Committee Reports > List of Committees > Joint > 2006 > Committee on Enterprise and Small Business > Report No. 06 - Third Interim Report on Reforms to the Irish Insurance market

Tithe an Oireachtais

An Comhchoiste um Fhiontraíocht agus

Mionghnóthaí

An Séú Tuarascáil

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

Eanáir 2006

Houses of the Oireachtas

Joint Committee on Enterprise and Small

Business

Sixth Report

Third Interim Report on Reforms to the Irish Insurance Market

January 2006

i Chairman’s Foreword

The publication of the Third Interim Report on Insurance Reform by the Joint Committee on Enterprise and Small Business is evidence of the Joint Committee’s sustained commitment to the cause of insurance reform. Since the publication of our First Interim Report, there have been significant reductions in the level of insurance premiums and improvements in the environment in which insurance companies operate. The Joint Committee believes that much more can be done to bring about changes in existing rules and regulations.

The Joint Committee expresses its appreciation of the support given by Government Ministers, including the Minister for Justice, Equality and Law Reform, Mr Michael McDowell, T.D., the Minister for Transport, Mr Martin Cullen, T.D., the Minister for Enterprise, Trade and Employment, Mr Micháel Martin, T.D., and the former Minister for State at the Department of Transport, Mr Ivor Callely, T.D. We also wish to express our thanks to those in the insurance industry and business, and to consumer and user groups who made presentations to the Joint Committee during 2005.

The Joint Committee also wishes 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 its support throughout this project.

In adopting this Third Interim Report, the Joint Committee announces that it will be undertaking further investigations in the coming months particularly in relation to road safety.

Donie Cassidy, T.D.

Chairman

Joint Committee on Enterprise and Small Business

11 January 2006

Contents

ii Membership of Joint Committee

¹ Martin Brady, T.D., replaced Conor Lenihan, T.D., by Order of the Dáil on 16 November 2004.

2 Pat Breen, T.D., replaced Gerard Murphy, T.D., by Order of the Dáil on 20 October 2004.

3 Ned O’Keeffe, T.D., replaced Ollie Wilkinson, T.D., by Order of the Dáil on 17 February 2005.

The SPHE curriculum can be accessed on the Department’s website at www.education.ie under Curriculum, Syllabus and Teaching Guides.

Comment:

The Joint Committee welcomes the inclusion of ‘road safety’ in the suggested programme in the Guidelines for Teachers for first year classes.

However, the Joint Committee now wishes to go considerably further with the inclusion of road safety on the curriculum in secondary school.

The Joint Committee believes that all students should have to pass the theory part of the driving test before leaving secondary school. Ideally, this theory test should be part of the transition year programme. In addition, the Joint Committee wishes to ensure that students over the age of 17 should undergo simulated driving instruction in secondary school.

The Joint Committee, therefore, now recommends that:

55The National Council for Curriculum Assessment should make early provision for the inclusion of the driver theory test for secondary school students as part of their transition year studies. In addition, secondary schools should be required to provide simulated driving instruction for all students on reaching 17 years.

The Joint Committee recommends that:

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

Response from the Department of Transport:

The Driver Testing and Standards Authority Bill, 2004, which provides for the establishment of the Authority, is currently before the Dáil.

Regulations will be required to give effect to the proposals for introducing regulation of driving instruction and the position of existing driving instructors will be considered in the context of the drafting of the regulations.

With regard to the Registered Driving Instructor Status, the position is that proposals being developed by the Department for the regulation and quality assurance of driving instruction will involve a test of the competence of individual instructors. A working group comprising representatives of the Department and of instruction interests has formulated the design of the standard that a driving instructor must meet. The Minister is considering what arrangements will be put in place to oversee implementation of the standard in the context of the establishment of the Driver Testing and Standards Authority.

Comment:

The Joint Committee considers that reform of the Driver Testing and Standards Authority is of critical importance to road safety. The Joint Committee urges the speedy enactment of the Bill. The Joint Committee also urges the Minister to bring the Bill and the intended regulations into force at the earliest possible date in 2006.

Evidence on road safety received by the Joint Committee

Minister Cullen:

The Joint Committee met with Mr Martin Cullen, T.D., Minister for Transport, on 16 November 2005.

The Minister stated that the Government’s Road Safety Strategy for 2004—2006 sets a primary target of a 25% reduction for road collision fatalities by the end of 2006 over the average annual number of fatalities in the 1998—2003 period. If this target is achieved, there will be no more than 300 deaths per annum by the end of the period of the strategy. The Minister noted that the number of deaths on the roads in 2004 had increased compared to 2003 and that up to 14 November 2005, there were 337 deaths on the roads as compared to 326 for the same date last year.

The Government had made significant progress in relation to certain key areas identified in the strategy:

—Traffic Corps

—Metrication of speed limits

—Penalty points

—Privatisation of cameras

—Random breath testing

i Traffic Corps

By the end of 2008, 1,200 Gardaí will be deployed to the Traffic Corps.

ii Speed limits

The metrication of speed limits was completed by local authority personnel over a very short period leading up to 20 January 2005 when the new system took effect. The new system saw a reduction of 16 km/ph in the speed limit applying to rural, regional and local roads.

iii Penalty points

The Minister stated that he had been assured that the necessary support framework for a significant extension of the penalty points system will be in place by April 2006 at the latest. It is his intention that the application of penalty points will be extended to a number of additional offences. The emphasis will be on highlighting key safety issues, such as dangerous overtaking, failure to obey traffic lights, stop signs, and yield signs, and vehicles crossing centre white lines on roads.

iv Speed cameras

On the privatisation of cameras, the Minister stressed that the basis on which sites will be selected by the Gardaí will relate directly to the history and prevalence of speeding incidents. Importantly, the Working Group has recommended that there should be no connection between the revenue collected from detections of privately operated cameras and payment to the operators.

v Road Safety Authority

Work on establishing the Road Safety Authority is well advanced. The Government had decided in July to assign a range of additional road safety functions to the Driver Testing Body, therefore creating the Road Safety Authority. The Authority’s objective will be to take a lead role in the whole area of road safety.

Among the road safety related functions that will be transferred to the Road Safety Authority are:

—the research and statistical function presently carried out by the National Roads Authority

—the Road Safety tasks presently being delivered by the National Safety Council

—driver licensing and driver testing

—driver hours and rest periods, including the installation of tachographs

—working time directive for mobile workers in the road transport sector

—bus and lorry driver vocational training.

The amendments to the legislation are presently being drafted in the Department to provide for the additional functions to be assigned to the Authority.

vi Degree of co-ordination among agencies

The Minister stated that the delivery of the Road Safety Strategy is being overseen by the High Level Group on Road Safety, which includes representation from relevant Government Departments, An Garda Síochána, the National Safety Council and other relevant bodies. The Minister stated that it is necessary to examine the current model. He will shortly be discussing this with the Minister for Justice, Equality and Law Reform and other colleagues. He stated that it was the responsibility of Government to develop, implement and resource this strategy. The Road Safety Authority will be given a central role in the co-ordination of road safety programmes. The Minister stated that a three-year strategy does not represent an appropriate timeframe for the implementation of major road safety initiatives and there was a need to look critically at that planning horizon.

National Safety Council

The Joint Committee met with the Chairman and the Acting Chief Executive of the National Safety Council on 19 October 2005.

Mr Eddie Shaw, Chairman of the National Safety Council, made the following points:

He stated that 380 persons will die on the roads this year and that about 3,000 will be seriously injured.

The National Safety Council knows exactly what to do to reduce the number of fatalities to 240. There would be substantial economic and social benefits. Why is the investment not being made? The investment in road safety had not been sustained. There are a number of areas where Government intervention has brought about spectacular success but the failure of the Road Safety Strategy challenges every single politician. It is a chronic failure of process. The process is ineffective and inefficient. One of the difficulties was that road safety was a cost in the Department of Transport, the Department of Justice, Equality and Law Reform and the Department of Environment while the benefits were reaped by the Departments of Health and Children, Social and Family Affairs, Enterprise, Trade & Employment and Finance. Road safety is regarded as just another cost. There is no will to manage it.

The Government has decided to establish a Road Safety Authority, which would subsume the National Safety Council. However, for this to be successful, it must operate in a radically different context.

Mr Shaw stated that he would be failing in his duty if he did not point out these issues to the Joint Committee. He stated that the processes for dealing with road safety needed to be radically changed. The process, but not the people, was corrupt because of the failure of good people to do what was required to make a success of road safety. He stated that politics was being played with people’s lives. If the actions identified by the National Safety Council were implemented, there would be a saving of hundreds of lives and a reduction in thousands of accidents.

Mr Shaw stated that the States of Victoria and Queeensland in Australia and New Zealand were ten years ahead of Ireland in relation to road safety. He had talked to public servants and police forces in those jurisdictions. The National Safety Council had learned a lot. It was impossible to simply copy what they did. There was a need for an integrated road safety approach.

Mr Shaw stated that there was a need to allocate finance for two to three years in advance to the National Safety Council and the new Road Safety Authority. Worthwhile initiatives were being dropped because they were not in the budget. In his view, there was a need to establish a high level group composed of Ministers across a number of Departments to make things happen in relation to road safety.

In New Zealand the whole process of Government was overhauled to ensure that road safety concerns were acted upon. In France, President Chirac had personally taken action on road safety, and a substantial reduction in fatalities had occurred.

He stated that, in relation to penalty points, there had been an argument for eighteen months between Departments on the allocation of four persons to prepare a specification for computerisation. It was important to ensure that the administrative system was able to cope with the installation of a substantial number of additional cameras. There could be eleven million images to be processed and there was a need for access to driver and vehicle licensing files and courts files. In other countries, the process had taken a long time to develop.

Mr Shaw stated that males between 17 and 25 were over-represented in the fatal accident statistics by eight times. He stated that there was no such thing as an accident. There were collisions and crashes, all of these were caused by human error and in particular excessive speeding. Ninety-three per cent of the road network was comprised of local roads. Collisions were as a result of driver behaviour. He stated that it was essential to learn from the experience of other countries.

It would never be possible to bring the number of fatalities to zero. However, a reduction from 9.3 per 100,000 to 6 per 100,000 was feasible. This would reduce the number of fatalities by 140. The National Safety Council did not have programmes in secondary schools because it did not have funding. He would welcome the inclusion of road safety in the school curriculum.

Mr Shaw stated that research had shown that there was overwhelming public support for actions to improve road safety. The political support was there in the community.

Comment:

The Joint Committee is very disappointed indeed that so little progress has been made in relation to road safety. The Joint Committee notes that there are a number of actions in place that may bring about significant change. These include:

—the new Driver, Testing and Standards Authority Bill

—the extension of the penalty points system to all offences that have an effect on road safety

—the introduction of random breath testing.

Nevertheless, the Joint Committee accepts the central point made by Mr Shaw that the process for dealing with road safety issues is inadequate. The Joint Committee considers that radical action is now needed to bring about a significant reduction in the numbers killed and seriously injured on our roads.

The Joint Committee also accepts that road safety policy is an investment. Public money being spent today on enforcement, engineering and education provides future results as follows:

—resources released in A & E and acute hospitals

—other emergency services released

—welfare payments not required

—taxes still paid

—insurance premiums reduced

—increase in the prevention and detection of crime

—people are alive and uninjured.

As Mr Shaw rightly pointed out, there is a difficulty with road safety being regarded as a cost borne by the budget of the Department of Transport. The benefits are received by the Departments of Health, Education and Social and Family Affairs who have no input into road safety strategy. Because road safety issues straddle a number of Departments, there is a need to establish an inter-Departmental Group to take Government responsibility for road safety measures.

The Joint Committee believes that radical action is now needed to deal with road safety so as to significantly reduce the number of people killed and injured on the roads.

The Joint Committee recommends that:

56An Inter-Ministerial Group should be established, comprising the Taoiseach, the Ministers for Health and Children, Transport, Justice, Equality and Law Reform, Education and Science, and Finance, to oversee radical changes in relation to road safety.

The Inter-Ministerial Group could be supported by the staff of the proposed Road Safety Authority.

The Road Safety Authority, as pointed out by Mr Shaw, needs to be truly independent and, in particular, independent in relation to its budgetary requirements. It needs to be able to spend money today that will give a return in future years and not to have to negotiate each aspect of its budget with the Departments of Transport and Finance.

There are models for regulatory bodies that have financial independence through their ability to levy users of their services. The Financial Regulator, the Communications Regulator, the Energy Regulator are some examples of bodies with this financial independence. The proposed Road Safety Authority could be allocated specific funding from the following sources:

—a percentage of the motor registration tax receipts

—a levy on all new vehicles imported into the country (or, alternatively, a percentage of the vehicle registration tax)

—a percentage of motor fuel tax receipts

—a percentage of insurance premiums.

Having considered the above, the Joint Committee makes the recommendation below.

The Joint Committee recommends that:

57The proposed Road Safety Authority should be independent in the carrying out of its functions and should be adequately funded, jointly by the Exchequer and the insurance companies, to finance its activities.

Young drivers:

The Joint Committee is appalled that males between 17 and 25 are over-represented in the fatal accident statistics by eight times. The Joint Committee believes that its recommendations on the introduction of driver testing to secondary schools and the other measures already recommended may have an impact on this loss of life. However, the Joint Committee is not satisfied that these recommendations will bring about a radical transformation in the behaviour of young drivers.

The Joint Committee in its first report noted the operation by AXA, of Traksure, a system that monitored by satellite the speed of young drivers who signed up for a reduction of 40% of the insurance premium costs. There is, therefore, the technical ability to establish whether drivers are complying with the speed limits throughout the country at any time.

The Joint Committee considers that if all insurance companies operated satellite monitoring systems, compliance with speed limits would significantly improve.

The Joint Committee recommends that:

58In order to encourage drivers to stay within the speed limits, all insurance companies should be required to offer significant discounts to drivers who voluntarily accept monitoring of their speeds; these discounts to vary depending on the perceived risk and to be substantial for young drivers.

Fatal Collision Statistics 2005:

The number of fatalities in 2005 was 399, an increase of 25 over 2004 fatalities and an increase of 64 over the number killed in 2003.

During the period October to December 2005, the number of fatalities was 118 compared with 85 for the same period in 2004, an increase of 31%.

The Joint Committee sympathises with those bereaved through fatal collisions and with the many persons who were injured. The Joint Committee will pay particular attention to road safety issues in its next Report on Insurance Reform.

The Joint Committee hopes that the developments and changes already planned and the recommendations made by the Joint Committee in this Report will lead to a significant reduction in fatalities and injuries in future years.

9 Health and Safety in the Workplace

A significant development in relation to health and safety in the workplace was the enactment of the Safety, Health and Welfare at Work Act, 2005 in July 2005. The Act came into force on 1 September 2005. The maximum fine on indictment for breaches of the health and safety law is €3 million plus a term of imprisonment of up to two years. Company directors and managers may also be held liable where they are found to have contributed to any offence. Minister Killeen stated, ‘The primary focus of the Act is on the prevention of deaths and injuries in the workplace. Safety is paramount.’ Minister Killeen said, ‘This Act is a serious wakeup call to employers who don’t do enough to prevent accidents at their places of employment. Workers also have a duty not to endanger themselves or others and to be alert to dangerous situations.’

Minister Killeen stated that he was concerned to learn from the Health and Safety Authority (HSA) that there was evidence that up to one-half of the small employers do little or not enough to ensure a safe workplace. The most common cause of accidents are slips, trips and falls at work, and lifting habits that result in back injuries. Tidy work places cost little. Training in safe lifting postures is available.

The recommendations made by the Joint Committee and the response from the Minister for Enterprise, Trade and Employment are presented below.

The Joint Committee recommends that:

37The 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.

Response from the Department of Enterprise, Trade and Employment:

The HSA’s contribution to health and safety standards in the workplace is multifaceted. It includes:

—monitoring the relevant legislation and submission of proposals for change to the Minister

—enforcement of the legislation

—the provision of advice and information

—the development and promotion of related Guidelines and Codes of Practice, appropriate to enterprises of all sizes, which support the legislation.

HSA guidance and advisory material covers an extensive range of legislative provisions and workplace safety and health issues and is made available in a variety of accessible formats, e.g. in hard copy and on the Internet.

The HSA encourages businesses to strive for best practise by identifying appropriate standards or objectives to pursue, relevant to a firm’s business or specific activities within its business.

In the long run, companies that comply with health and safety standards will have fewer accidents, less downtime and fewer claims on their insurance company, which should lead to their being in a good position to negotiate lower premiums.

In addition, the HSA has initiated a recognition programme — the Voluntary Protection Programme (VPP) — and has commenced this as a pilot initiative with some United States companies who operate in Ireland (Conoco Philips; Dell; Janssen; Pfizer; Schering Plough). Following the pilot, this recognition programme which operates under OSHA (HSA equivalent body) in the U.S.A, can be extended to other companies who agree to embark on a programme of excellence in the management of health and safety and be audited for achievement of this.

Comment:

The Joint Committee welcomes the introduction of the Voluntary Protection Programme. The Joint Committee hopes that it can be soon extended to other companies who agree to embark on a programme of excellence.

However, the Joint Committee would also like to see insurance companies giving premium reductions for companies that voluntarily comply with such standards. This would be similar to the reduction to motor insurance costs given by some insurance companies for no penalty points or a reduced number of penalty points.

The Joint Committee recommends that:

38The 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.

Response from the Department of Enterprise, Trade and Employment:

The HSA budget has been €13.607m in 2003, €14.994m in 2004 (an increase of 10%) and €16.098m in 2005 (an increase of 7%). Staffing levels are currently at 164 with circa 10 on inspection work. The HSA Work Programme published recently indicates how these resources will be used.

A significant factor in the HSA approach to health and safety performance in Irish workplaces is prevention. In 2004, the HSA adopted a prevention strategy which puts increased emphasis on promotion and awareness raising amongst the key influencers of good health and safety, both now and in the future. The HSA has a programme of measures which it has commenced and which are directed at:

—employers

—employees

—potential or future employees (currently in education).

The HSA also works in alliance with a number of organisations at national level who can jointly deliver improvements in the key area of occupational health and safety performance.

Comment:

The Joint Committee notes the response above. However, no information is given on whether the target of 8,000 inspections per annum is being achieved and is planned to be achieved in the future.

The Joint Committee recommends that:

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

The Joint Committee recommends that:

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

Response from the Department of Enterprise, Trade and Employment:

A priority of the Government in relation to occupational safety and health is to steer the Safety, Health and Welfare at Work Bill through the Oireachtas and to bring to Irish law a statutory legislative code that will effectively address and encapsulate the future occupational health and safety agenda for the upcoming generation of workers in Ireland.

The Bill strengthens the provisions dealing with offences, penalties, safety representation, safety training and safety management and these commitments will be carried through. The legislative proposals focus, in particular, on the issue of offences, penalties, safety representation, safety training and safety management. It is innovative in proposing to the Oireachtas the introduction of on-the-spot fines where there are certain breaches of the health and safety code.

Comment:

The Joint Committee is pleased to note that this Bill has now been enacted and has been in force since 1 September 2005.

There were 49 fatalities in the year 2004, of which 13 were in agriculture, forestry and hunting, and 15 in construction.

In the year 2005, there were 70 fatalities. The fatalities in 2005 were 43% higher than in 2004.

There were 17 fatalities in agriculture (up 31%) and 23 in construction (up 53%).

Significantly, there were six deaths in the mining and quarrying sector in 2005 compared with zero in 2004. Manufacturing was up from 3 to 7 (an increase of 133%); there was an increase from 4 to 7 (an increase of 75%) in the wholesale, retail, repair sectors.

Six sectors showed a decline in the numbers of fatalities while two sectors had no fatalities in 2004 or 2005.

Clearly, this level of fatalities must be of very considerable concern. The reduction of deaths and injuries at work, while desirable particularly for those bereaved and injured, is also of critical importance in reducing employer’s liability insurance, a key cost to business.

The HSA has been given new powers from 1 September 2005. The Joint Committee will review the progress being made by the Authority in the reduction of deaths in its next report. Ideally, 2006 should see the number of fatalities reduced to a maximum of 50, the number achieved in 2004.

10 Insurance Regulation

Insurance Regulation is the responsibility of the Irish Financial Services Regulatory Authority (Financial Regulator).

The Financial Regulator was asked to respond to the Joint Committee’s recommendations contained in the First and Second Interim Reports. The recommendations and the response of the Regulator are given below.

The Joint Committee recommends that:

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

Response from the Financial Regulator:

The Financial Regulator and the Department of Finance are progressing this Irish initiative through the appropriate fora in Europe.

Comment:

The Joint Committee is pleased that the Financial Regulator has accepted this recommendation and is progressing this Irish initiative through the appropriate fora in Europe.

The Joint Committee recommends that:

19The 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.

Response from the Financial Regulator:

The Financial Regulator has reviewed the solvency requirements in light of the recent Competition Authority report and a best practice review of other regulatory authorities.

The solvency regulations are not used as an arbitrary method to restrict entry but are rather used to protect consumers against the disastrous consequences that would arise from the failure of an insurance company.

Comment:

The Joint Committee notes that the Financial Regulator is working towards a regime where solvency requirements will be proportionate to risk. Again the Joint Committee is happy that the Irish Solvency Regulations have been reviewed.

The Joint Committee recommends that:

20The Government should 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.

Response from the Financial Regulator:

The Financial Regulator’s position in relation to this recommendation remains, essentially, as outlined in his opening address to the Committee on 7 April 2004.

To recap, the prudential limits on the composition of assets to meet the technical reserves of the company are prescribed in the Third Non-Life EU Insurance Directive as transposed into Irish legislation, SI 359 of 1994. Public Private Partnership investments are not encompassed within the scope of these regulations.

The composition of the assets supporting technical reserves are intended to reflect the profile of the claims in terms of payment patterns. With Public Private Partnership (PPP) initiatives, the concern is that the assets would be tied up for a long period of time and could not be liberated when required by the company.

Any consideration of the appropriateness of using free assets (i.e. those in excess of technical reserves) to invest in PPP investments must consider the flexibility of the investment in allowing companies to withdraw capital as required by adverse claims developments. Should this flexibility of capital withdrawal be a feature of the PPP investment, it is an option we, as regulators, can consider.

Comment:

The Joint Committee notes the acceptance of its recommendations subject to ensuring the flexibility of the investment in allowing companies to withdraw capital as required by adverse claims developments.

The Joint Committee recommends that:

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

Response from the Financial Regulator:

The Financial Regulator has considered the IBEC/IIF Communications Guidelines in preparing our draft Consumer Protection Code. The guidelines contain provisions that impose obligations on both insurers and policyholders. Where the guidelines impose an obligation on a regulated entity we have incorporated them into the Code, where appropriate. We do not have the authority to impose a requirement on policyholders and therefore the corresponding provisions in the Guidelines are not included in the draft Code.

Comment:

The Joint Committee notes the response of the Financial Regulator. We note that the IBEC/IIF Communications Guidelines have been considered in preparing the Draft Consumer Protection Code.

The Joint Committee recommends that:

24Where 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.

Response from the Financial Regulator:

The Financial Regulator suggests that this recommendation be brought to the attention of the Department of Finance, as the proposal would appear to require a legislative amendment to the discretion of insurance companies to enter into contracts.

The Committee may however wish to note that the Financial Regulator’s draft Consumer Protection Code (a copy of which was provided to the Committee in February of this year), on which we have just completed a public consultation, provides that where a claimant makes it known to the insurance undertaking that he/she is not satisfied with the insurance undertaking’s settlement of a claim, the insurance undertaking must notify the claimant immediately in writing of his/her right to refer the matter to the Financial Services Ombudsman.

Comment:

The Joint Committee notes the provisions in relation to the Financial Services Ombudsman.

The Joint Committee believes that an amendment to the Insurance Industry Code of Practice will achieve the objective of its recommendation. The Joint Committee requests the Financial Regulator to give further consideration to this recommendation.

The Joint Committee recommends that:

25Policyholders 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.

Response from the Financial Regulator:

The Financial Regulator proposes to include the matter in future research into consumer attitudes in order to establish whether consumers perceive there to be a benefit in being claim-free and, if so, what this is.

I would, however, draw the attention of the Committee to the fact that the price quoted for an insurance contract, including a renewal of an existing policy, is a function of several factors, including the claims history of the policyholder, but also including any changes to the risk profile presented by the policyholder and issues such as market capacity and the appetite, at any given time, of the insurer for the particular risk concerned.

Comment:

The above is an unsatisfactory response. The Joint Committee wants to encourage policyholders to avoid accidents. In order to do this, it is essential that they receive a financial benefit from doing so. Insurance companies should be required to present their proposals for cover for the coming year in a way that shows the benefit to the policyholder of being accident-free.

The Joint Committee recommends that:

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

Response from the Financial Regulator:

The draft Consumer Protection Code sets out the itemised information that must be contained in a renewal for motor insurance. In the context of views put forward during the current public consultation on the draft Code, the Financial Regulator will consider whether this requirement should be extended to other insurance products.

The Financial Regulator will seek advice from the Consultative Industry and Consumer Panels on this matter, as part of a broader consultation on the need for improvements to the transparency regulations.

Comment:

The response above is somewhat unsatisfactory. Clearly, policyholders should receive information on the basis on which the premium was calculated and the Consumer Protection Code should make this a requirement.

The Joint Committee recommends that:

28All 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.

Response from the Financial Regulator:

As I advised the Committee on 7 April 2004, the Financial Regulator has no evidence that companies have been dissuaded from pursuing an application for an Irish licence because of the regulatory regime operated in this jurisdiction. Indeed there are a number of companies in this market that are writing predominantly into other EU jurisdictions, reflecting that Irish solvency requirements do not represent an undue regulatory burden on companies.

The Financial Regulator is, however, committed to keeping the effect on competition of its regulatory requirements under active review. Should any requirements prove an obstacle to competition, they will be examined to ensure that the correct balance between the facilitation of competition, the protection of consumers and the maintenance of a safe market is sustained.

As I mentioned when I met with the Committee in April 2004, the Financial Regulator is already considering its role in relation to the information and data available on insurance. This work addresses recommendations made by the Motor Insurance Advisory Board (MIAB) and, more recently, the Competition Authority.

Comment:

While the Financial Regulator may have no evidence that companies have been dissuaded from pursuing an application for an Irish licence, nevertheless, there is a problem with participation in the Irish insurance market.

The Joint Committee notes that the Financial Regulator is committed to keeping the effect on competition of its regulatory requirements under active review. This is essential.

The Joint Committee recommends that:

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

Response from the Financial Regulator:

The obligation on Authorised Advisors to give best advice to consumers is unconnected to, and not confined by, the insurance company appointments that an intermediary may hold.

In addition, I would draw your attention to the Financial Regulator’s consultation paper on Remuneration Structures and Transparency (published in January 2005) where we have sought views on whether or not override commissions (i.e. additional commissions or benefits payable to intermediaries for meeting agreed targets) should be banned or restricted.

Comment:

Clearly, if an insurance company has production quotas, this, inevitably, has an effect on the ability of the broker to give independent advice. Again, this response is unsatisfactory.

The Joint Committee recommends that:

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

Response from the Financial Regulator:

The Financial Regulator is currently undertaking research into the availability of employer’s liability and public liability insurance for small business. We have included a question to insurers on this issue to enable us to measure the extent to which this practice may be taking place.

Comment:

The Joint Committee had evidence from witnesses that this practice was taking place. The Financial Regulator should simply prohibit the practice.

The Joint Committee recommends that:

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

Response from the Financial Regulator:

As I mentioned on 7 April 2004, it is my understanding that the question of the obligation to hold motor insurance and the possibility of derogations from that obligation is a matter of policy for the Department of Transport. From a consumer protection point of view, the important issue is that those involved in an accident should be able to claim against an entity of sufficient means. That entity would need to have the relevant expertise to measure and manage risk.

The recommendation refers to financially sound companies being able to self-insure motor and EL/PL exposures. This is an extremely sensitive issue and one fraught with danger for companies who don’t fully appreciate the risks they are assuming. It needs to be recognised that the entity is not only assuming risk for its own loss but, more importantly, for third-party exposure, injured employees, car accident victims, etc. Central to this is the ability for companies to set aside adequate capital to meet its responsibilities though reserving, etc. As it is not an insurance company, it cannot access the reinsurance market in order to limit its loss exposure and is not exposed to any assessment of solvency, etc., by the Financial Regulator. In the event of a company being unable to meet its responsibility, there is no protection such as a guarantee scheme to protect the claimants.

However, to address the thrust of the recommendation, it can be said that Ireland is one of the few EU countries that has a captive insurance industry, where corporations may establish insurance companies to insure own-risk exposures only. These companies are generally managed by an independent management company and are subject to the same Financial Regulator supervisory oversight that applies to companies writing third-party/general market business. Accordingly, we would be in a position to establish a level of compliance with necessary ‘financial criteria’/solvency requirements.

Comment:

In general, as there is a problem with competition in the Irish insurance market, liberalisation in relation to vehicle insurance would bring about further competition in the market.

The Joint Committee again urges the Financial Regulator to implement this Recommendation.

The Joint Committee recommends that:

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

Response from the Financial Regulator:

At my meeting with the Committee on 7 April 2004, I advised that the solvency rules operated by the Financial Regulator are not used as an arbitrary method to restrict entry but are rather used to protect consumers against the disastrous consequences that would arise from the failure of an insurance company.

The higher solvency requirement expected from new entrants reflects the fact that company failures are most likely to arise in the initial three years of business and accordingly requires companies to have a sufficiently strong capital base in these initial years.

The Financial Regulator, in tandem with the EU-wide Solvency II project, is working towards a regime where capital requirements will be proportionate to risk.

The Committee may be aware that the Competition Authority’s report on the non-life insurance market, published in March 2005, recommended that the Financial Regulator ‘should issue guidelines detailing the regulatory requirements, including solvency standards, it will apply to insurers seeking to enter the Irish motor or liability insurance marketplace. To the extent that new entrants are required to meet standards in excess of those for existing suppliers, the guidelines should justify these increased standards.’ The Financial Regulator intends to implement this recommendation.

Comment:

It is very important that potential new entrants are not dissuaded from entering the Irish market because of excessive solvency requirements. While accepting that company failures are most likely to arise in the initial three years of business, nevertheless, many potential entrants would be financially strong companies.

While the prudential role of the Financial Regulator is very important, it is essential that the need for new market participants is also recognised to be of considerable importance.

The Joint Committee recommends that:

49The Irish solvency requirement should be no higher than the norm required by EU regulation.

Response from the Financial Regulator:

While the prudential supervision standards applied throughout the EU have many common characteristics, there is no single model regarded as the norm. I would also draw the Committee’s attention to the Manghetti Report, which recognised EU-wide diversity in the levels of prudence, which may be applied to provisions for outstanding claims. In some jurisdictions an overly conservative reserving metric applied, while in others, such as Ireland, a higher solvency margin level was required. This underlined the need for a pan-European risk-based methodology which will form part of the Solvency II framework. Were Ireland to reduce its solvency requirement to the minimum level required, it would have to re-examine this reserving issue.

The requirements to have a buffer in excess of the EU minimum margin is to enable the Financial Regulator to engage with the company in corrective action before the company’s level falls below the EU minimum margin. This also recognises that the majority of our insurance companies operate in other EU jurisdictions and should their solvency fall below the EU minimum, the Financial Regulator would be required to notify relevant EU regulators, with the associated reputational risk implications.

The Committee’s recommendation is, however, echoed in the Competition Authority’s recommendation, in the aforementioned report, that the Financial Regulator should explain the justification for any solvency standards that are in excess of the EU requirements, noting that any standards in excess of EU requirements should be proportionate. The Financial Regulator intends to implement this recommendation.

Comment:

The Joint Committee notes the development of a pan-European risk-based methodology that will form part of the Solvency II framework.

The Joint Committee wishes to ensure that Irish regulations, including solvency requirements, do not inhibit new companies from participating in the Irish insurance market.

The Joint Committee recommends that:

50IFSRA 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.

Response from the Financial Regulator:

The monitoring of competition in relevant financial markets is part of the monitoring role of the Consumer Director. The Committee will be aware that the Competition Authority and the Motor Insurance Advisory Board addressed recommendations to us that related to the development of an enhanced market information role for the Financial Regulator. We are currently evaluating the issues that these recommendations and the Committee’s Recommendation No. 50 raise.

It should be noted, however, that it may be difficult to devise metrics that could apply in effectively estimating market capacity, especially on a real-time or close to real-time basis.

Comment:

The Joint Committee notes that the Financial Regulator is currently evaluating the issues.

It was a lack of capacity in the insurance market that, ultimately, led to the very substantial increases in insurance premiums. If the level of capacity is not monitored, the circumstances that led to the substantial increases in the years 2000—2002 could re-occur.

The Joint Committee recommends that:

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

The Financial Regulator’s draft Consumer Protection Code proposes that:

—renewal notices for all types of personal lines insurance should be provided to the customer directly by the insurer 15 working days in advance of the renewal date

—where renewal notices are sent to an insurance intermediary, the insurer must ensure that the intermediary receives the renewal notice in sufficient time for the information to be provided to the policyholder, at least 15 working days in advance of renewal date

—for commercial lines insurance, the renewal notice should be provided to the customer 21 working days in advance of the renewal date

—if any information is required by the insurer in order to calculate the renewal terms, it must be sought from the customer at last 25 working days before the renewal date.

The final rules on the timeframes for the issuing of renewal notices will incorporate the views put forward during the consultation periods.

Comment:

The Joint Committee notes the provisions of the Draft Consumer Protection Report. However, the Joint Committee recommended that policyholders be reminded two months prior to renewal and receive a quotation one month prior to renewal. The Joint Committee asks that consideration be given to sending reminders of renewal, and to extending the period from 15 working days to 20 working days for the sending of renewal notices.

The Joint Committee recommends that:

52IFSRA should make regulations to permit insurance brokers, subject to a competency test, to deal on behalf of their clients with any insurance company and the term ‘authorised adviser’ should 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’.

Response from the Financial Regulator:

The Financial Regulator has indicated in the draft Consumer Protection Code that it is well disposed to reviewing the names of the categories of insurance intermediaries. Such a change may require a change of the existing legal definition of an insurance broker and will have to be considered in the context of the Insurance Mediation Directive.

Comment:

The Joint Committee notes that the Financial Regulator is well disposed to reviewing the names of the categories of insurance intermediaries. The Joint Committee looks forward to proposals from the Financial Regulator to bring about the changes suggested.

The Joint Committee recommends that:

53IFSRA 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.

Response from the Financial Regulator:

The Financial Regulator’s consultation paper entitled ‘Review of Remuneration Structures and Transparency’ was issued on 13 January 2005. The closing date for receipt of submissions was 15 April 2005. A number of submissions have been received to date and these are currently being reviewed and analysed. These submissions will be published on the Financial Regulator’s website (www.ifsra.ie) in due course.

The regulatory framework for insurance intermediaries is set out in the Insurance Mediation Directive, which was transposed into Irish law on 15 January 2005. Any requirement or regulations that the Financial Regulator may introduce will be done within the context of that framework.

The Committee may also wish to note the Financial Regulator’s consultation paper on Remuneration Structure and Transparency (published in January 2005) which considers, inter alia, measures to improve transparency in the way that intermediaries are remunerated.

Comment:

The Joint Committee requested the Financial Regulator to carry out a ‘fundamental review of the insurance broker market’. The consultation paper ‘Review of Remuneration Structures and Transparency’ is only one aspect of that review. The Joint Committee again requests the Financial Regulator to carry out the fundamental review as recommended by Recommendation 53.

Annual Report of the Financial Regulator

The Financial Regulator published its first Annual Report on 26 July 2005. The Report contains 141 pages. We give below some extracts from the report.

Insurance Supervision:

Best practice reviews with regulators in The Netherlands, Norway, Sweden and the UK were undertaken during 2003 and 2004. In relation to solvency rules, we found that all countries applied minimum solvency rules based on the provisions of current EU directives. However, beyond minimum rules we found that existing solvency regimes are not directly comparable. Member States’ rules vary as to reserving strengths or capital requirements or solvency margin requirements.

The best-practice review has confirmed our view that our insurance supervisory regime needed strengthening to take account of new developments and risks. Using what we have learned, we have taken a number of measures to strengthen our supervisory practice. These include:

—moving towards a risk-based approach to supervision

—a programme of on-site inspections so that every one of the insurance companies supervised by us will have received an on-site visit by the end of 2005

—introduction of more frequent prudential reporting.

Further Information from the Financial Regulator:

The Joint Committee was sent the further communication below on 12 December 2005 by the Financial Regulator.

Consumer Protection Code:

The Financial Regulator published a consultation paper in February 2005 entitled CP10 Consumer Protection Code, which contained conduct of business rules which the Financial Regulator proposed to introduce. In developing the provisions contained in CP10, we were cognisant of a number of factors and influences including the recommendations of public bodies such as your Committee.

We had initially planned to publish the final version of the Consumer Protection Code in September 2005. However, this timetable was adjusted to accommodate a number of factors, including an extension of the closing date for the receipt of submissions, the complexity and details arising out of the large number of submissions received and the need to hold a number of meetings that were requested by industry parties. In addition, we decided to subject the draft Code to a Regulatory Impact Analysis (RIA).

We now intend to publish the final Code in July 2006. In the interim we have today, 12 December, published our Public Response to the submissions received on CP10. This Public Response sets out the high-level policy decisions that the Financial Regulator has made to date in relation to the Code. We have considered the recommendations put forward by your Committee and, where they are applicable to the Code project, have broken them down into four categories:

-Those which have either been previously incorporated into existing codes or into CP10;

-Those not included in CP10 but which do not represent significant changes and can be implemented without undue problems for industry or consumers;

-Those not included in CP10 which represent more significant changes but on which general agreement for inclusion in the Code can be reached with affected parties;

-Those not included in CP10 which are more fundamental in nature and which will require a full consultation.

I attach a copy of the Public Response and the RIA which was also published today.

In the period between the issue of the Public Response and the introduction of the Code, we will be developing the specific requirements of the Code, consulting with the Minister for Finance, engaging with the Financial Services Consultative Panel and carrying out various logistical work necessary before the Code can be issued.

Review of Remuneration Structures and Transparency:

Consultation Paper CP9 - “Review of Remuneration Structures and Transparency” - sought to review remuneration structures and disclosure requirements in the insurance industry and also sought views in relation to non-insurance investment products. The paper set out the different types of charges and fees in respect of life assurance investment products and the types of commission and fee payments to the distribution channels of those products. It sought views as to how the charging structures could be made simpler and clearer for the consumer and looked for suggestions as to what would be an appropriate measure of the impact of those charges and a means of comparing one product with another. It asked whether certain types of commission, such as override and indemnity commission, should be banned or restricted. The paper also questioned whether current life assurance disclosure requirements are useful and easy for the consumer to understand and whether they enable the consumer to compare products of different companies.

We have now considered the responses received in relation to the consultation and are currently finalising draft proposals based on the submissions and other information received. Given the range and complexity of the issues involved it is likely that a second consultation will be needed and this is envisaged for the first quarter of 2006.

In accordance with our Strategic Plan for 2006 it is intended that any changes to current structures will be introduced by the end of 2006.

Regulatory Reform of the Insurance Sector:

Three have been no new prudential regulations imposed on the insurance/reinsurance sector in the last six months.

The Insurance Supervision Department has been actively engaged with industry and relevant stakeholders on the pending introduction of a regulatory framework for reinsurance on foot of the new EU Reinsurance Directive. It is anticipated that the relevant legislation will be implemented in early 2006. A draft paper on proposed grand fathering provisions (provisions relating to the authorisation of existing reinsurers) relating to the introduction of the reinsurance directive was issued to the Industry as was a paper on Minimum Corporate Governance Requirements.

In addition the Insurance Supervision Department has issued a consultation paper to the Industry in relation to a proposal to introduce a quarterly reporting regime. The closing date for comments is the end of December 2005.

It is anticipated that the feedback from Industry on the various papers issued in the last six months will guide the Financial Regulator when adopting new regulatory requirements in the next six months or so.

Comment:

The Consumer Protection Code deals with many financial services areas from Moneylenders to Guarantees and Taxation. Insurance is only one of the areas addressed by the Code. The progress made in relation to the code is welcome. The Joint Committee notes that the final Code will be published in July 2006. The Joint Committee also notes that the commitment made by the Financial Regulator is that the review of Remuneration Strategy and Transparency will be introduced by the end of 2006. An earlier date, for example, July 2006, would be preferable.

Competition Authority

The Competition Authority published its final report on recommendations in March 2005, ‘Competition Issues in the Non-Life Insurance Market’. The Competition Authority made 47 recommendations, of which 36 were directed to the Financial Regulator.

The Competition Authority concluded that segments of the motor and liability market are highly concentrated, with specific categories of motorists, businesses and voluntary groups being ‘locked into’ their current insurance supplier and/or intermediary, while insurance companies are ‘locked out’ of many important segments of the market.

The Competition Authority’s conclusion is that the insurance market in Ireland needs to be more open and transparent, and its recommendations reflect this view.

In a presentation by Dr Paul Gorecki, a member of the Competition Authority, on the publication of the final report, it was stated that the market needed to be opened up:

For motorists:

—certified claims history (insurance companies)

—breakdown of premium charges (insurance companies)

—procedures for companies to self-insure (Department of Transport)

—disclosure of all commissions and compensation paid (intermediaries/ brokers)

—clarity on types of intermediaries (intermediaries/brokers)

—renewal notices direct to customer (insurance companies).

For businesses and voluntary organisations:

—renewal notices 8 weeks in advance (insurance companies)

—breakdown of premium charges (insurance companies)

—certified claims history (insurance companies)

—cost surveys of liability insurance (IFSRA)

—disclosure of all commissions and compensation paid (intermediaries/ brokers)

—clarity on type of intermediaries (intermediaries/brokers)

—renewal notices direct to customer (insurance companies).

For new and existing insurance companies:

—centralised gathering and publishing of statistics (IFSRA)

—insurance Statistical Review available by June (IFSRA)

—transparency of claims through the legal system (Department of Justice, Equality and Law Reform and Courts Service)

—transparency in the Motor Insurers’ Bureau of Ireland (MIBI) — non-insured drivers

—transparency in the Declined Cases Agreement (Department of Transport)

—insurance Compensation Fund to cover all Irish mass risk (IFSRA).

The Competition Authority Report is available on its website.

Conclusion

The Joint Committee again welcomes the very considerable progress being made by the Financial Regulator. While the Joint Committee is pleased to note that some of its recommendations have been accepted by the Financial Regulator and others have been considered, the Joint Committee urges the Financial Regulator to address all of the issues in relation to the insurance market so that the regulation of the market is reformed as soon as possible in the interests of consumers and of business purchasers of insurance cover. The Joint Committee looks forward to reviewing the changes in insurance regulations made by the Financial Regulator in the course of its next review of the insurance market.

11 Miscellaneous

The Joint Committee recommends that:

1Sanctions for breaches of compulsory motor insurance obligations should be introduced as quickly as possible and, in particular, uninsured vehicles should be confiscated.

Response from the Department of Transport:

The position regarding sanctions for breaches of compulsory motor insurance obligations is that there is one on-the-spot fine and a further eleven offences, on conviction in court. These are outlined below.

Currently the only on-the-spot fine with regard to insurance offences is €60 for not carrying an insurance disc on a vehicle in the prescribed form and manner.

In the Garda Listings of Insurance Offences there are 11 offences to which the penalties in Section 102 (as amended by Section 23 of the Road Traffic Act, 2002) of the Road Traffic Act, 1961, applies. On conviction in court, the fines are:

—First Offence: €800

—Second Offence: €1,500

—Third Offence: €1,500 (and if it is the third offence in any 12 consecutive month period, a fine not exceeding €1,500 or, at the discretion of the court, imprisonment for any term not longer than three months, or both such fine and such imprisonment).

The 11 offences are:

A further three offences exist under two sections of the 1961 Act as amended:

—R4236: False Declaration to Obtain Insurance (Section 64) punished by fine not exceeding €2,500, or, at the discretion of the court, imprisonment for any term not exceeding six months or both.

—R4205: No Insurance (Owner) (Section 56(1) and (3)) punished by fine not exceeding €2,500, or, at the discretion of the court, imprisonment for any term not exceeding six months or both.

—R4214: No Insurance (User) (Section 56(1) and (3)) punished by fine not exceeding €2,500, or, at the discretion of the court, imprisonment for any term not exceeding six months or both.

Regulations for the detention, removal, storage and subsequent release or disposal of a mechanically propelled vehicle in use in a public place, where a member of the Garda Síochána reasonably believes the vehicle is registered in the State and the member is of the opinion that the vehicle is being so used in contravention of section 56(1) of the Principal Act (does not have an approved policy of compulsory insurance under the Road Traffic Act, 1961), can be made under Section 41 of the Road Traffic Act, 1994. Such Regulations have been made by way of Statutory Instrument No. 89 of 1995 — Road Traffic Act, 1994 (Section 41) Regulations, 1995. Article 4 of these Regulations permits the detention, removal and storage of any vehicle in contravention of Section 56(1) of the Road Traffic Act, 1961.

Comment:

The fine of €60 for failure to carry an insurance disc on a vehicle seems inappropriately low given the seriousness of the compulsory insurance requirements. Similarly, the other fines outlined above seem to be excessively low. In general, the Joint Committee is satisfied that the most effective way of ensuring that vehicles are insured is to confiscate the vehicles that do not display an insurance disc.

The Joint Committee recommends that:

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

Comment:

This recommendation is made to the Minister for Finance and, we understand, has not been accepted.

The Joint Committee continues to believe that the 2% levy on insurance should be abolished, or, alternatively, earmarked for the funding of road safety campaigns, health and safety in the workplace issues, or other similar areas where funding is needed.

The Joint Committee again urges the Minister for Finance to cease to apply the levy or to specifically allocate the revenue from the levy.

The Joint Committee recommends that:

6An arrangement should 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.

Response of Insurance Industry Federation:

Any arrangement for the direct settlement of hospital charges in relation to injuries that are the subject of motor and/or liability insurance claims would need central negotiation between the insurance industry and the Department of Health. This is so as to ensure that a comprehensive and consistent set of administrative arrangements and charges is put in place. We had discussions some years ago on this subject with the Department of Health, and we still favour the conclusion of such an arrangement. Indeed, in the context of the implementation of the recommendations of the Motor Insurance Advisory Board, we also discussed this issue with the Department of Enterprise, Trade and Employment who have indicated a willingness to encourage the Department of Health to re-open negotiations. However, there have been no subsequent developments and, whilst we remain supportive of the concept of setting up a direct payment arrangement, there are a significant number of legal and procedural issues to be addressed. In the light of the Joint Committee’s support for such an arrangement, we are again making contact with the Department of Health to ascertain its current position. It may be appropriate for the Joint Committee to formally ask the Department of Health for a statement of its position on this issue.

Comment:

The Joint Committee urges the Minister for State at the Department of Transport, who has responsibility for road safety, to bring about the implementation of this Recommendation.

12 Further Reductions in Insurance Premiums

Chapter 5 shows that insurance companies are reporting significant reductions in the level of premiums being charged in April 2005. These reductions have been in motor insurance, employer’s liability and public liability. In the first interim report, the Joint Committee stated that, when the reforms already announced by the Government and the insurance industry and the recommendations in its report took place, insurance costs should be no greater than those of the year 1999, adjusted for inflation.

The IIF stated at its meeting on 1 June 2005 with the Joint Committee that, according to its members’ reports, motor insurance prices are now at or below 1999 levels in real terms. The IIF stated that, in many cases, comparisons now show that Irish private motor rates are at or below Northern Ireland or UK levels. When the IIF ran an exercise comparing a number of Irish and English urban and rural risks at the beginning of March 2005, it found that Irish rates were lower in ten out of twelve cases. The IIF stated that significant falls had also taken place in commercial insurance rates, particularly in public and employer’s liability.

The tables below have been prepared from the Insurance Statistical Review 2004 and 2003 published by the Financial Regulator.

Table 12.1

Insurance Company Profits (Result on Technical Account) - Five Largest Companies

Table 12.2

Reserves for Outstanding Claims — Five Largest Companies

Notes:

2004 profits - Table 18 Liability Irish Risk Insurance.

2003 profits - Table 13 Total Irish Risk Insurance.

2002 profits - Information supplied by Insurance Companies.

The reductions in premiums have been influenced by the developments that have taken place during the past year (see Chapter 4).

The Joint Committee wishes to see insurance premiums continuing to fall. Before this objective can be realised, concern must be expressed about some of the developments that have been recorded in this report. These are:

1The increase in 2005, as compared with 2004, of the number of deaths and serious injuries due to fatal road collisions.

2The increase in the numbers of deaths arising from accidents in the workplace.

These two developments, if not soon corrected, will lead to increases rather than reductions in premiums.

In addition to achieving the objectives of reducing the number of deaths on the roads to no more than 20 per month and the number of fatal accidents at work to no more than 50 per annum, the following actions need to be taken to further reduce insurance premiums:

Level of awards:

The Joint Committee recommends that:

7The Government should 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.

Response from the Minister for Enterprise, Trade and Employment:

Recommendation 7 on awards was considered. However, it was felt that data in relation to awards in other jurisdictions would not be comparable with data on awards in Ireland, given the lower level of State funding of the consequences of accidents in Ireland and the fact that such litigation is practically unknown in mainland EU. Even in relation to the UK, which is more analogous to Ireland, there is a marginal difference in General Damages for the most serious injuries.

The Interim PIAB was already charged with the task of compiling a Book of Quantum for existing compensation levels, which was published on 2 June 2004 and is readily comparable to the Guidelines produced by the Judicial Studies Board in England. To establish another expert group would have meant duplicating effort and may also have delayed progress on the insurance reform programme. Also reduction of the level of awards to claimants was not an objective of the insurance reform programme, but rather reform of the operation of the insurance market and reduction of the cost of the delivery of compensation.

Comment:

The Joint Committee continues to believe that this expert group should be established. As stated in the Second Interim Report, the Joint Committee is strongly of the view that each person suffering an injury should receive an appropriate award. The Joint Committee does not wish to bring about a situation whereby 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 in 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 would be facilitated.

The Joint Committee is not satisfied with the Department’s response. The Joint Committee has had evidence that the awards payable to claimants in Ireland are substantially higher than in other jurisdictions. The Joint Committee again calls for the establishment of an expert group to consider the level of awards in the Irish Courts.

Until the level of awards in Ireland is brought into line with the level of awards in similar jurisdictions, Ireland cannot have the level of insurance premiums that apply in other countries. Until that happens, consumers and businesses are at a disadvantage.

Competition/New Entrants:

The Joint Committee is disappointed that, even though very substantial regulatory reforms have been enacted, no new substantial companies have entered the Irish Risk Insurance Market.

Undoubtedly, there are still substantial measures to be taken by Government, particularly in relation to road safety, but, nevertheless, there has been important new legislation:

—The establishment of the PIAB

—Civil Liability and Courts Act, 2004

—Health and Safety Act, 2004.

The Joint Committee has, in a number of recommendations to the Financial Regulator, argued that there should be no regulations that inhibit entrants to the market. The Financial Regulator does not believe that the requirements in relation to solvency and other regulations are inhibiting entry.

Undoubtedly, the high level of awards is a strong deterrent to new entrants.

It must also be remembered that the Irish market is a relatively small one and that, apart from the UK, it is unique in Europe in having an adversarial system. In addition, the employer’s liability compensation is run by the State in many countries rather than being part of the insurance market.

The Joint Committee considers that the Minister for Enterprise, Trade and Employment should consider why new companies are not entering the Irish insurance market, taking into account the views of the Financial Regulator, the Competition Authority and the Joint Committee. The Minister should then take whatever measures are necessary to invite appropriate companies, both Irish and non-Irish, to enter the Irish insurance market.

Level of legal costs:

While the Minister for Justice, Equality and Law Reform established an inquiry to consider a number of issues including the level of legal costs in personal injury cases, this Working Group has not yet reported. The implementation of a change in this area will both encourage new entrants and reduce the level of premiums. While the operation of PIAB is leading to an overall reduction in legal costs, it is not reducing the costs of personal injury actions that are determined by the Courts.

Conclusion:

Summary of the measures needed to bring about further reductions in insurance premiums:

1Take the necessary actions to reduce fatalities and serious accidents on the roads.

2Take whatever actions are necessary to reduce the number of fatalities in the workplace.

3Bring about a reduction in the level of awards in personal injury cases.

4Seek the entry of new companies to the insurance market so as to improve the level of competition.

5Take action to reduce the costs of legal actions in the courts.

If the above actions are taken, the Joint Committee will expect to see insurance premiums continue to fall in 2006.