Conor Faughnan Presents Insurance Reforms To Finance Committee

Today Conor Faughnan, AA Director of Consumer Affairs, will present a number of AA proposals on how best to address rising motor insurance premiums to the Oireachtas Joint Committee on Finance, Public Expenditure and Reform.

Among the AA proposals are a call for the paper insurance disc on car windscreens to be abandoned, the introduction of Automatic Number-Plate Recognition (ANPR) technology, and the completion of the Integrated Information Data Service (IIDS) data hub. These measures would help to reduce instances of fraud, which adds an estimated €50.00 to the average premium.

Read the full statement to the Joint Committee below.

Statement on the issue of motor insurance costs by Conor Faughnan, Director of Consumer Affairs for AA Ireland, to the Oireachtas Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach

Dear Members,

Thank you for the opportunity to speak to you here today. The AA is Ireland’s motoring organisation. It has acted as a lobbyist for motoring interests and in a leadership role supporting road safety and progressive transport policies for over 100 years.

It has also grown to become the largest personal lines insurance intermediary in Ireland providing Motor, Home, Travel and recently Life insurance. The AA has over 120,000 motor insurance customers and deals with a panel of three underwriters to provide them with quality motor policies. The position is unique and leaves the AA very well placed to see differing points of view in the ongoing issue of rising prices.

The rising cost of motor insurance is the single most important issue for the motoring consumer right now according to AA research. An AA poll of over 9,000 motorists carried out in March of this year ranked motor insurance costs as more important than road safety, fuel costs, taxation & road maintenance.¹

The AA has been active on this for some time. In November of last year we published a detailed set of recommendations under 5 headings. These are summarised below.

Since November there has been disappointingly little progress on these issues. There has also been a worsening of the competitive position for the provision of insurance in Ireland.

Competitive weakness

The market is increasing in Ireland (new car sales are up 20% as the economy grows). Prices are also increasing sharply. Despite this insurers are in active retreat from the market. The entry of the Qatar Insurance Company announced on 31^st August is welcome but is against the trend; overall there are very few foreign players looking to enter. This is a deeply unhealthy indicator and a worsening problem.

Premium rises have not finished yet. We estimate a further 20% overall will come about over the next 2-3 quarters unless action is taken.

As well as retreating altogether insurers are also looking to narrow their footprint. They are interested only in mainstream risks, eg no penalty points, standard car, profession & history etc. Drivers who are non-standard for any reason face much higher increases. The AA is aware of many case where drivers have been either unable to get insurance at all or have no choice but to stick with an existing insurer despite very large price increases.

Potential foreign competitors that should be attracted to Ireland in the current market are avoiding it because of a) reputational damage caused by issues with RSA and Setanta, and b) more significantly, a lack of clear information and data on issues around true claims costs.

Current insurers despite their protestations are not actually incentivised to address this once they can price it accurately. In a land of murky data the incumbents know more about true risks than new players.

What can the Oireachtas do?

There are a number of actions which the AA identified when it published a report on the issue in November of last year. Motor Insurance has a lot of stakeholders as the committee will know and as is reflected by the number of parties coming before you.

Many of the actions fall to the Insurance Industry or other agencies but there are measures that are directly within the power of government and elected representatives. These include:

Update the Book of Quantum. This is a document which describes in detail the appropriate level of financial compensation for injuries of given severity. It needs to be updated and, as far as is constitutionally possible, courts must be persuaded or compelled to adhere to it. The roulette wheel of the courts is at the root of a lot of the issues. It is why insurers undermine the Injuries Board, for example, and leave it dealing with only 20% of all cases. The AA understands that an updated Book of Quantum will shortly be published but it is overdue and very badly needed.

Introduce ANPR or automatic number-plate recognition. This is a mature and well-used technology whereby a car registration plate is automatically read and the number checked against a database for tax & insurance. It is in widespread use internationally and an Garda Siochana are already equipped with the technology. The existing paper windscreen disks actually facilitate fraud rather than preventing it. The AA has asked for the disks to be abolished as has been done elsewhere but even if we must persist with paper then operating ANPR in parallel will still contribute strongly to cutting down fraud. Find a fake tax disk and it is virtually certain you have also found an uninsured driver.

Setting the Discount Rate. This is a somewhat technical issue the importance of which tends not to be appreciated. As explained in the section below the Discount Rate is an assumed rate of interest that can be earned by a large sum of money if it is invested. The more that you assume the investor return to be the less money is required to be paid up front. This makes a very big difference to insurance companies as they must hold money against likely pay-outs.

The legal authority to set the Discount Rate rests with the Minister for Justice but in the absence of a decision it has been taken by court precedent. That precedent was changed following the Gill-Russell case of 2014 it is causing insurers to be additionally cautious in their reserving, worsening the situation for premiums. It is also a barrier to foreign competition.

The AA has already engaged with the Tanaiste & her department on this to stress the importance of this issue.

5 Key areas of reform :

The five areas identified by the AA last November remain valid. They are as follows:

• Fraud– Work together to block fraud at every turn
• Legal– Standardise awards and remove the uncertainty
• Regulatory– Resource up and protect the industry
• Enforcement– Invest and modernise
• Industry Transparency– Share the data and learn

1. FRAUD

Insurance fraud is estimated to add €50 to the cost of every motor insurance policy in Ireland and overall it removes some €200m per annum from the money available to compensate genuine victims of accidents. Fraud comes in various forms. Some involve pure criminality like deliberately staged accidents, some are less sinister like motorists chancing their arm by driving after their insurance has expired. All of them cost honest motorists money.

 The AA proposes the following:

1. a) Complete the development and roll-out of the Integrated Information Data Service (IIDS) data hub. This is a system that has been delayed in development for the last four years. When complete it would allow insurers to share information on motor insurance applicants and to detect fraudulent patterns of behaviour. It could be a key measure to prevent known fraudsters switching between insurers. It would also make life simpler for honest motorists by removing the need for them to obtain written proof of No Claims Discount, currently a barrier to shopping around.
2. b) Insurers need to do more to detect and punish drivers who do not honestly declare their penalty points when either applying or renewing their motor insurance. This problem is far more common than it should be; the AA estimates that across the market as many as 75 per cent of drivers who have received penalty points understate them when buying insurance, which effectively increases prices for everyone else.
3. c) Insurers have a lot of information and profiling data on certain individuals that enable them to detect fraud or potential fraud before an insurance policy is provided. This data should be shared between insurers and should be shared with the Garda. Currently data protection concerns mean that this information is not shared as it is in the UK through services like Experian. This allows potential fraudsters to play the field and commit successive frauds.

UK law is similar to Irish law and obeys the same European data protection principles. If it can be done there it can be done here. Properly implementing the IIDS data hub while addressing the data protection concerns is key to this. The AA also believes that access to the hub must be industry-wide and available to all insurance providers from the beginning.

These changes require action by:

The Departments of Transport & Justice, the Insurance industry via Insurance Ireland, and the Garda.

2. LEGAL CHANGES
3. a) The Insurance industry is facing rising costs from Court Awards that are unpredictable, varying from one court to the next for apparently similar cases, and are forcing insurers to increase reserves, in turn pushing up the cost to the consumer. Ireland also has very generous levels of compensation by international standards and an extremely high number of whiplash cases.

The Injuries Board only assesses 20 per cent of claims. Ten per cent are resolved in court, which is a much more expensive process. Sixty per cent of the value of compensation paid via court settlements goes to pay legal costs which is extremely wasteful and adds no value (other than to the legal industry).

Seventy per cent of cases are settled directly by the Insurer. For those cases there is limited visibility of data on issues like the level of legal costs and the amounts paid. This is because Insurers generally do not share any data other than what they are obliged to share with the Central Bank.

1. b) The Insurance industry faces more uncertainty because of changes to the ‘Discount Rate’, which is the assumed rate of investment return that makes a big difference to the cost of large insurance pay-outs. The Discount Rate has been taken as three per cent since a legal precedent was set in 2003 but in 2014 a judgement in the ‘Gill Russell’ case set the rate at one per cent, which effectively meant much larger costs to insurers. The industry must now charge customers more as a result because they are unsure which rate will apply in the future.

The AA proposes the following:

The Government via the Department of Justice, in co-operation with the Injuries Board and the Courts Service, must act to:

1. a) Standardise the levels of compensation paid by updating the Book of Quantum and putting it on a statutory footing. This would ensure that awards made by courts are consistent and are the same as those made by the Injuries Board. This would reduce the incentive to go to the courts on the basis that it is ‘worth a shot’ and would reduce the number of court cases.
2. b) The Civil Liability & Courts Act of 2004 gives the Minister for Justice the right to decide what the discount rate should be but no Minister has done so. Minister Fitzgerald should do so without delay.

These changes require action by:

The Minister for Justice, The Department of Justice, the Law Society and the Courts Service

3. REGULATORY

Let’s have no more ‘Setanta’s’. This insurer was regulated in Malta but did all of its business here. It failed in 2014 leaving 70,000 customers with no cover and leaving 1,750 unpaid claims, worth €94 million, for the Irish consumer to pay.

While EU rules mean that insurers regulated in other states must be allowed to trade here, there is no EU law that says we have to tolerate it and pay the consequences if the Maltese fail to do their job properly.

The AA proposes the following:

1. a)  The government must actively pursue the Maltese government to make good the losses caused by Setanta, both to recover the money and to let others know that we are not willing to be a soft touch.
2. b) Greater resources must be given to the Central Bank to enable it to regulate the sector properly.

These changes require action by:

The Central Bank of Ireland, the Department of Finance and the Insurance Industry via its representative body Insurance Ireland.

4. ENFORCEMENT

All car insurance claims begin with a crash. Ireland has performed very strongly in terms of reducing death and injury on our roads but since 2009 the level of resources provided to the Garda has been allowed to fall. The strength of Garda Traffic Corps went from 1,200 in 2009 to 800 by 2013.

At the same time the force needs to have modern tools. The AA has called for the abolition of windscreen discs, as has been done in the UK, and their replacement with camera-based technology. This has already seen a 42 per cent increase in fraud detections in the UK since it was done there in October of last year.

The AA proposes the following:

1. a) The Government must commit to restoring the Garda Traffic Corps resources and increasing its numbers.
2. b) Legislate to get rid of paper discs, which are a fraudster’s charter, and replace them with Automatic Number Plate (ANPR) technology. This is a system of cameras, either car-mounted, fixed, mobile or hand held, that can read car registration numbers and check them against a database in real time.

In widespread use internationally they are deployed in the Garda Traffic Corps but only in about 80% of their vehicles. AA is recommending a more comprehensive roll-out, as well as equipping all Garda Members with handheld technology – i.e. a smartphone App – that can look up the state & insurance databases and inform the Garda in real time as to the tax, NCT & Insurance status of a car.

The database already exists – it is the State’s National Vehicle and Driver File which we all use every time we tax a car, and the Insurance Link system which tells the Garda whether a car is insured and who is insured to drive it.

These changes require action by:

The Department of Transport and the Garda.

5.  TRANSPARENCY AND PUBLIC SHARING OF DATA BY THE INSURANCE INDUSTRY

The Insurance Industry through its representative body Insurance Ireland has pointed to a number of factors in their cost base that are pushing up car insurance prices. The AA has some sympathy for this but the burden of proof rests with the industry and their reluctance to share clear, precise and comprehensive data inevitably leads to scepticism.

When car insurance claims are settled, 20 per cent are handled by the Injuries Board and the data is clearly visible. Ten per cent is handled by the Courts and while data is imperfect it is available. Seventy per cent is handled by the Insurers directly and there is no proper information on the different elements contained in that. While some data is reported to the Central Bank it is not comprehensive. Issues like legal & investigative costs, the nature of settlements and other key data is not shared by Insurers.

The AA proposes the following:

Insurers must openly publish comprehensive data on the cost of claims. This includes reporting on the nature and detail of the claims that they are settling directly and what the component costs are, including & specifying what portions are material damage, injury compensation etc. Insurers must report clearly on legal costs, how they are made up and to whom they are paid.

These changes require action by:

Individual insurers and the Insurance industry via Insurance Ireland, Central Bank of Ireland.

The AA believes that these reforms are not inherently complicated or difficult. With sufficient good will on all sides they can be brought about quickly. The AA is calling on the Taoiseach to lead the Government, the Insurance industry, the Garda and the Legal professions to work together immediately to bring them about.

¹                      Extract from AA Motorists’ Panel Poll March 2016. 

Q: Please indicate below how important you personally consider the following motoring issues to be in 2016.