To Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach.
FBD is the local Irish insurer. We are part of and embedded in Irish communities, with branches located in cities and towns throughout the country. Insuring farms and small businesses, is our business. They are critically important to us and represent 85% of our turnover, in premium terms.
It is our job to be there when things go wrong. We in FBD have a proud and long tradition, spanning more than 50 years, of paying claims and looking after our customers when things go wrong.
From 2014- 2016 FBD was making a loss. It is in our customers’ interest that we have stabilised and returned to making a profit. To stand by our customers and pay our claims, we must be stable and profitable. We have stabilised through taking a raft measures, including charging more to our customers.
The cost of insurance is too high. It is affecting our customers’ ability to do business and that affects us. While a lot has happened in the attempt to address the cost of insurance but not enough has changed.
With the permission of this Committee, I would like to share with you FBD’s insights into why this is the case and what we believe needs to change
Firstly, I’d like to summarise what is causing the high cost of insurance, at its essence: -we are having too many claims and those claims are costing too much.
In too many claims:
- People are overly willing to make a claim; and
- Advisors are too encouraging of people to make a claim
Those claims are costing too much:
- Compensation pay-outs are simply too generous; and
- Costs for reaching pay-out decisions is too high
To address the root cause of high cost insurance, all roads lead to our adversarial legal system.
The legal system dictates the level of award; it sets the ‘market price’ that determines the level of all awards both in-court and out-of court. This system creates a vicious cycle: high pay-outs with no downside encourage claimants; and high legal fees encourage certain solicitors and barristers to take and make the case.
The legal system is difficult to reform and resistant to change. This is why we have little progress on lowering legal costs. There is little motivation to change the system; practitioners have little to gain and much to lose. I would go further and say I believe:
- Firstly, we do not recognise our legal system as the root cause of the problem; and
- Secondly, we do not have the capability, or at least have not demonstrated the capability, to fundamentally reform the system.
Litigation is always expensive. Allow me to share with you how costs spiral as a consequence of this system.
Take as an example a ‘soft tissue injury’ from a low impact collision; meaning there was little or no damage to the car; the occupant has a sore neck; remembering ‘soft-tissue injuries’ comprise about 80% of ourinjury costs; and it is the kind of injury that some other jurisdictions do not recognise or at least pay little or nothing for.
Normally it will take at least 3 years and up to 5 years, (or more), from the date of the accident until the case is heard in court. Time drives award levels and incurs legal costs.
The Injuries Board assess the injury 12-18 months after the accident based on a medical report that gives a 6 month prognosis. But the majority of claimants will report pain right up to their day in court, 3 to 5 years later. The judge will make an award based on 3-5 years of pain.
The key insight is that, the level of award is based on the length of time a claimant is complaining of pain, as opposed to the amount of pain they actually feel. Compensation is more a function of time than of suffering.
Court awards, determined later than the Injuries Board, are higher. Costs are significantly higher. There is major incentive to bring the claim to litigation; to this legal system involving high pay-outs and high costs.
Claimants win; but Lawyers also win, taking approximately. 40% of the settlement in costs;
Insurance customers and businesses lose; society loses.
FBD has publically stated what we believe must be prioritised; FBD’s key recommendations remain outstanding or remain a work-in-progress:
- Lower the level of awards
- We know its 5 times higher in Ireland for claims <€100K;
- why do we pay 4-5 times more for soft tissue injuriesthe UK: where attempts are already underway to reduce soft tissue claim settlements?;
- we need to recalibrate claimants expectations
- The proposed Judicial Council redrafting the Book of Quantum can be the vehicle, but awards and soft tissue injury awards in particular, need to be significantly lower. We also need the consistent application of the resultant new Book of Quantum.
- I also believe we must cap costs to set the ceiling on judicial discretion; what one might call a ‘front-stop on the legal system’s generosity’.
- We need a standardised objective approach to assessing ‘whiplash’; a measure of the pain that is not linked to the time it takes to settle the claim, as recommended by Personal Injuries Commission’s (Nov 2017) [the WAD grading system (Whiplash Associated Disorder from the Quebec Taskforce)
- Claimants should be obliged to cooperate with the Injuries Board and have a meaningful disincentive for not doing so
- We need a more efficient process leading up to and in litigation; if PIAB reform is effective only a very small percentage of cases should ever see litigation
- Insurance companies need to be more transparent and publish premium levels
- Insurance companies need to work harder on fraud – we need to be allowed to share data
- We need to establish a dedicated insurance fraud investigation unit within An Garda Siochana
In a nutshell, we need to build momentum and drive home meaningful reform of the legal system.
Oireachtas engagement in relation to insurance costs for small and medium-sized businesses
FBD’s CEO, Fiona Muldoon, has said:
“Irish society can either have high injury awards or cheap insurance. We cannot have both.”
As the legislature, you have the sole ability to help deliver what is to the greater benefit, for most in our society.