Tuesday, 25 October
Good morning. I would like to thank the Association (AIRMIC Association of Insurance and Risk Managers in Industry and Commerce) for inviting me to speak to you today, as well as Julia (Graham – CEO of AIRMIC) for her kind introduction.
At the outset, I want to emphasise how important the insurance industry is to the Irish economy. Ireland is a global hub for financial services and many of the largest tech companies in the world – such as Google, Facebook and Amazon – have a very large footprint here. Ireland offers a skilled and motivated workforce, along with proximity to both the EU and UK markets, although this latter is not without its challenges in the post-Brexit era. Within this, the insurance industry is a successful and significant element of the international financial services landscape, which has evolved in size and complexity in recent years.
From a policy perspective, Government wants to ensure the market is fair and competitive for all – from our large multinational sector to the small and micro businesses that are the backbone to our economy, and ultimately for the consumer. In my view, and something my colleague Minister Fleming is working with your sector on, is maintaining a competitive landscape which in turn helps build resilience in our enterprise base as we navigate a very uncertain world.
Maintaining a pro-business environment
Insurance is one of Ireland’s most successful service exports and allows us to punch above our weight globally in this market. Ireland is the largest exporter of insurance services in the EU, as well as the fifth largest market for direct insurance business, and the third largest market for reinsurance, after France and Germany.
Maintaining our position amongst such large players is a credit to our insurance industry.
Importantly, the insurance industry in Ireland employs more than 28,000 people directly, representing 1 in 4 jobs in the financial services sector. These are skilled, well-paid positions with a strong regional spread. In addition, these jobs, through the work of bodies such as the Insurance Institute, offer people a defined, attractive career path, which is vital when it comes to retaining talent within the industry.
It is important that we continue to increase the workforce both to safeguard the vitality of the sector and to ensure that Ireland remains at the forefront of developments in the insurance space. I note that the most recent PwC leaders survey shows that six out of ten insurance leaders plan to increase headcount in the year ahead, a development I strongly welcome.
Supporting business and building resilience
Ireland is a small, open economy that is deeply impacted by global events. We live in highly uncertain economic times, with the lingering effects of the pandemic, disruptions in worldwide supply chains and the ongoing war in Ukraine driving inflation and cost of living pressures across society. Government has reacted to this situation with last month’s Budget designed to alleviate these pressures, allocating over €4billion in one-off supports for households who are feeling the effects of inflation.
These supports for both households and businesses to help them meet the challenges posed by the new financial situation are part of an overall €11 billion budgetary package. Anchored by a strong, export-orientated economy, of which insurance is a major part, the public finances have been firmly placed on a sustainable footing.
This has facilitated the provision of these supports while at the same time allowing us to deliver a General Government surplus in both this year and next and is in addition to €6 billion contribution to the National Reserve Fund over the same period.
This is a clear demonstration of the sound economic and fiscal policies being pursued by this Government.
Responding and reforming
In common with other countries, we have limits to the policy levers we can use when dealing with the international financial services situation. Having said that, I and my Government colleagues have been determined to undertake reforms in the sector to ensure consumers and businesses can get affordable cover.
Government has moved to achieve this by introducing the Action Plan for Insurance Reform. The Plan contains 66 actions designed to:
- help bring down the cost of this key financial service
- encourage more competition into the market
- prevent fraud, thus benefitting consumers and businesses alike
This work is being driven on a ‘whole-of-Government’ basis, with the Cabinet Committee Sub-Group on Insurance Reform chaired by An Tánaiste Leo Varadkar TD overseeing the implementation of the Action Plan.
One of the key innovations to date under the Plan is the introduction of the Personal Injury Guidelines, which came into force in April 2021, six months ahead of schedule.
The Guidelines set out the level of damages that may be awarded or assessed in respect of personal injuries. The Guidelines reduce award levels for most categories of personal injury and are used by both the Personal Injuries Assessment Board (PIAB) and the courts to assess compensation in such claims.
The Guidelines have reduced some categories of award from the by an average of 40 per cent, which is bringing predictability to the claims environment.
The Guidelines have brought transparency, consistency and certainty to awards.
It is vital that insurers and the courts system now adhere to the new award levels established by the Guidelines, so as not to undermine the success already achieved. The use of PIAB by insurers and claimants is also vital.
PIAB is an independent statutory body under my remit. It assesses claims for compensation arising from personal injuries sustained because of a motor, workplace, or public liability incident. PIAB provides a fair and transparent assessment process in which personal injuries claims are resolved in a straight-forward and efficient way.
The model is a positive one for society as it delivers compensation more quickly, with lower costs and predictable outcomes. Central Bank data shows the average settlement time for injury claims through PIAB was 1.8 years compared to 4.5 years through litigation. PIAB is also much more cost effective.
The average legal costs for Employers Liability claims (under €100,000) settled via PIAB was €562 versus €18,290 for a litigated claim, despite the average compensation being similar.
The PIAB process is much more cost effective and efficient than litigation. So, I am now progressing a Bill to increase the number of personal injury claims resolved by the Board without recourse to litigation. My Bill which I intend to enact this year will establish PIAB as a new and enhanced Personal Injuries Resolution Board.
Central to this will be the introduction of mediation as a new service to resolve personal injury claims. Where the parties do not consent to mediation the existing process in respect of assessment of a claim remains.
We know the cost of claims is a large driver of insurance premiums. This Bill will increase the number of claims settled through an enhanced resolution process and reduce the cost of claims. This will impact positively on the cost of insurance, which is vital for so many groups across our country.
The Irish insurance sector has seen considerable volatility in recent years, which has impacted both domestic prices and our international reputation. One of the objectives of the Action Plan is to mitigate these cyclical dynamics, thereby bringing certainty and stability to the market and customers.
We have acted decisively to tackle fraud by introducing the Criminal Justice (Perjury and Related Offices) Act making perjury an offence for the first time, and separately establishing the Insurance Fraud Coordination Office within our police force - An Garda Síochána -which will allow for uniformity in the reporting and processing of cases of suspected fraud, as well as offering enhanced support to fraud investigations.
Ireland is also leading the way in the EU by banning the practice of ‘price-walking’, an action which was recently taken by the Central Bank of Ireland. This is something I welcome, as it removes the ‘loyalty penalty’ imposed on some customers and contributes to a fairer and more equitable insurance market, while still allowing insurance companies to offer discounts to consumers.
It is Government’s central expectation that insurance companies will pass on savings achieved because of the Guidelines, and other reforms, to customers in for form of reduced premiums.
I am pleased to report also that the majority of the 66 actions in the Plan have been delivered, and I expect the major remaining elements of the Action Plan to be completed by the end of this year. Our focus is now firmly on completing the reform agenda within the next few months, particularly in principal action areas such as reforming duty of care legislation and strengthening PIAB.
Government will continue to engage with the industry to gauge the impact of these reforms and will monitor their effects through the National Claims Information Database (NCID). This is a valuable tool for policymakers as it provides granular data on market developments; the transparency this offers is unavailable in the rest of the EU.
The most recent NCID report on Employers Liability/Public Liability and commercial insurance contains a great deal that is encouraging. It demonstrates that 57 per cent of all ‘packaged’ policies had a premium of less than €1,000 and 92 per cent had premiums less than €5,000. It also illustrates that settlements reached through PIAB are both faster and have much lower legal costs than those settled by litigation, despite there being minimal variance between award levels.
All of this shows that, despite the negative publicity that insurance frequently attracts, the bulk of the market here functions well for most customers. It is important not to overlook this fact and to acknowledge it.
At the same time, I am aware that there are a number of market ‘pinch-points’ that are struggling with accessibility and affordability of insurance. These tend to be small areas in high-footfall and public-facing sectors, which face a high volume of low-value claims. We have seen that group insurance schemes can help alleviate these problems, as they offer levels of premium and centralised risk management that can attract insurance providers.
I would also expect that the upcoming reform of the duty of care will help to unlock more insurance capacity, given that it will address the issue of ‘slips, trips and falls’ that are so prevalent in these areas.
As risk managers in both insurance and industry, I know that you will appreciate the difference that this will make, both to underwriters and to consumers. Insurance providers have already noted that their risk appetites are expanding and that they are exploring providing cover for sectors that had proved problematic in earlier years – again, an indication that Government reforms are working.
To conclude, the Government reform agenda has achieved some notable successes, as I have outlined. Time will be needed for the reforms to ‘bed in’ and the effects to fully work through the market. This is particularly true of the Personal Injury Guidelines and the upcoming overhaul of the duty of care. It is important to safeguard this progress and I would like to assure you that Government will take whatever action is necessary to protect them.
Before I hand back to Julia, I want to thank her again for the invitation to today’s event. I hope the panel discussion and break-out sessions on insurance, risk and captives prove to be fruitful and that the rest of the forum is a success.