Minister Michael D’Arcy Opening Conference Address to Brokers

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 21^st October 2018.  The event was kindly supported by Willis Tower Watson.

Below is a copy of the Minister’s speech on the day which covers his department’s update on some key areas for Brokers including Insurance Reform in Ireland; Cost of Insurance Working Group; National Claims Information Database; PIC Report; Law Reform Commission Analysis; IDD and CP116 and consultation paper; The Economy and Brexit.

Brokers Ireland would like to thank and acknowledge the Ministers attendance at this week’s Conference.

Introduction

‘I would like to thank Brokers Ireland for inviting me to Croke Park this morning.  Events like this present a welcome opportunity for engagement between stakeholders and for the sharing of ideas.

Today’s conference programme looks very topical and one which I think all attendees will find relevant, with the matters up for discussion ranging from GDPR and cyber security to Brexit and Fraud.

For my part, as Minister of State with responsibility for International Financial Services and Insurance Policy, I would like to take the opportunity to update you on the progress being made on reform in the Insurance sector.

Insurance Reform in Ireland

I am very conscious from my own personal experience and from my engagement with stakeholders of the challenges many small businesses are facing with regard to the cost of insurance, sometimes even the availability of cover in the first place, and the handling of insurance claims.

The impact of increased insurance costs has brought the short-term survival of their businesses into question.  For others, it has meant that they have been unable to plan for the future through further investment in their business, because the money instead has had to be used to meet large premium increases.

Other concerns which have been raised with me include the difficulty in getting or renewing cover in certain business sectors;

The size of awards in this country compared with the UK which has been confirmed by the recent Personal Injuries Commission Report;

Frustration with the inconsistency of personal injury awards levels, including the view that insurance companies can sometimes settle questionable claims too quickly;

The legal or other costs in challenging claims through the courts process; a perception that fraud and exaggerated claims have been increasing in recent years; That there is no consequence or risk to taking such a claim, and the need for the role of PIAB to be developed further.

In this difficult environment, I think it is important to acknowledge the role that brokers play in trying to find the best insurance product at the best price for your clients. This is particularly relevant in the complex world of business insurance where a range of different type of cover including property, public liability and employer liability cover are often required.

Your experience and knowledge of the market is vital to your client’s best interests, as without it, I suspect the difficulties that many businesses face at the moment would be significantly worse. It is not an easy time to be engaging with insurers!

Progress Update on Cost of Insurance Working Group

The work of the Cost of Insurance Working Group has been ongoing since 2016. Its mandate has been to examine the factors contributing to the increasing cost of insurance and to identify measures to reduce this cost, taking account of the requirement that we maintain a financially stable insurance sector.

A great deal of work has already been done in implementing the recommendations of both reports.  However, it is also important to point out that recommendations which require legislative change, or which are of a very significant nature (such as for instance the National Claims Information Database, or the database on uninsured drivers) have taken longer than originally anticipated because of all the preparatory groundwork that has needed to be carried out in order to ensure that such arrangements will function effectively.

For those who would like to know more on the current state of play of each individual recommendation, they can follow the quarterly updates which are published on the Department of Finance website.

The most recent of these, the seventh quarterly report, was published earlier this month and it shows that 62 of the 78 actions with deadlines which have fallen due to date are complete. Some of the notable actions completed this last quarter include:

• The enactment of the Insurance (Amendment) Act 2018 to revise the system on compensation following the liquidation of an insurance company
• The agreement of new set of guidelines in respect of the reporting of suspected fraudulent insurance claims to An Garda Síochána by the insurance industry
• Progress by the Minister for Justice and Equality on the bringing forward of amendments to the Civil Liability and Courts Act 2004 and
• The delivery of a report on the feasibility of a claim-by-claim register.

Looking forward into this quarter and the New Year, I will limit myself to the progress on three key points.

National Claims Information Database

First, the National Claims Information Database is likely to be of interest.  I can confirm that the Bill which will underpin the Database completed Second Stage in the Dáil in September and is scheduled to undergo Committee Stage on  Thursday 29 November.  It is hoped with the support of those in both Houses that this Bill can be progressed as soon as possible.

In this regard, the Central Bank is working in parallel with the legislative process to develop a data specification which sets out the information to be required so that it can hit the ground running with establishing the Database on foot of the approval by the Oireachtas of the legislation.

It should be noted that the Government has also agreed to use this Bill to introduce a number of Working Group recommendations under the remit of my colleague the Minister for Justice and Equality as amendments to this legislation at Committee Stage.  These are important amendments, and are intended:

• to ensure defendants are notified of a claim having been lodged against their policy and
• to allow for the Court to draw inferences from non-compliance with requirement to lodge the verifying affidavit within the 21-day period.

PIC Report

Second, I welcome the positive response to the recent publication of the Personal Injuries Commission (PIC) Report.  It is said that there is a close connection between award levels and associated costs and the cost of insurance.  Therefore, if we can get claims costs down and maintain them at a consistent and predictable level then premiums should also reduce accordingly.

You may recall that the first PIC report recommended that the Personal Injuries Assessment Board (PIAB) “produce information going forward relating to the incidence of ‘whiplash’ soft-tissue injuries.”  As many of you will have seen, at the start of this month, PIAB published data on whiplash-related injury compensation awards resulting from road traffic accidents in Ireland.

This data highlights that the average PIAB award for a whiplash case was €18,581 in general damages (pain and suffering) plus an additional €1,456 in special damages (payments for medical expenses, loss of earnings etc.).

This ties in with the benchmarking exercise that was carried out by the PIC and the results of which are included in the Second PIC Report.  That Report found that, on average, the amount paid out in Ireland for whiplash type cases was 4.4 times higher than that for similar injuries in England & Wales.  While it is not a race to the bottom, I believe that an adjustment is required.

In summary therefore, I believe that it is crucial to the reform of the insurance sector that the recommendations of the PIC are prioritised.

The most pressing of these, in my view, is the enactment of the Judicial Council Bill which will allow for the proposed Judicial Council to compile guidelines for appropriate general damages for various types of personal injury.

This Bill, which is currently awaiting Committee Stage in Seanad Éireann, is a legislative priority for the Government.  I am informed by the Department of Justice and Equality that the intention is to make significant progress towards the enactment of the Bill by the end of this year.

Capping damages – Law Reform Commission Analysis

Related to this is the recommendation in the Employer/Public Liability Report to request the Law Reform Commission to explore the possibility of developing constitutionally sound legislation to cap the amounts of damages which a court may award in respect of personal injuries.

I have been advised that the Law Reform Commission has confirmed that the issue is included in its draft 5^th Programme of Law Reform which is due to be finalised by the end of the year.

CSO Figures

With the continued implementation of the Cost of Insurance Working Group’s recommendations, I believe that we will continue to see a reduction in the cost of insurance.  In that regard, I note that the most recent CSO figures report a 22.9% reduction in the cost of motor insurance from its peak in July 2016.

I appreciate that these figures represent a broad average, and that some people are still seeing increases, however we have to recognise that these are the same figures that showed the large increase that many commentators regularly reference.

Therefore, I think it has to be recognised that the overall trend currently is downward, which is welcome.

Insurance Distribution Directive and Intermediary Inducement CP116 Consultation Paper

I am very conscious that the regulatory landscape across the whole financial services area including the insurance intermediary area is constantly evolving.

I acknowledge that this poses challenges for your sector in particular, as it can be hard for smaller brokers to keep up with the increased demands being placed upon them by the requirements of EU law such as the Insurance Distribution Directive, or IDD.

Nevertheless, the intention behind this general direction of travel is to increase protection for consumers in particular, and in my view this is generally warranted.

Commission/inducement based sales have been a hot topic in the EU and certain Member States for some years now and following on from the IDD and MiFID implementation, the Central Bank held a public consultation on the payment of commissions to intermediaries between November 2017 and March this year – also known as CP116.

The Central Bank have informed me that a total of eighteen responses were received. The Consultation Paper proposed enhancing protections for consumers when seeking advice from financial intermediaries.

This includes proposals for stricter rules on how intermediaries can be paid commission or other inducements by the firms whose products they sell.

The Central Bank has yet to publish the responses to the consultation, as it is still considering them. I understand that it does, however, expect to finish its work and publish revised rules in this area early next year.

It is important to be aware that should the Bank decide in principle to proceed with implementing these CP116 proposals in the Consumer Protection Code, it is required to first consult with the Minister for Finance under the Central Bank Acts.

The Economy

I might turn now to wider issues of interest to you, specifically the economy and Brexit.  On the economy, the recovery is continuing at a robust pace.  GDP grew by 7.2 per cent in 2017 and GNP increased by 4.4 per cent.

I would stress that while the headline GDP figure can be exaggerated in an Irish context, other indicators such as consumer spending, employment and unemployment trends along with taxation receipts confirm the strong recovery.

GDP is forecast to expand by 7.5 per cent this year – although growth is expected to continue to be inflated by statistical factors including inter alia exports linked to intellectual property.  GDP is forecast to grow by 4.2 per cent next year.

There are now more people working in Ireland than ever before.  This employment growth has been broadly balanced across most sectors measured by the CSO and is clearly evident in the IFS sector.

Brexit

On Brexit, everyone here will appreciate that this remains one of the biggest challenges facing us in the coming months.

Last week, the EU’s Chief Negotiator, Michel Barnier, informed the European Council that significant progress had been made in the withdrawal agreement between the EU and the UK.

This is a positive development, albeit against the background of our regret that Brexit is taking place.  The solidarity of our EU partners and institutions has been unwavering and our commitment to our EU membership is stronger than ever.

Crucially, we can confirm that the backstop arrangements in the draft Protocol on Ireland and Northern Ireland guarantee that there will be no hard border on the island of Ireland in any circumstances.

The finalised Agreement also secures transition, which is hugely important in giving certainty to citizens and businesses.  There is also agreement on the rights of EU and UK citizens, as well as on the financial settlement, which is extremely important for protecting current EU budgets.

We hope that we can now look ahead to the future relationship and focus on the considerable work that is required to agree it. It is very welcome that in the draft outline of the Political Declaration on the future EU-UK relationship, both sides express the hope that it should be as deep and comprehensive as possible.

We are not yet at the end of the road, there is further work ahead. It should be remembered that EU and UK negotiators have worked long and hard to get to this point. The EU approach throughout has been to develop a fair and generous offer for the UK and the finalised Agreement is the likely limit of what the EU side is prepared to agree.

We continue work to prepare for the UK’s exit.  Even with the best possible 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, for our citizens and our businesses.  We will continue our preparations for all scenarios.

Concluding Remarks

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 ideas on insurance reform and the sector in general.  I am sure you will all have an informative and engaging morning’.

21st November 2018