Press release
Opening speech by Seán Fleming, Minister of State for Financial Services, Credit Unions and Insurance Statements on Insurance Reform
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Ceann Comhairle / Leas-Cheann Comhairle,
I welcome the opportunity to address the Dáil today on the issue of insurance reform. This is a key priority for Government as a whole, and particularly has been a key focus in my post as the Minister of State with responsibility for insurance issues.
As all Members of this House will be keenly aware, a well-functioning insurance industry is vital for a healthy and vibrant economy.
The pricing and availability of general insurance has been subject to considerable volatility in recent years, in particular for some sectors.
The vast bulk of the €4.6 billion domestic insurance market employing 28,000 people across all regions, functions well for consumers. The main sectors are private motor insurance with 2.2 million insurance policies, and home insurance with 1.3 million policies. We must not take this for granted as in the very recent past we have witnessed the failure of large domestic insurance firms. This has not been ‘cost-free’ with insurance customers still paying for this through the ICF levy which is applied to their policies.
To put the record straight, we must acknowledge there is no single policy or legislative fix to remedy issues around the cost and availability of insurance. With only one large domestic provider, the reality is we are heavily reliant upon international insurers which operate in Ireland on a cross-border basis.Under the EU Single Market framework for insurance (the Solvency II Directive) the government and Central Bank of Ireland cannot interfere in such matters.
While motor insurance has improved, with premiums falling by about 16 per cent since the formation of this government, issues remain in relation to some businesses with high levels of footfall such as those in the hospitality; retail; tourism; voluntary; and child-play sectors, in terms of public and employer liability cover. Indeed, data from today’s National Claims Information Database report shows 60 per cent of business policies are under €1,000, while 92 per cent are under €5,000.
For this reason, the government has continued to prioritise domestic insurance reform as identified in the Programme for Government. We are delivering on this commitment through the Action Plan for Insurance Reform, an ambitious multi-initiative, whole-of-government approach that seeks to tackle key insurance issues head-on; from: award levels and the cost of claims; to competition; fraud; system reform and the availability and cost of insurance for policy holders.
This Reform is being delivered through a Cabinet Committee Sub-Group and includes a number of Ministers An Tánaiste Varadkar; Ministers Donohoe, McEntee, McGrath and O’Gorman; and Minister of State Troy alongside myself. Resulting from the Sub-Group, the government published the Action Plan for Insurance Reform in December 2020.
The Action Plan sets out 66 actions to bring down costs for consumers and business; introduce more competition into the market; prevent fraud and reduce the burden that insurance costs can have on people, business, community and voluntary organisations.
I will now outline some of these actions and the impact that they can be expected to have.
To begin with, the implementation of the Personal Injuries Guidelines to replace the Book of Quantum was delivered in April 2021. This was made possible thanks to the Judicial Council Act 2019, and was delivered six months ahead of schedule. Indeed, I would like to acknowledge the work of the judiciary on this issue, which represents the cornerstone of our reforms.
There is already evidence that the Guidelines are having the desired effect of lowering overall award levels. This impact is clearly seen in the latest report from the Personal Injuries Assessment Board (PIAB), covering average awards made by PIAB during the first 8 months of the Guidelines. This shows that the total average award was over 40 per cent lower compared to awards under the previous Book of Quantum, with the same drop being seen across motor, employer’s liability, and public liability claims. The average PIAB award is now slightly under €14,000 compared to almost €24,000 in 2020. Significantly, 72 per cent of awards were for under €15,000, compared to just 30 per cent of awards in 2020.
Furthermore, while legal actions have been taken against the Guidelines, I welcome the recent High Court rulings (2 June and 17 June) which stated that the Guidelines are constitutional, and that the PIAB acted correctly and lawfully in assessing personal injury claims with reference to them. However, the judgments are still subject to appeal and until settled, it will naturally take time for the full impact of the Guidelines to be seen.
I have spoken to industry on a number of occasions, as has the Oireachtas, and I have consistently restated the need for it to pass-through the saving from the guidelines. It has been indicated to me that pre-guidelines, about €25 out of every €100 in motor premium related to personal injury costs. Assuming the Guidelines lead to approximately 50 per cent reduction in these claims and their associated legal costs, it would imply reduction to this element of premium.
Another major achievement has been the introduction of Regulations by the Central Bank to ban price walking for home and motor insurance, which commences next week, on 1 July.
The Bank’s price walking ban is evidence-based. Importantly, this will mean that insurers can still offer discounts for “new business”, thereby retaining the benefits of switching for those to prefer to change insurance provider regularly. It will also facilitate potential new market entrants who wish to attract customers, thereby supporting healthy competition.
It is worth reflecting that Ireland will now be the first EU Member State to introduce such a ban for insurance products.
On that note, another development has been the establishment of the Office to Promote Competition in the Insurance Market within the Department of Finance. The role of the Office which I chair, is to assist in promoting competition in the Irish insurance market and therefore reduce insurance costs and increase the availability of cover, including for businesses.
The Office is working closely with the IDA to bring new entrants into the Irish insurance market, including in areas which have been identified as ‘pinch-points’.
In all of these engagements I have stressed the importance for insurers to expand their risk appetite into ‘pinch-point’ sectors that are experiencing issues with availability and affordability of cover, particularly high-risk and high-footfall areas. This is a priority for the Office, but as noted already, the government cannot compel insurers to cover individuals, businesses or even certain sectors of the economy. What we can do, however, is make the Irish market one that is more attractive to enter, and implementation of the Action Plan is the most important step in this regard.
Group schemes allow insurers to more effectively identify and control risks, through standardising risk mitigation strategies. These offer collective bargaining/purchasing power which single entities cannot access. Some examples of successful group schemes are:
Looking to the future, FINTECH also offers new possibilities. This morning I chaired the inaugural Cross-Government Fintech Steering Group meeting. In this context InsurTech is providing the context for Irish start-up businesses in the insurance sector to in time help reduce premiums and stimulating the growth of a more diverse insurance market.
Today, Deputies will be aware that the Central Bank published its second report on Employer Liability, Public Liability and Commercial Property insurance, covering the period up to the end of 2020. The report provides further insights into the cost of insurance, claims settlement and profitability of the insurance firms in these specific areas.
I along with the industry wish to see the genuine claims settled, but equally greater efforts to tackle bogus and exaggerated claims. I welcome that there is greater efforts in the courts to call out such cases. To conclude on this part, there are several other achievements under the Action Plan which are important to mention, some of which address fraud, including:-
In terms of the impact of ongoing reforms we have seen motor insurance, which is compulsory for drivers, continuing to fall, to the point where the latest CSO data for May now shows a reduction of just over 40 per cent from peak prices in mid-2016. Indeed, the same CSO data shows that motor insurance fell by 10.9 per cent in the year to May, at a time when inflation generally is running at 7.8 per cent.
Notwithstanding the fact that the Action Plan has had great success to date, I acknowledge that there are ongoing issues in relation to the insurance sector.
Uninsured driving is a significant issue which I have had a number of engagements on this year. According to the Motor Insurance Bureau of Ireland one in every thirteen private vehicles on Irish road operates without insurance. It estimates this increases the cost of motor insurance by about €30-€35 per motor policy. I have had positive and productive meeting with MIBI and the Department of Transport on this issue, and it is welcomed that the Minister for Transport’s Road Traffic and Roads Bill 2021 contains a number of provisions to identify the scale of uninsured drivers in Ireland. I believe that this momentum should be built upon, and that all relevant stakeholders should explore how to target those drivers who refuse to purchase motor insurance, which is mandatory.
I also wish to acknowledge the issue of business interruption insurance in the context of the COVID-19 pandemic. As Deputies will appreciate, I cannot comment on the ongoing test cases. This includes matters in relation to issues of quantum, which are still before the courts.
Related to this issue is that of insurers deducting the value of State supports from valid business interruption claims.
Here in terms of pandemic supports for businesses, Government’s – and indeed the Oireachtas’ – primary focus was to get money to affected businesses as quickly as possible to ensure they could manage. In that regard, measures such as the Department of Social Protection’s Recovery of Benefits Scheme was not envisioned in advance as part of the government's urgent response to COVID-19. This is a lesson learned from the pandemic, and I would hope that for all future State schemes that this House will remember it and ensure that legislation is “future-proofed” in that regard.
Nonetheless, I am aware of calls for the government to legislate to recoup the value of the moneys withheld by insurers. This was considered as part of the preparation of the Insurance (Miscellaneous Provisions) Bill. However, there were a number of issues with this approach including constitutional difficulties with retrospectively legislating in this manner.
While we have had notable success under the Action Plan thus far, there remains a number of outstanding actions, three of which are key.
The first is reforming the law on occupier’s liability to rebalance the duty of care. Provisions have been approved by the government for inclusion in a Bill which will address this. I would like to acknowledge the work of Minister McEntee on this – a key piece of our reform agenda.
Reform of the duty of care is a key ask of both insurance reform campaigners – such as the Alliance for Insurance Reform, whose efforts I would also like to acknowledge today – as well as the insurance industry.
The next key action is to reform the Personal Injuries Assessment Board (PIAB) being managed by my party colleague Minister of State Troy. This will bring forward a series of reforms in including mediation, retaining information, and the disclosure of information to An Garda Síochána to reduce fraud as well as tightening the Court’s discretion regarding costs in litigation. I have met with the Garda Commissioner to discuss this.
Drafting of this Bill is at an advance stage and is on the priority list for publication during the summer session.
The further key action is enhancing the enforcement powers of the Competition and Consumer Protection Commission (CCPC) through the Competition Amendment Bill which is currently before the Oireachtas.
In addition, as mentioned already, I am pleased that the government’s Insurance (Miscellaneous Provisions) Bill completed all stages in the Oireachtas yesterday. In doing so, it represents another important step on the journey towards greater transparency and openness in our insurance market. I would like to thank all members of the Oireachtas for their input and assistance at getting the Bill to this stage.
I will continue to meet the Chief Executives of the major insurance companies operating here, to ensure they honour their commitment to pass on the benefits of our reform agenda to policy holders by way of reduced premiums and increased insurance availability.
In conclusion, I would like again to emphasise the importance of insurance reform to this government. Under the Action Plan, a significant amount has already been achieved – and the data on insurance costs from both the CSO and NCID speaks to this. It is now important that we in government, and in this House, redouble our efforts to ensure that key pieces of legislation – particularly those linked to the duty of care and PIAB reform – are progressed as speedily as possible. I am optimistic that delivery of these key reforms will increase both the affordability and availability of insurance products, to the benefit of consumers, businesses and community groups.
I look forward to a constructive and informed debate and would like to thank all Deputies present for their attention.