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My Lords, this amendment follows on from the amendment tabled in Committee by the noble Lord, Lord Hunt of Wirral. I am bringing the House’s attention to a growing and deeply concerning problem in Northern Ireland’s insurance market. The market is shrinking in insurer capacity, it is becoming less competitive, and it is leaving consumers and businesses facing higher premiums and fewer choices. It is an issue that the British Insurance Brokers’ Association has been highlighting for some time, and about which it has been getting in touch with noble Lords and Members in the other place.
The evidence suggests that the root cause is claims inflation driven by various factors that are within the power of government and regulators to address. Let me be clear to noble Lords, especially to the Minister: I am not calling for a new, immediate regulatory regime without proper consultation. Rather, the amendment would provide the Treasury with a targeted enabling power, subject to consultation and affirmative parliamentary approval, to extend FCA regulation of claims management companies to Northern Ireland. They are, of course, currently regulated in Great Britain by the FCA.
I will give a brief backdrop to the amendment, which paints a very stark picture. In home insurance, brokers in Northern Ireland now have access to just six markets, down from 11 in 2020. In motor insurance, the number of available providers has fallen from more than 15 to just eight over the same period. As competition has reduced, premiums in Northern Ireland have continued to rise, even as prices in Great Britain have begun to stabilise or fall. In motor insurance, Northern Ireland consumers are being affected by premiums increasing year on year, and they are already paying much higher premiums compared with the rest of the UK. Of course, as noble Lords will know, access to public transport in Northern Ireland’s extensive rural areas is very limited.
Therefore, there is no regulation of claims management companies in Northern Ireland. This has led to many of them exercising poor practices, which in turn leads to inflated claims settlements and therefore higher premiums for consumers and businesses. As fewer insurers have a physical claims-handling presence in Northern Ireland, so the prevalence of CMCs has become more apparent. The number of CMCs has grown rapidly. We estimate that there are probably twice the number operating than a year ago, suggesting that it is a very lucrative enterprise. Adverts appear everywhere, pointing people to them if they have a car accident, et cetera. Of course, in GB, since the regulation came in, the number of CMCs operating has halved since 2019.
Another reason for the growth of CMCs is their attraction of higher personal injury awards in Northern Ireland, which makes it a lot more lucrative for them. The difference between Northern Ireland and England and Wales is striking. For whiplash, for example, in England and Wales a compensation of around £1,500 would be paid. In Northern Ireland, it could be up to £15,000 with psychological claims added on. Obviously, those higher awards feed directly into higher insurance premiums for consumers and businesses alike. In some cases, we see clear conflicts of interest. Vehicle hire, legal services and CMCs are brought together under the same commercial structure, creating clear conflicts of interest, with some CMCs operating various companies under different names but with the same overall ownership. Ultimately, these additional costs are paid by consumers through higher premiums.