increase the notification period before renewal date contained in the IBEC/Insurance Industry Federation guidelines.

The Joint Committee recommends that:

51. Insurance companies should be required to remind policy holders of the renewal date two months prior to renewal and to submit a quotation to the policy holder one month prior to the renewal date.

Reserves against policy holders

Concern was also expressed that, where an insurance company had received a claim, a reserve may be made against the policy holder for an excessive amount. The making available of the information on the level of reserves against the policy holder then inhibited other insurance companies from quoting competitive premiums. It was stated that the reserves were often excessive and the eventual settlements, sometimes four years later, were for substantially lower amounts. In the meantime, however, the policy holder had paid higher premiums because of the reserve that had been made. No refunds of such higher premiums were offered by insurance companies.

Undoubtedly, insurance companies have to reserve an amount for every claim received. The insurance companies have to make a reasonable estimate of the potential level of claim. It is entirely correct that these reserves should be disclosed to other potential insurance companies where the policy holder is seeking other quotations. However, where insurance companies are applying excessive reserves so as to make it impossible for the policy holder to transfer the business to another insurer, this would be clearly offensive and anti-competitive.

Where a policy holder believes that the reserves are excessive, a case might in the future be taken to the Financial Services Ombudsman when that office is established by statute. The Ombudsman would decide between the insurance company and the policy holder on the reasonableness of the provision.

Financial Services Ombudsman

The Central Bank and Financial Services Authority of Ireland Bill 2003 to establish, inter alia, a financial services ombudsman’s bureau was introduced to the Dail on 5 December 2003. The Bill was passed by the Dail on 2 June 2004.

Compulsory Employers’ Liability Insurance

The Joint Committee considered this issue in its First Interim Report.

The Joint Committee will keep under review the following issues:

1. The possibility of small employers being able to obtain insurance against injury to their employees through a State scheme.
2. Making employer’s liability insurance compulsory when the costs become affordable.

Conclusion

The Joint Committee notes that IFSRA was only established on 1 May 2003. The Joint Committee welcomes the very considerable progress being made by IFSRA and its objective of providing world class regulation of the financial services market in Ireland. The Joint Committee recognises the important role that IFSRA will play in ensuring a competitive insurance market.

The Joint Committee particularly welcomes the comparisons in costs of premiums for car insurance that have been published on IFSRA’s website.

CHAPTER XIII

Insurance Brokers

Meetings with brokers

The Joint Committee met with the two broker representative bodies, the Irish Brokers Association (IBA) and the Professional Brokers Association (PIBA). PIBA provided the Joint Committee with a copy of its response to the Competition Authority’s preliminary report in relation to brokers. The Irish Brokers Association gave its views on the Competition Authority report. Two medium sized brokers, Mike Murphy Insurances and Dolmen Insurance with, respectively, 50 and 35 employees gave evidence to the Joint Committee. In addition, two large insurance brokers, Coyle Hamilton (550 employees) and Marsh Insurance Services (400 employees) also gave evidence.

The Competition Authority Report

The Competition Authority preliminary report was critical of brokers. The executive summary of the report is contained in Chapter 10 – Competition in the Insurance Market. The brokers’ associations were critical of the Competition Authority reports and particularly of the statistics in relation to trends in intermediary earnings that were included in the Competition Authority’s report.

PIBA’s response to the Competition Authority comprised 116 pages and was made available to the Joint Committee. The Irish Brokers Association did not make available its response to the Competition Authority to the Joint Committee.

Meeting with IFSRA

As IFSRA is the body responsible for insurance regulation, the First Interim Report recommendations on brokers were addressed to IFSRA. Mr. Liam O’Reilly, Chief Executive, IFSRA, addressed the Joint Committee on 7^th April 2004.

Fees Vs Commission

Mr. O’Reilly stated that IFSRA had commenced a review of fee and commission structures and transparency in the intermediary sector. IFSRA wanted to make sure that any commissions are structured in such a way that products are sold appropriately and that the incentive structure works in the favour of consumers.

In relation to whether brokers should operate only on a fee basis, IFSRA stated that it was anxious to increase the level of transparency in relation to costs for consumers, be they fees or commission. IFSRA is undertaking a study in relation to this matter and intends to issue a consultation paper in 2004. IFSRA stated that the important point is that the consumer should know how much they are paying and what they are paying for.

The Joint Committee will review this recommendation again when IFSRA publishes its consultation paper.

Levels of Commission Paid

The Joint Committee received evidence that brokerage commission levels in Ireland were substantially lower than in other European countries. The table below gives a comparison.

Table 13.1 – Intermediaries’ Commissions, an International Comparison

(Source – Coyle Hamilton)

Coyle Hamilton stated that Ireland has the most competitive broker market in the world.

Brokers have gained substantially due to the increase in the level of insurance premiums and this may have enabled Irish brokers to continue to operate within the above commission levels. An interesting argument for payment of commissions rather than fees is that commissions are not subject to VAT to consumers whereas VAT is payable on fees charged by brokers.

It was stated that the UK regulator (the FSA) recommended that commission disclosure should not be introduced for private customers.

Provided the policy holder is fully aware of the levels of commission paid by insurance companies to intermediaries, there would seem to be no fundamental reason for the elimination of the commission system.

Brokers to deal with any insurer

IFSRA has produced a paper on Mandatory Competency Requirements for those who provide advice on, or who sell, retail financial products including those involved in general insurance.

IFSRA stated that any broker who is an “authorised advisor” can deal with any insurance company in the marketplace. In order to be an authorised advisor, a broker must be able to demonstrate the necessary level of competence. Roughly one quarter of brokers are authorised advisors. The remainder are Multi Agency Intermediaries.

IFSRA stated that that the categorisation of insurance intermediaries was an issue that had been raised in the consultation on their codes of conduct.

While it is true that an authorised advisor can sell products on behalf of any insurer, there is, nevertheless, confusion between the terms “insurance broker”, “authorised advisor” and “Multi Agency Intermediary”. It would seem that the “authorised advisor” status should apply to all insurance brokers, provided they meet the necessary competency requirements. Those who do not meet this requirement should not be able to call themselves insurance brokers but another term such as a Multi Agency Intermediary, Tied Agent or Agent.

The Joint Committee, therefore, recommends that:

52. IFSRA make regulations to permit insurance brokers, subject to a competency test, to deal on behalf of their clients with any insurance company and that the term “authorised advisor” be discontinued. Firms that presently call themselves “insurance brokers” and who do not qualify under the competency test should be required to call themselves “Multi Agency Intermediaries”.

The Insurance Industry Federation states that in principle it accepts that insurers should not do anything to encourage intermediaries to abrogate their duty to give impartial advice to clients. But neither should insurers be forced to incur the administration costs of maintaining an intermediary agency that does not provide a reasonable flow of business on a regular basis.

Recommendation 32 is an issue that is being examined by the Competition Authority. The Joint Committee reiterates this recommendation.

The Insurance Industry Federation agrees with this recommendation, but is not aware of anything which in existing practice generates such discrimination. Existing requirements for insurers are directed only to ensuring that competing brokers have a mandate from the policyholder to obtain the information. Clearly where there are competing brokers, insurers must satisfy themselves that the new broker has authority from the client to obtain confidential information about the policy.

This is also an issue being considered by the Competition Authority. The Joint Committee will review the Competition Authority report in relation to brokers and consider this issue further when the final report is published. The Joint Committee reiterates this recommendation.

Tasks to be undertaken by insurers

Broker witnesses stated that tasks that had historically been undertaken by insurance companies are now delegated to brokers and are paid for by the current commission rates.

Assessment

It is very clear from an examination of the Competition Authority’s reports and the evidence received from the broker associations and individual brokers, as well as from other witnesses, that there is a need for substantial reform of the regulations in relation to brokers. The following points need to be considered:

1. Confusion in relation to the title “insurance broker” as compared with the use of terms “authorised advisor”, “Multi Agency Intermediary” etc
2. Confusion in the regulation of non-life insurance brokers and life insurance brokers. It would seem that the term non-life insurance is not a satisfactory description. Possibly the life insurance market should be referred to by its former term “life assurance” to distinguish it from the insurance market.
3. Non-life insurance and life insurance/pension/mortgages are very different businesses and need to be regulated in quite different ways. Regulations for non-life insurance should be specially designed to be appropriate for that market.
4. The relations between brokers and insurance companies is undergoing significant change due to new direct selling companies such as Quinn Direct and the use of the Internet as a sales medium. This level of change has some of the features of the changes that have taken place in the travel agency market but in other respects is quite different. Appropriate rules for the relationship between insurance companies and brokers need to be devised. These rules could include:
   

   – that all insurance companies must deal with all insurance brokers

   
   

   – Insurance companies do not have to pay a commission. However, insurance companies may pay a commission to brokers.

   
   

   – Where commissions are paid, the percentage commission should be shown on the renewal notice from the insurance company.

   
   
5. In all cases, the broker could be required to give the policy holder a renewal notice showing the amount payable to the insurance company.
6. The insurance broker may add additional fees (that is non commission payments) or not add additional fees as the broker considers appropriate. However, the additional fees could be required to be transparent and shown on the invoice to the policy holder.
7. Brokers could have a right to sell broker based schemes for particular business sectors to their clients and to receive commission on a shared basis with the main broker or not to receive any commission as may be determined by the main broker and/or to charge a fee to their client.

Importance of brokers for competition

In the Irish market, which has a small number of significant insurance companies, insurance brokers are an important force for competition. Brokers can access insurance companies in other jurisdictions and provide a low cost entry vehicle for insurers registered outside the state.

The Joint Committee recommends that:

53. IFSRA should carry out a fundamental review of the insurance broker market with a view to substantially improving the operation of that market, particularly in relation to transparency for the consumer.

CHAPTER XIV

Further reductions in insurance premiums

As we have seen in Chapter 4, insurance premiums have stabilised and begun to fall. The reductions are not evenly spread. The reductions seem to have first taken place in non-commercial motor insurance and then spread more recently to areas such as public liability and employers’ liability.

While these reductions are welcome, it must be remembered that the Joint Committee stated in its First Interim Report that, when the reforms already announced by Government and the insurance industry and those included in its report take place, insurance costs should be no greater than those in the year 1999, adjusted for inflation.

At present, we have some considerable distance to go before this objective is achieved. It is interesting, however, that substantial reductions have taken place before the major reforms envisaged in the First Interim Report have been enacted. The reasons for the reductions appear to be as follows:

1. The substantial profits made by insurance companies operating in Ireland in 2002 and 2003. In particular, in 2003, the net profits of the five major insurance companies amounted to €573 million.
2. The publicity arising from the Joint Committee’s meetings with insurers, brokers, representatives of purchasers of insurance and other interested parties has also had an impact in bringing about reductions in insurance costs and in heightening awareness of the implications of high insurance costs.
3. The decisions by Government to introduce PIAB and to enact the Civil Liability and Courts Bill to deal with false and exaggerated claims and other issues have given confidence to insurers in quoting for business in Ireland.
4. Insurance is a cyclical business and following the shocks generated by the September 11 attacks in the United States, the re-insurance market is starting to recover and re-insurance costs have fallen.
5. Capacity in the Irish market is no longer an issue. There is adequate capacity to meet the demands of business and consumers for insurance.
6. Many businesses have introduced arrangements to self insure or to carry much larger excesses than previously. This reduces demand for insurance, reduces the need for capacity to service that demand and forces down premiums as insurance companies compete to retain business.
7. Increased competition from Quinn Direct and FBD.

It is arguable that the increased profits have been achieved even though substantial provisions for future claims have been made by the insurance companies. These provisions may be excessive if PIAB and the Civil Liability and Courts Bill measures take effect as envisaged. It may be that insurance companies will achieve substantial once off or “windfall” profits when adjusting their reserves to take into account the new environment in which insurance companies would then be operating in Ireland.

Among the reasons for the increase in the insurance profits are the following:

1. The substantial increase in premiums that took place in 2001, 2002 and the first half of 2003.
2. Following the publicity about the high cost of insurance premiums and the effect that High Court awards were having on premiums, the awards were, effectively, reduced by 20% on the conversion to the Euro. This reduction in the level of awards has been significant and meant that provisions in the insurance companies’ accounts for awards were excessive, thus leading to improved profits in 2002 and 2003. Furthermore, awards since 2001 have not been increased with inflation.
3. The publicity campaign undertaken by the Alliance for Insurance Reform in relation to false and exaggerated claims, the Primetime TV programme on this issue and the advertising campaign run by the insurance companies to obtain evidence of false and exaggerated claims, have had a substantial effect in reducing the numbers of false and exaggerated claims.
4. The introduction of the penalty points system on 1 November 2002 led to a substantial reduction in road deaths and accidents on the road. In the first 7 months after penalty points were introduced, there were 100 less deaths than in the previous 17 months. There have proportionately been fewer accidents. The changes in driver behaviour have also given confidence to insurers and have, of course, reduced the number of claims and made motor insurance more profitable.
5. The campaigns on driver safety organised by the National Safety Council, some of which have been supported by insurance companies, have had a significant effect on the numbers of road accidents.
6. The improved safety awareness in the workplace has been facilitated by the Health and Safety Authority and has been partly helped by the awareness of the very large insurance premiums.
7. Improved returns on investments in equities in 2003 compared to 2002.

Future reductions in premiums

The measures recommended in the First Interim Report and some additional measures recommended in this report, when enacted and brought into force, should bring about further reductions in insurance premiums and should ensure that existing reductions are maintained. Among these measures are the following:

1. The establishment of PIAB which commenced operations on 1 June 2004. PIAB is dealing initially with public liability insurance and will deal with employers liability and motor insurance from 1 September 2004. PIAB should bring about reduced costs for insurance companies thus leading to reductions in premiums.
2. The enactment and coming into force of the Civil Liability and Courts Bill should bring about a very substantial reduction of false and exaggerated claims, should speed up court proceedings and should again reduce costs for insurers. The reduction in costs, in a competitive market, should eventually pass through to policy holders in the form of lower insurance premiums.
3. The enactment of the Health and Safety Authority Bill will provide a number of reforms in respect of safety in work places and in public places. Assuming the objective is to have Irish safety at world class standards, then the issue of accident levels should no longer be a reason why Irish insurance costs are higher than anywhere else in the world.
4. The enactment and coming into force of the Road Safety Act and the Driver Testing and Standards Authority Bill should lead to reductions in the number of accidents on the roads and reduce the numbers of deaths. However, it may be the end of 2004 before the Bills in relation to health and safety, road safety and the Driving Instructors Agency are brought into force.

This report has recommended a number of additional measures that can be taken to improve the operation of the insurance market including, in particular, a need for reform of the system of regulation of brokers.

Ministers have accepted a number of the recommendations in the First Interim Report but some of these will have to be given legislative effect.

Level of Awards

However, there is one outstanding issue which the Joint Committee believes must be addressed before Irish insurance costs can be comparable with those of other countries. This is the issue of the level of awards. The Joint Committee made the following recommendation in its First Interim Report. This recommendation has not yet been accepted by Government.

The Insurance Industry Federation believe this is a worthwhile idea. In its view, whilst the level of general damages for personal injury actions is not easily susceptible of objective evaluation, nonetheless Irish damages are well in excess of those in other EU Member States.

IBEC states that the establishment of an Irish Book of Quantum on General Damages by reference to particular injury, having regard for what is provided for in other comparable jurisdictions, is a good recommendation. However, it sees potential problems with it at the present time.

AIR welcomes this recommendation, but asks whether these levels will override the current Book of Quantum being drafted for the PIAB and whether these levels will be adopted by judges nationwide.

At the meeting with Joint Committee, the Tánaiste and Minister for Enterprise, Trade and Employment, Ms Mary Harney, T.D. stated that it was never the intention in establishing PIAB that the level of awards being given by Courts would be reduced. The purpose of the Book of Quantum was to consolidate the level of existing awards. By making these levels publicly available, the settlement of many cases would be facilitated. The Government wished to ensure that genuine claimants would achieve an appropriate level of award from the insurance industry.

On being pressed by the Joint Committee, the Tánaiste stated that if a consensus emerged that the level of awards should be examined, then the Government would have to consider this view.

In general, insurance companies provide insurance cover to meet the level of awards that are made by the Courts system or determined by Government. Some insurance companies stated that it was not their role to determine the level of awards or to have a view as to whether these awards should be increased or reduced.

However, other insurance companies pointed out that the level of awards in Ireland were substantially higher than in the UK or in other countries. As a high proportion of insurance premiums are eventually paid out in awards to those suffering accidents, it is apparent that the single biggest influence on insurance premiums is the level of awards being paid.

Comparison of Irish awards with other countries

(Extracted from “Personal Injury Awards in EU and EFTA Countries” – published in 2003)

“In the Republic of Ireland, overall awards and the pain and suffering element are high by comparison with other countries. In the second edition in 1994, the Irish figures were at the top of the comparison tables and in this third edition they are still leading the tables. However, the England & Wales figures have become very close to the Irish figures.

It is…interesting to compare the increase in awards across Europe since the second edition. These do appear to show the Irish overall awards are not increasing in percentage as quickly as some other countries, e.g. English and Welsh, Scottish, German or Greek awards.

The major differences between compensation awards in England and in the Republic of Ireland are that:

1. The Irish award for future loss of earnings incorporates an allowance for inflation and an allowance for the risk that the injured party might not be employed for all of what would otherwise have been expected to be his full working life.
2. Although judges have discretion to award interest on pre-trial losses, it is very rare for such interest to be awarded.
3. Statutory bereavement damages in Ireland are governed by the Civil Liability Act (as amended) 1961. The present figure is €9,505.

Katherine Delahunt from Vincent & Beatty Solicitors in Dublin has pointed out that today, in Ireland, extensive use is made of pre-trial settlement meetings, which in many cases lead to an early settlement thereby reducing legal fees and other professional fees.”

Views of Joint Committee

The Joint Committee is strongly of the view that each person suffering an injury should receive an appropriate level of award. The Joint Committee does not wish to bring about a situation where any person suffering an injury should not receive an award that would adequately compensate him/her for the injury suffered. However, the Joint Committee sees no reason why Ireland should be paying out larger awards than apply in most other countries.

High award levels are a deterrent to new entrants to the market. It is difficult for insurers from other countries to relate to a market where award levels are substantially higher than in their own markets. By bringing about award levels comparable to other countries, entry to the Irish insurance market will be facilitated.

The Joint Committee urges that this recommendation be given effect.

Overall Conclusion

Insurance is a competitiveness issue for Irish business. If Irish business is to be competitive with businesses in other countries, then costs in Ireland should be similar to those in other countries. While insurance costs have risen in countries such as the UK, United States and elsewhere, the level of increase in Ireland seems to have been much higher than was suffered elsewhere.

Insurance costs are also a consumer issue. If the consumer has to pay high insurance costs for motor insurance and for household insurance, then this increases the cost of living and reduces disposable spending.

Future work by the Joint Committee

This report is the second annual review of the insurance market in Ireland. As can be seen, there are a number of additional recommendations and many recommendations which have been accepted by Government or by the insurance industry which need to be reviewed in the future. The Joint Committee’s intention is to have further meetings with insurers to learn of developments and trends in the market and to ensure that the Joint Committee’s recommendations are being implemented.

Appendix A

List of Attendees

Wednesday, 12 November 2003

Quinn Direct

Mr. Kevin Lunney, Financial Services Director

Mr. Ray Foley, Chief Underwriter

Ms. Sylvia Coldrick, Private Lines Underwriting Manager

Irish Insurance Federation

Mr. Michael Kemp, Chief Executive

Mr. Michael Horan, Non Life Insurance Manager

Mr. Niall Doyle, Corporate Affairs Manager

Allianz

Mr. Brendan Murphy, Group Chief Executive

Mr. Sean Maher, Director Risk Management

Mr. Damien O’Neill, Senior Executive Manager

Mr. Conor Dempsey

Thursday, 13 November 2003

Hibernian Insurance

Mr. Dick O’Driscoll, Managing Director, Hibernian General Insurance

Ms. Laura Booth, Executive Manager, Product & Pricing Department

Mr. Brian Huston, Director

AXA Insurance

Mr. John O’Neill, Chief Executive

Mr. Paul Moloney, Corporate Affairs Manager

FBD Insurance

Mr. Philip Fitzsimons, Chief Executive, FBD Insurance

Mr. Adrian Taheny, Director, Marketing & Sales, FBD Insurance

IBEC

Mr. Tony Briscoe, Assistant Director, Social Policy

Small Firms Association

Mr. Pat Delaney, Director

Mr. Kieran Crowley, Chairman

Thursday, 20 November 2003

AIR

Mr. Gerry McCaughey, Chairman

Mr. Mark Whitaker, Director

Mr. Barry English, Director

IFSRA

Ms. Mary O’Dea, Consumer Director

Mr. Bernard Sheridan, Head of Consumer Information Department

Ms. Anne Troy, Head of Insurance Supervision Department

Mr. John Pyne, Consumer Information Department

Wednesday, 18 February 2004

Minister of State with responsibility for Labour Affairs

Mr. Frank Fahey, T.D.

Mr. John Walsh, Assistant Secretary

Wednesday, 10 March 2004

Courts Service

Mr. PJ Fitzpatrick, Chief Executive

Mr. Brendan Ryan, Director of Corporate Services

Ms. Marie Ryan, Principal Officer,

Mr. Moling Ryan, Director of Corporate Services

Wednesday, 31 March 2004

Tanaiste and Minister for Enterprise, Trade and Employment

Ms. Mary Harney, T.D.

Mr. Stephen Watkins, Department Official

Thursday, 1 April 2004

Minister for Justice, Equality and Law Reform

Mr. Michael McDowell, T.D.

Mr. John Hurley, Department Official

Mr. Michael Holohan, Department Official

AXA

Mr. John O’Neill, Chief Executive Officer

Mr. Pat Healy, Executive Director

Mr. Paul Moloney

FBD

Mr. Philip Fitzsimons, Chief Executive

Mr. Adrian Taheny, Director of Marketing and Sales

Hibernian

Mr. Dick O’Driscoll, Managing Director

Mr. Brian Heuston, Director Ms. Laura Booth, Executive Manager

Quinn Direct

Mr. Kevin Lunney, Financial Services Director

Ms Sylvia Coldrick, Underwriting Manager

Mr. Shane Morrisson, Financial Planning Director

Irish Hotels Federation

Mr. John Power, Chief Executive

Mr. Richard Bourke, President

Alliance for Insurance Reform (AIR)

Mr. Barry English

Mr. Mark Whitaker

Ms. Emily Cox

Wednesday, 7 April 2004

IFSRA

Dr. Liam O’Reilly, Chief Executive

Mr. Patrick Neary, Prudential Director

Mr. Frank Brosnan

Ms Sharon Donnery

IBEC

Mr. Tony Briscoe

Wednesday, 21 April

Coyle Hamilton

Mr Jim O’Mahony

Mr John Bisset

Dolmen Insurance Brokers Ltd

Mr. David Dillane

Mike Murphy Insurance

Mr. Mike Murphy

Ms. Tanya Murphy

Mr. Gary Owens

Construction Industry Federation

Mr Liam Kelleher

Mr George Hennessy

Wednesday, 28 April

Marsh Ireland

Mr. Joe Grogan, CEO Marsh Ireland Ltd

Mr. Peter Lyons, Head of Compliance

Mr Kieran Mc Hugh, Corporate Client Practice Leader

Mr John Deegan, Financial Services Practice Leader

Insurance Industry Federation

Mr. Michael Kemp

Mr. Michael Horan

Lloyds

Mr. Julian James

Mr. John Murphy

Mr. Roy McGovern

Mr. Mark Swinbank

Allianz

Mr. Sean Maher

Mr. Brendan Murphy.

Thursday, 29 April

Irish Brokers Association (IBA)

Mr. Paul Lynch, Chief Executive

Mr. David Cowman, President

Mr. Donagh McSharry, Deputy President

Professional Insurance Brokers Association (PIBA)

Mr. Diarmuid Kelly, Chief Executive

Mr. John Hogan, Chairman Legislation Committee

Mr. Derek Fitzgerald, Chairman, General Insurance Committee

Wednesday, 5 May

Minister of State with responsibility for Labour Affairs

Mr. Frank Fahey, T.D.

Mr. John Walsh, Assistant Secretary

Mr. Martin Lynch, Principal Officer

Thursday, 6 May

Minister for Transport

Mr. Seamus Brennan, T.D.

Mr. Des Coppins, Principal Officer

Mr. Liam Dolan, Principal Officer

AON

Mr. Richard Enderson

Mr. Brian Curtis

Mr. Jim Neary

Mr. David Egan.

Appendix B

List of First Interim Report Recommendations

The Joint Committee recommends that:

The MIAB Report

1. Sanctions for breaches to compulsory motor insurance obligations be introduced as quickly as possible and, in particular, that uninsured vehicles be confiscated.
2. The provisions of the Court Bill 2001, in relation to the financial limits of the courts, be brought into force and that the Courts Service bring forward proposals to reform the courts as a matter of urgency.
3. The Government negotiate a common European market protection for insurance policy holders against the insolvency of an insurer.
4. The 2% levy, which is now merely a source of tax revenue, should be abolished.
5. The Irish Financial Services Regulatory Authority facilitate the placement of Irish motor insurance business outside the jurisdiction by amending existing regulations.
6. An arrangement be entered into between insurance companies and hospitals that would refund hospitals for the costs of treating injured persons at normal health insurance rates but that would avoid the pursuit of individuals to make claims on insurance companies.

Heads of the Personal Injuries Assessment Board (PIAB) Bill 2003

7. The Government establish an expert group who would consider the information now being compiled by PIAB on the levels of awards in the Irish courts, the levels of UK awards and the levels of awards in other jurisdictions. This group would recommend a level of awards that would be appropriate to Ireland. The recommendations of the group should be published in draft form to allow all interested parties, including representatives of victims, to make submissions on the proposals.
8. The proposed Civil Liability and Courts Bill to contain a provision that would require judges, on making decisions in relation to the level of awards, to have regard to the Book of Quantum applied by PIAB.
9. PIAB, as soon as possible and certainly within six months of its establishment, should deal with public liability and motor accident claims, as well as employer’s liability claims.
10. Where, not having accepted a PIAB award, the court award is equal to or less than a PIAB award, legal costs should not be allowed to the claimant.

The Heads of the Civil Liability and Courts Bill

11. The measures in the proposed Civil Liability and Courts Bill to eliminate fraudulent and exaggerated claims be adopted.
12. Specific judges should be allocated to deal with personal injury cases and they should be required to undertake training in relation to insurance issues.

Road Safety

13. Legislation should be introduced to permit the keeping of central records on claimants by insurance companies, subject to appropriate safeguards.
14. The Government immediately bring in legislation for the regulation of driving schools.
15. Penalty points be extended to all motoring offences affecting road safety as quickly as possible and that the necessary infrastructure of IT systems be put in place to achieve this.
16. All speed cameras should be operated by An Garda Síochána.
17. A dedicated traffic corps within An Garda Síochána be established at the earliest opportunity with a view to increasing the enforcement of road traffic regulations and reducing deaths and injuries on the roads.
18. The Minister for Transport publish a detailed set of proposals to deal with young driver licensing and training, so as to reduce the wholly unacceptable level of deaths and injuries among young drivers.

The Insurance Companies

19. The Irish Financial Services Regulatory Authority review the Irish solvency regulations to ensure that they are in the best interests of policyholders, existing insurance companies operating in Ireland and potential entrants.
20. The Government permit insurance companies, as part of their solvency requirements, to invest in public/private partnerships and infrastructural projects on a basis to be determined annually by the Minister for Finance.
21. An annual review of the insurance market should be carried out by the Joint Committee to consider whether its expectations of reform are being realised.
22. The Irish Financial Services Regulatory Authority, in the interests of transparency, should publish the justification given by insurance companies for changes in their premiums.

Communications Guidelines for Insurers and Policyholders

23. IFSRA, the Irish Financial Services Regulatory Authority give effect to the IBEC/Insurance Industry Federation Communications Guidelines by statutory order, so that the guidelines have the power of law.
24. Where a policyholder objects to a settlement of a claim by an insurer, the insurer should not be able to settle the claim unless, having asked for an arbitrator to consider the issue, the arbitrator finds in favour of the insurer. The losing party should pay for the arbitration.
25. Policyholders should see clear evidence of the benefit of being claim free. Accident-free policyholders or those with low levels of accidents should be seen to be rewarded.
26. All policyholders should, on renewal, receive information on the basis on which the premium is calculated.

Competition and New Entrants

27. The Competition Authority publish at least an interim report on the insurance market before the end of 2003.
28. All regulatory barriers or regulatory impositions on insurance companies that make entry to the Irish market (for Irish or other EU companies) more difficult than to any other EU country should be removed by the Irish Financial Services Regulatory Authority immediately.

Competition and New Entrants

29. The Government establish an Inquiry, composed mainly of non-lawyers, into the present levels of legal fees in personal injury actions. The Inquiry would undertake a study of the costs and would consider whether the current level of fees being awarded by the Taxing Master are reasonable in relation to the work being undertaken by solicitors in preparing cases for trial. This Inquiry would also consider the necessity for the extensive use of barristers in personal injury actions in the Irish courts.
30. The Taxing Master should not be, nor have been, a member of the legal profession. The decisions of the Taxing Master should be subject to appeal to a lay appeals body.
31. In-house barristers should have a right to appear in court in defence of claims against the insurance companies that employ them.

Some Other Issues

Brokers

32. There should be no production quotas established by any insurance company that might inhibit or prevent brokers from giving independent advice to their clients.
33. 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
34. Insurance companies should not discriminate against competing brokers in making available renewal information.
35. IFSRA, the Irish Financial Services Regulatory Authority should give consideration to the issue of whether brokers should operate only on a fee basis

Safety At Work

36. An annual awards scheme be introduced to recognise the companies that have had no accidents for several years and those that have made a significant effort to improve safety.
37. The Health and Safety Authority and the insurance companies should specify appropriate health and safety standards with a view to offering premium reductions for companies that comply with such standards.
38. The Health and Safety Authority be properly resourced so that Irish safety performance levels become among the best in the EU and that they meet the target of 8,000 inspections per annum.
39. The Bill to make new provisions for health and safety be introduced immediately.

Self Insurance

40. Organisations, meeting certain financial criteria, should be able to self-insure for all motor risks.

Appendix C
Summary report on MIAB recommendations

SUMMARY REPORT ON MIAB RECOMMENDATIONS

06 JULY 2004

In summary;

Of the 67 MIAB recommendations,

38 have been implemented




5 have been partially implemented




14 are being actively progressed




6 cannot be further progressed at present




4 are under consideration

Recommendations Relating to Department of Transport

Recommendations relating to Department of Transport & Department of Justice, Equality anD Law Reform

Recommendations relating tO Department of Justice, Equality and Law Reform

Recommendations relating to Department of Justice, Equality and Law Reform & the Incorporated Law Society of IrelanD

Recommendations relating to Department of Enterprise, Trade & Employment

Recommendations relating to IFSRA FROM 1^ST MAY 2003, FORMERLY RELATING TO Department of Enterprise, Trade & El

Recommendation relating to Department of Finance

Recommendations relating to Department of Finance in relation to IFSRA Legislation

Recommendations relating to IFSRAR

Recommendation relating to Department of Health and Children

Recommendations relating to the Irish insurance federation

Recommendation relating the Irish Insurance Federation & IBEC

Recommendations relating to the Competition Authority

Totals

Appendix D

First Interim Report Recommendations Index