Address by Mr. Noel Treacy T.D., Minister for Science, Technology and Commerce at the Annual National Conference of the Insurance Institute of Ireland in the Corrib Great Southern Hotel, Galway, Friday, 19th May 2000, 9.00 am

I would like to thank the Insurance Institute of Ireland for inviting me to deliver the opening address to your annual national conference. I am always happy to accept invitations to speak in this historic city, where I am delighted to see that the benefits of the growth in our economy are showing to such advantage.

I would like to congratulate the Insurance Institute on what I understand was another successful year of providing for the academic needs of the Insurance Industry to equip it to keep apace of developments. The Insurance Institute has excelled in ensuring that those working in Insurance are educated, trained and highly motivated to provide a quality service to the consumer. I also wish to extend my personal thanks to the Institute for devising a Programme of Training for the staff of the Insurance Section of our Department of Enterprise, Trade and Employment as a preparation for, among other things, the planned transfer of regulatory functions to the Single Financial Services Regulator.

My theme this morning is “The Opportunities and Threats - perhaps challenges would be a better word - that will face the Insurance Industry in the Future”. When we look at the environment in which this industry works, we may remark the radical transformation which has occurred through gradual change.

It is hardly necessary to mention the transformation of our national economy, which has brought great prosperity, but also a shortage of skilled staff, so essential to this as to other industries. Clearly, this represents both a challenge and an opportunity to the Institute itself, which will, no doubt, see a greatly increased demand for its services in the coming years.

The completion of the Single Market in the European Union, together with the acknowledged high standards of our solvency regulation, has provided the opportunity to develop a new financial services industry in Ireland, based in the International Financial Services Centre in Dublin. As a result of this, we have seen the numbers of insurance companies supervised by our Department increase by 66% since 1995. These companies have made their contribution to the present state of our economy and continue to grow the business that they write throughout the European Union. I would argue that they have been the pioneers of the Single Market for financial services. This has not always been easy. The great diversity of language, culture and expectations that is such a feature of the European Union has presented challenges to all of these companies which they have met willingly. The advent of the Euro in 2002 will eliminate some of the costs and difficulties for these companies.

It will also improve their competitive position since for the very first time it will be possible to compare costs across the EU. This should work to the advantage of these highly competitive companies. I hope that the experience and insights gained in these companies through this endeavour will filter through to those companies now writing business here in Ireland and promote product and customer service innovation on the Irish market itself.

While experiencing this local growth, we have seen the number of large players on the European market contract quite dramatically in a wave of mergers and take-overs. Not only have we seen insurance companies merge, we have seen the creation of very large financial services groups. The size and complexity of such groups present to us, the regulators, enormous challenges. These, of course, have left their mark on the players on the Irish market. This contraction gives rise to concerns for consumers, lest it result in a diminution of competition and of consumer choice. There are two areas which are particularly sensitive - motor insurance and employers liability. I believe that we must rely largely on competition to moderate the price of both motor and employers liability insurance. However, repeated studies have shown that there are issues particular to an Irish view of things, which affect the price of these insurances beyond competition. We know that in personal injury cases, costs in Ireland tend to be higher than in any other EU country. There are two reasons for this. One is that we award higher amounts to claimants for “pain and suffering”. I do not believe that there are good grounds for interfering with this. This reflects the values of Irish society.

However, the cost of delivering personal injury compensation appear to be higher in Ireland than in other member states. The MacAuley Group, set up to examine the establishment of a Personal Injuries Tribunal, very recently has made its final report to me. I am examining that report at present and I hope to bring proposals to Government fairly soon which will reduce the costs of delivery of personal injury compensation. Moreover, the Motor Insurance Advisory Board is also researching issues surrounding the cost of motor insurance and keeping me constantly advised. However, I reiterate - a competitive market is the best way to maintain consumer choice and moderate prices.

To provide a competitive market we need new insurance players on the Irish market. I therefore welcome the prospect that more European companies will seek to write insurance on our market. The advent of the Euro in 2002 may make entry onto the relatively small Irish market a more interesting prospect for EU insurers. I would encourage Brokers to grasp this opportunity to facilitate more competition on the market. This was in my mind when I rescinded the cap on commissions last year. I, for my part, will seek to minimise any other unnecessary barriers to the entry of such competition. However, this must always be consistent with the need to protect consumers and with solvency requirements.

E-commerce is another potential source of competition. I would urge consumers to take the opportunities which E-commerce offers, always being vigilant that they are dealing with insurance companies whose solvency is tested to the standards of international best practice.

I realise that while new competition on the market is good for consumers, it will represent a challenge to those presently writing business here. However, I am confident that the Irish industry, which has always had to face a competitive market, will have no difficulty meeting this challenge. Indeed, this is an opportunity for the insurance industry to develop strategies, such as quality customer service, which might provide a springboard to other markets in due course.

To return to our assessment of the insurance environment, another change has come about through the greater expectations and assertiveness of consumers. People are no longer prepared to accept what is given to them. They now have the confidence to question and to demand higher standards. They also have the freedom through both the telephone and the internet to shop around more widely than ever before.

After 2002, the barrier of comparing prices through exchange rates will disappear. It will be possible for an Irish consumer to truly compare prices across the whole euro zone. All of this will necessitate a new approach to consumer protection, with the emphasis on empowerment rather than protection, especially in the areas of the regulation of intermediaries and disclosure.

To summarise, then, our economy is doing well, the insurance industry has developed the capacity to expand its business in Europe and beyond. Contractions in the number of insurers may reduce choice to consumers but new players may become active on the Irish market thanks to the Single Market and modern technology. The nature of the insurance industry is becoming more complex and consumers are demanding a much better service than in the past.

The radical shift in the environment demands a response from all of us involved with the insurance industry. For my part, I have two major concerns. One is to ensure that the supervisory regime continues effectively to supervise the solvency of companies so that consumers may confidently purchase the products of insurance companies.

To achieve that, we need a supervisory system which is addressing the present and future realities of the market and is adaptable to further change. My other concern is to provide a competitive market for insurance where the consumer is able to make informed and rational choices and deal confidently with intermediaries.

As you know, this Government has an ambitious programme for achieving both of these two aims. The establishment of a Single Regulator will proceed as soon as informal consultations between my Government colleagues, the Tanaiste and the Minister for Finance as to some of the details have been completed. Without committing the Single Regulator to anything at this stage, it is reasonable to foresee that there will have to be a review, if not an overhaul, of the present solvency regime. This will be driven by a number of forces. At EU level there is a growing recognition of the need to close any potential gaps in the supervision of companies which are part of a larger and more complex group. The Groups Directive partly addresses this in respect of insurance groups. But what of cross-border groups? What of financial conglomerates comprising both banking and insurance entities? Moreover, the International Association of Insurance Supervisors, which represents supervisors from all over the world, are developing international standards, which we will be anxious to comply with, if not exceed.

The development of the financial services market here in Ireland means that we must question whether the system which has served us so well up to now is still appropriate in changed circumstances. All of this argues for at least a thorough-going review of our solvency systems by the new Regulator.

All of this, of course, is in the future. The Government’s programme also provides for profound change here and now. The instruments of these changes are, of course, the Insurance Bill and the proposed Disclosure Regulations. Firstly, can I refer to the current regulation of insurance intermediaries. The existing legislative basis for the regulation of insurance intermediaries, as we know, is provided by Part IV of the Insurance Act of 1989 which provides a system of self-regulation by the insurance industry itself. In addition, protection for the clients of insurance intermediaries is also provided by the Investor Compensation Act of 1998 in the event of default by the intermediary.

I think that we are all aware that the self regulation approach has fallen somewhat into disrepute because of some high profile failures of intermediaries in recent years. While the system was not responsible for these failures, we all have to accept that these failures did highlight some weaknesses in the approach. In any case, the critical issue was the loss of public confidence in the self regulation system. Accordingly, the Insurance Bill of 1999 provides for a fundamental change in the regulation of insurance intermediaries. It brings to an end the self-regulation system and provides for the transfer of regulatory responsibility for insurance intermediaries to the Central Bank of Ireland. This responsibility is exercised under the Investment Intermediaries Act of 1995 which empowers the Central Bank to exercise a robust regime of regulatory and enforcement supervision. The impact of the Insurance Bill, when enacted, will be to bring all insurance intermediaries within the same regulatory regime as investment intermediaries under the remit of the Central Bank of Ireland.

I know that the Central Bank are preparing themselves well for the transfer of responsibilities and have had fruitful consultations with the Irish Brokers Association and the Insurance Industry Compliance Bureau. The professional bodies also remain in communication with officials of our Department. I know that there are some concerns among intermediaries, especially those individual brokers and agents who provide such a valuable service in towns all over the country, about the proposed changes. I believe, however, that they have nothing to fear. On the contrary, the resulting boost to consumer confidence will be to the advantage of both agents and brokers.

Obviously, aspects of the regulation of intermediaries will be a matter for the Central Bank in the future. With that caveat, I would like briefly to address the issue of training and qualifications. My main concern is that the public be served by well informed and competent intermediaries. Anything, whether formal training, qualifications or experience, which contributes to that is welcome. I am not convinced that it is necessary to make formal training or qualifications compulsory. However, the regulators, whether our Department or the Central Bank, will keep this under review. I would expect that even in the current labour market, the insurance industry is observing the highest standards of training to protect its good reputation and to maintain consumer confidence.

Another feature of the Insurance Bill is that it provides me with powers to make disclosure regulations requiring insurance undertakings and intermediaries to make relevant information available to consumers.

The regulations which I intend making later this year, after the enactment of the enabling legislation, are intended to enable consumers to shop around and make an informed and rational choice as between various insurance products. Thus we move from consumer protection to consumer empowerment.

In the early part of my address, I reviewed the current environment. If we turn our eyes now to the future, what do we see? We see Ireland participating ever more confidently in the European Union. The transition to the Euro in 2002 will give a renewed impetus to that process. That participation will have ever more significance for our citizens, whether as producers selling our products and services on that market or as consumers benefiting from the extensive competition on that market. Our job in Government is to to do what we can to make it possible for both producers and consumers to fully avail of the many opportunities offered by the EU. Current and future legislation is designed to do just that. I am confident that the insurance industry represented here today will respond to the challenges which this future contains, delivering a quality customer service to all of its policyholders throughout the European Union. The Insurance Institute has a crucial role to play in the industry’s response. It is clearly well placed, organised and ready to take up this challenge. I salute you all on your great work to date and I wish you all every success in the exciting years ahead.