Minister Michael D’arcy Conference Address to Brokers Ireland Members
Tue Nov 26 2019
Brokers Ireland Annual General Conference
Speech for Minister of State at Brokers Ireland Annual General Insurance Conference, Croke Park 20th November 2019
Brokers Ireland were delighted to welcome Minister of State Michael D’Arcy (Public Expenditure & Reform with responsibility for Financial Services and Insurance) who delivered the opening address at Brokers Ireland Annual General Insurance Conference in Croke Park on Wednesday 20th November 2019. Below is a copy of the Minister’s speech from the day which covers his department’s update on key areas for Brokers including Brexit, the Cost of Insurance Working Group; the Personal Injuries Commission; Intermediary Inducement CP116 Consultation Paper and other industry areas that the Minister has been actively engaged on over the last year.
‘I would like to thank Brokers Ireland for inviting me to Croke Park this morning. It is my pleasure to open the conference today. Events like this present a welcome opportunity for engagement between stakeholders and for the sharing of ideas.
Today’s theme of 20:20 vision for Brokers’ is very apt, given the changing environment facing brokers in Ireland today as we head into a new decade. There is a lot going on at the moment, including changes in the regulatory requirement, uncertainty surrounding the impact of Brexit and ever-changing technology trends. I appreciate that dealing with change of this type can be challenging, however, I hope that it will add to the resilience of the broker business and ensure that the important role you provide to consumers and communities throughout Ireland is maintained.
The UK’s departure from the EU will have serious implications for our economy, for businesses, for our citizens, and our future engagement with our UK friends.
The Government has always been clear that Brexit, in whatever form it takes, will have a negative economic impact on Ireland: there is no good Brexit. What is certain from the Department’s research, and other studies, is that the harder the Brexit the more negative the impact for Ireland.
In particular, a no-deal Brexit will result in weaker personal consumer spending as consumers engage in ‘precautionary saving’, while heightened uncertainty will likely hold back investment. There will also be a decline in net exports as a result of lower trade with the UK and increased global trade tensions.
While the economy will still grow, the impact of lower growth will be significant, particularly in certain parts of the labour market. New jobs will still be created but at a slower rate. The Department’s forecasts show 53,000 fewer jobs will be created over the next five years compared to a no Brexit scenario.
Given recent events in the UK and the ‘flextension’ granted by the EU, a disorderly Brexit in 2020 is less likely — although still possible — than it was only a few weeks ago. Nevertheless, any form of Brexit will have a negative impact on the Irish economy.
As a number of these threats to the Irish economy are beyond our control, the best way we can mitigate against these risks is through prudent budgetary policy and careful management of the public finances by focusing on competitiveness-oriented policies.
I want now to say a few words on what the Government is doing to mitigate and shield us as best as we can from the impact of Brexit. Since the referendum result in 2016, Brexit has been embedded in all of the Government’s economic decision-making, and in the management of our economy. At all times the Government has sought to protect our citizens and support the economy, enterprise and jobs.
Since the UK referendum, all of our national Budgets have been framed to prepare for the challenge of Brexit with dedicated measures announced in Budgets 2017, 2018, 2019 and 2020.
Brexit will also have a significant impact on trade with the UK due to trade barriers and lower demand from the UK. This will particularly affect indigenous exports and regional economies. Maintaining the closest possible trading relationship between the EU and the UK is therefore one of the Government’s key Brexit priorities.
We welcome that a deal has been reached between the EU and UK on a revised Withdrawal Agreement that has been unanimously endorsed by the European Council. Both sides worked hard, with real compromise, to achieve this decisive progress. Our approach will remain consistent in the Future Relationship negotiations – we want to see the closest possible relationship between the EU and the UK while also ensuring adequate level playing field provisions to facilitate fair competition.
Much now depends on developments in London. We hope that the UK will use the time provided by the extension to ratify the Agreement. This will ensure an orderly Brexit and avoid the serious disruption that a no deal UK exit would cause for the UK and for Ireland, North and South. However until the Withdrawal Agreement is fully ratified, the risk of a no deal Brexit remains and the Government has agreed that no deal preparedness work must be maintained.
It is clear that even with an Agreement, it is still the case that the UK is leaving the EU and this will bring change. It is important that Ireland is ready for that change, both for our citizens and our businesses. We will continue our preparations for all scenarios.
Until the orderly withdrawal of the UK from the EU has been definitively secured, the advice to all citizens and businesses remains to take the necessary steps to make sure that they are ready for all scenarios.
I would now like to take the opportunity to update you on the progress being made on reform in the non-life Insurance sector. I am particularly conscious of the difficulties being faced by certain consumers, voluntary groups and business sectors with regard to the price or availability of insurance, particularly liability insurance. Many of you are even more familiar with these issues being on the coal face of this problem.
The Cost of Insurance Working Group has made it clear from the outset that there is no single policy or legislative “silver bullet” to immediately stem or reverse premium price rises and that some of the necessary reforms will take time to implement.
The major constraints faced by any Government are twofold:
(i) Award levels are the prerogative of the courts and therefore for constitutional reasons, the judiciary cannot be directed as to the levels that should be applied; and,
(ii) Pricing levels are a commercial matter for insurance companies, and are determined based on the risks they are willing to accept. For legal reasons the Government cannot interfere in such matters as this is prohibited by the Solvency II Directive.
It was recognised, however, that there was much the Government could do to improve the general environment within which insurers operate, as well as laying the ground for a more long-term transformation of the insurance market through tackling issues such as award levels. This is the context within which the work of the CIWG needs to be considered.
The Working Group which was established in July 2016 has produced two reports – one on motor insurance and another on employer and public liability insurance. Some key achievements include:
- The establishment of the National Claims Information Database in the Central Bank (CBI) to increase transparency around the future cost of private motor insurance – the first report will be published shortly,
- Reforms to the Personal Injuries Assessment Board through the Personal Injuries Assessment Board (Amendment) Act 2019 to strengthen the powers of PIAB around compliance with its procedures;
- Amendments made to Sections 8 and 14 of the Civil Liability and Courts Act 2004 to align the timeframes by which claims should be notified to businesses with GDPR time limits on the keeping of CCTV footage to make it easier for businesses and insurers to challenge cases where fraud or exaggeration is suspected;
- Various reforms of how fraud is reported to and dealt with by An Garda Síochána.
The most important achievement of the CIWG was the establishment of the Personal Injuries Commission and the publication of its two reports, which included a benchmarking of award levels between Ireland and other jurisdictions for the first time. This showed that award levels for soft tissue injuries in Ireland were 4.4 times higher than in England and Wales. I believe addressing this differential and bringing award levels down significantly represents the single biggest challenge we face if want to both get the cost of insurance down and increase the availability of cover in certain sectors such as the leisure area.
The Government with the support of all parties in the Oireachtas prioritised the passing of the Judicial Council Act 2019. This Act provides for the establishment of a Personal Injuries Guidelines Committee upon the formal establishment of the Judicial Council. This Committee is tasked with introducing new guidelines to replace the Book of Quantum.
Work to establish the Judicial Council is well underway. In this regard, I am pleased to note that Minister Flanagan commenced the relevant provisions of the Act a number of months ago to allow all the necessary background work to be completed in preparation for its formal establishment. In order for the Judicial Council to become operational, Minister Flanagan will be required to sign a statutory order to this effect. This is expected to happen before the end of the year. As you will appreciate, I am very eager to have the Council and its supporting committees up and running as soon as possible.
With regard to the Personal Injuries Guidelines Committee and the subsequent publication of its new guidelines to recalibrate award levels and replace the Book of Quantum, it is a matter for the Judiciary to put in motion the necessary process to expedite these. The first important step required by the legislation is for the Chief Justice to make the necessary appointments to the Personal Injuries Guidelines Committee. I therefore welcome this week’s announcement by Chief Justice Clarke that he has designated the seven judges that will sit on the Committee. I understand that the designate committee will commence its activities on an informal basis shortly. I welcome this development as it demonstrates that the Judiciary are giving this matter the priority I believe it deserves. I also understand that PIAB has written to the Judiciary to offer its expertise and assistance for the purpose of this recalibration exercise, and the Cost of Insurance Working Group will do the same.
In addition and in light of all of the reforms that have taken place or are soon to take place, I expect that the comments made by a number of insurers at the Finance, Public Expenditure and Reform and Taoiseach Oireachtas Committee in July about the passing on of savings arising from a recalibration of award levels downwards will happen and both I and Minister Donohoe will hold them to account on that. I also note that this commitment was reinforced by Gerry Hassett, the interim Insurance Ireland CEO at yesterday’s Insurance Ireland Fraud conference, where he stated that if award levels are reduced, premiums will also fall.
In summary, I believe that the cumulative effects of all of the reforms we have made arising from the two Reports’ recommendations will lead to reductions in pricing in particular for small businesses and a more competitive insurance market and should ultimately make it easier for brokers to attract new underwriters to Ireland to make the insurance sector more competitive.
Now I wish to turn to regulatory requirements for intermediaries in Ireland. As I outlined last year at your conference, I am very conscious that the regulatory landscape across the whole financial services area including the insurance intermediary area is constantly evolving.
On the 25th September 2019, the Central Bank published new rules to be included in the Consumer Protection Code, arising from the Central Bank’s consultation paper ‘CP116’ intermediary inducements- enhanced consumer protection measures. In keeping with its mandate to protect the consumers of financial services, the Central Bank reviewed potential risks posed to consumers through the existence of commission arrangements between intermediaries and product producers.
The new rules set out to
- Require intermediaries to publish details of the commissions they receive from product producers on their website.
- In addition, the Central Bank will no longer permit intermediaries to describe themselves and their regulated activities as ‘independent’ where they accept and retain commission in circumstances where advice is provided.
- The Central Bank is enhancing the conflict of interest provisions- certain criteria must be met in order for commission to be acceptable and commission linked to targets that do not consider a consumer’s best interests, and soft commission will no longer be permitted.
These changes have been well signalled. Brokers Ireland have been at the fore in engaging with the Central Bank over the past few years on the impacts this will have on the broker market, as part of the overall consultation process. Indeed, I have met with Brokers Ireland, as have my officials, to hear your views.
I think it is fair to say Central Bank weighed up the responses to the CP116 consultation, including the responses from industry. It considered international precedents such as the approach adopted in the UK of banning commission for financial advice altogether. However, it concluded that this was not the route to take and instead developed what I think are a balanced set of rules for industry and consumers. Both I and the Minister for Finance support the approach adopted by the Bank. Whilst I acknowledge that these new developments poses challenges for your sector I believe ultimately, the added transparency they bring will have a positive effect on the sector as a whole.
The Central Bank will be supervising firms’ compliance with these new rules when they come into effect on 31 March 2020 and I acknowledge that Brokers Ireland will have a strong role in listening and advising their members with the implementation of these changes.
To conclude, insurance is a very topical issue for consumers and businesses. Problems with the affordability and availability of certain types of non-life cover are undoubtedly having a negative effect on the economy and society at large. The Government recognises this and this is why it is placing such a priority on its insurance reform agenda. I believe progress is being made.
There have been positive pricing trends in relation to private motor insurance premiums: the price of motor insurance is now (as of October 2019) 27.1% lower than the July 2016 peak. However, I am very aware that much more needs to be done and in this regard, the creation of new personal injury guidelines by the Judiciary cannot come quick enough.
In many ways you the brokers are the consumers champion as your expertise helps in trying to find the best insurance product at the best price for your clients. This is a difficult job in this constantly evolving world where people and businesses needs are constantly changing and I wish to acknowledge and applaud the excellent job that you do.
Finally, I would like to conclude by saying that I appreciate the opportunity to address this event and look forward to receiving your feedback and any you may have on the insurance reform agenda’.